I don't get how the example at the start works.
In the scenario where housing prices increase dramatically, buying costs $1.1 today. In the scenario where housing only keeps pace with inflation, buying costs $1.75M and renting costs $1.3M.
Why is renting in a world where we build a lot more housing somehow more expensive than buying in a world where we don't?
I think this writeup also doesn't meaningfully touch on the _end_ of the scenario, when it's assumed that Alice sells the home, and is again faced with the choice of where to live next, and whether to buy or rent. In the case where housing prices have increased substantially, she's realized a considerable gain, but all the other houses are also substantially more expensive, and that gain is all directed at paying for her own future cost of housing. I.e. even if you're a homeowner and you've gotten your home value to increase, you don't really get to realize that gain if you still need to live somewhere.
For that reason, I think the downside to building a lot more is less dramatic than this writeup suggests. If your particular home value drops because you're in an uninsurable flood zone, that's a problem. If _all_ home values drop, then your house can still be sold and used to buy another similar house. Yes, when you die your family will inherit a less valuable house -- but they will also be richer in the sense of having smaller housing costs.
It was presented in a confusing way, but it is accurate. Rent tends to move with housing prices. If the price of housing goes up, rent also goes up, and vice versa.
In scenario 1, buying cost $1.1 million today and saved $600k, meaning that renting cost $1.7 million.
In scenario 2 the house cost more and renting cost left making them about equal. We aren't given either number.
In scenario 3 the house cost $1.7 million and renting cost $1.3 million.
So you see that more houses = cheaper houses and cheaper rent. Fewer houses = expensive houses and expensive rent. Building housing is a tradeoff between wealth for homeowners and affordability for everyone else. For decades we've chosen wealth for homeowners and this is visible in everything from expensive houses to high rents to a huge homeless problem.
I think as presented this still can't be comparing things sensibly between these conditions.
> more houses = cheaper houses and cheaper rent
So why do we say that buying in scenario 3 costs ~$1.75M and buying in scenario 1 costs ~$1.1M? Everything in the preceding paragraphs makes it sound like her mortgage is fixed. In scenario 1, property taxes and insurance would be higher. Nothing should make scenario 3 more expensive to buy in absolute terms.
They were counting the present value of the buying decision. Which includes the present value of the resale 20 years later.
I have no idea if the calculator that they used factors in property taxes and insurance. But insurance averages something like $5k/year for $1 million of coverage, so does not significantly alter the prices. Whether property taxes do depends strongly on where you live. But generally it is much less than a mortgage.
Why is renting in a world where we build a lot more housing somehow more expensive than buying in a world where we don't?
I think this writeup also doesn't meaningfully touch on the _end_ of the scenario, when it's assumed that Alice sells the home, and is again faced with the choice of where to live next, and whether to buy or rent. In the case where housing prices have increased substantially, she's realized a considerable gain, but all the other houses are also substantially more expensive, and that gain is all directed at paying for her own future cost of housing. I.e. even if you're a homeowner and you've gotten your home value to increase, you don't really get to realize that gain if you still need to live somewhere.
For that reason, I think the downside to building a lot more is less dramatic than this writeup suggests. If your particular home value drops because you're in an uninsurable flood zone, that's a problem. If _all_ home values drop, then your house can still be sold and used to buy another similar house. Yes, when you die your family will inherit a less valuable house -- but they will also be richer in the sense of having smaller housing costs.