r/Economics • u/Hot-You-7366 • 17d ago

Tarriffs Increase New Build Prices, Existing Home Prices Increasing to Match, Rents to Follow. Inflation for Non-Owners. Owners Windfall

https://finance.yahoo.com/news/trump-tariffs-could-impact-housing-120156222.html

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u/Ateist 17d ago

This would be a great test whether housing in US is truly restricted by zoning or not.

If it is severely restricted by it, you shouldn't see any major increase in existing home prices or rents - land owners and developers would be forced to eat up all the tariffs, reducing their profit margins without affecting final prices.

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u/tpounds0 17d ago

If it is severely restricted by it, you shouldn't see any major increase in existing home prices or rents - land owners and developers would be forced to eat up all the tariffs, reducing their profit margins without affecting final prices.

Zoning decreases supply of housing while demand grows, raising prices.

Whether or not zoning is restricted would have no effect on inflation of home prices caused by tarriffs.

If you do not change zoning laws, prices will go up because of tarrifs.

My opinion as a YIMBY, is that we could mitigate some of that cost by upzoning and streamlining permitting.

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u/Ateist 17d ago edited 17d ago

Whether or not zoning is restricted would have no effect on inflation of home prices caused by tarriffs.

Imagine the following situation:

Town has a need for 200 homes that can be built at a healthy 20% profit margin without attracting more competition from developers outside of state.

Zoning allows only 100 homes to be built.
Prices increase till 100 buyers give up, to, say, 80% profit margins.

Tariffs come and increase costs by 30%.
A house that was sold for 1080 and cost 600 to build now costs 780 to build.
At current price this is still 38% profit margin, so the builders still build it - thus supply stays the same.
Demand is also the same, as people in that town haven't started earning more.

Law of supply and demand says that if supply and demand are the same, prices stay the same.

Thus, artificial restriction on supply can prevent change in home prices caused by tarriffs.

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u/tpounds0 16d ago

And you still have 100 homeless people in that town?

-1

u/Ateist 16d ago

Not necessarily homeless, but having to live with their parents/having roommates, etc.

So they have to delay decisions like "having children".

4

u/Dangerous-Sport-2347 17d ago

House pricing is cost of (correctly zoned) land + construction costs.

If the sum of those prices rise above what people can afford, developers will not eat the cost and sell at a loss, they will simply stop building. see: 2008.

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u/Ateist 17d ago edited 16d ago

Price of goods in capitalism has no relation to any costs - its only connection is through supply, which depends on many other factors.