> Suppose you built twice as many housing units as you had residents. Rents wouldn't decrease? Why not?
People make the same specious arguments about gpu production during mining booms etc. Surely producing more gpus will lower the price, or reduce the profit per gpu at least? Are you saying prices don’t fall with increased supply!?!? that’s a counterintuitive statement, Mr Bear!
it just also turns out to be a true one. Getting more people into the bubble etc, or building more hype around the bubble, often only drives the bubble higher even with increased supply. Macro and micro are different things and the forces can work very differently!
now, ponder the way we’ve turned housing into a bitcoin-style money machine full of people who never want the number to go down… yeah there actually is all sorts of counterintuitive and hazardous second-order effects involved in housing, why would you ever think there aren’t?
(The American housing market is basically the exact same kind of “deflationary asset” as bitcoin by design, in fact - if the system is built around the idea the number can never go down (can never be allowed to go down, in fact) that’s what you’ve got, regardless of any actual utility delivered in the process. We have turned housing into bitcoin instead of a place to live and that’s the overarching problem here.)
Maybe increasing the supply only increases the supply of luxury condos, which if they are all consumed by wealthy individuals might push housing prices upwards etc. Such activity could, similar to bitcoin, actually stimulate enough economic activity in an area itself to sustain upwards trajectory on pricing, or merely crowd everyone else out without prices actually dropping “on older condos” as everyone blithely handwaves. These effects are observable in real towns - Colorado mountain towns have a massive worker shortage yet no workers able to afford housing, so the area has been wracked with crippling labor shortages for multiple decades now! Markets are weird and inefficient in all kinds of exciting ways!
Basically economics 101 is barely sufficient for economics 101, and frankly every assertion you can pull from such content is somewhat incorrect and massively oversimplified, even one as simple as “prices will decline if production volume increases”. No, not always - and that’s not the only case I can think of where that simple, confident assertion is completely wrong, it’s not true of giffen goods either for example.
> Surely producing more gpus will lower the price, or reduce the profit per gpu at least?
But that is what happens. The issue with GPUs is that a) there are only a small number of companies that make them b) fab capacity has to be booked in advance, and c) they know it's a bubble, so they're not going to commit to buying a large amount of future fab capacity when it could pop at any time. So then they don't actually increase supply, and prices don't go down.
> Maybe increasing the supply only increases the supply of luxury condos, which if they are all consumed by wealthy individuals might push housing prices upwards etc.
Only in the sense that the average cost might increase because the average unit is now larger, not in the sense that the existing smaller units would cost more rather than less. After all, their occupants no longer have to outbid the wealthy individuals who have put their money into the new luxury units instead.
> Such activity could, similar to bitcoin, actually stimulate enough economic activity in an area itself to sustain upwards trajectory on pricing
The premise here is that if you make an area more attractive then more people may want to live there. But that's fine. Suppose building 10 units increases demand by 5 units. So if you need 10 more units, build 20 more units.
In some kind of hypothetical edge case or rare circumstance, building 10 units might increase demand by 11 units, but that is obviously not sustainable -- if you built 50 million units, there aren't 50 million people in the region to live in the city, so at some point it stops being true, if it even ever was.
> Markets are weird and inefficient in all kinds of exciting ways!
This isn't markets being weird. If prices are high then construction companies want that money, which they get by building new housing. Weirdness only occurs when regulations interfere with their natural market incentive.
Especially for nvidia, who have been badly burned by crypto bubbles going from 100->0 very rapidly in the past and ending up with massive oversupply of both used and new GPUs.
Especially given the AI people are buying dedicated business GPUs and not gaming ones like the crypto miners were, that's probably good news for gamers that nvidia haven't gone full bore AI only. If they were, it wouldn't make sense to spend fab time on a new series of gaming GPUs as they have leaked they're doing.
In the case of Nvidia, I don't think they see gaming GPU's and AI as being in direct competition with each other.
Continuing to also produce gaming products give a few advantages, besides simply to serve as something to fall back to if the AI boom turns out to be a bubble.
For instance:
- Having consumer GPU's out there has marketing effects and can also increase the population of developers who experiment with AI development.
- Consumer GPU's can be built with cheaper memory types (no HBM needed) and less efficient process technologies (like when the 30-series used Samsung's).
- Having an installed base of consumer GPU's out there allow AI companies to deploy AI products (inference) to edge devices.
- Related to the previous: In the future, AI technology, VR, gaming and TV/film may merge into a single entertainment class, with everything happening or being told in an interactive VR environment, complete with fully AI agents acting within. Having much of the processing power in the edge device may increase the quality of such experiences, and may cause consumers to be willing to significantly increase spending on such products.
>People make the same specious arguments about gpu production during mining booms etc. Surely producing more gpus will lower the price, or reduce the profit per gpu at least? Are you saying prices don’t fall with increased supply!?!? that’s a counterintuitive statement, Mr Bear!
That is not the argument. In your example, demand is increasing more than supply, so obviously prices would not fall.
Supply has to increase at a rate greater than demand (including higher property taxes to incentivize sellers to increase supply of properties for sale).
Yes, exactly. But sometimes a vast increase in supply actually induces additional demand by itself. Demand would not have increased by itself if you did not increase the supply, potentially even if the price increases.
Traffic lanes work this way, notoriously. It’s also fundamentally one of the mechanisms underlying Jevons Paradox.
Again, the practical example in real estate is Colorado mountain towns. Demand, supply, and prices all accelerate together, and this is particularly amplified because of the customer base in question not having any real price sensitivity etc, and then driving out the portions of the market which do have price sensitivity.
Like it or not, induced demand is a very real phenomenon, and in real estate and similar markets it observably does not always occur at a lesser price due to other positive feedback loops being induced. And you cannot “peel away” those effects separately - the price increase will not necessarily occur exogenously without the demand induction and vice versa.
Again, you’re trying to pick apart the “but that’s separate from the supply increase!” and unfortunately that’s not really severable. The demand increase wouldn’t have occurred without the supply increase. Jevons Paradox being real doesn’t mean gas prices will never go up, so to speak.
> But sometimes a vast increase in supply actually induces additional demand by itself.
Induced demand is a specious argument because the demand is not actually induced by the new construction, it's suppressed by its absence.
If you have traffic congestion, or a housing shortage, then people who would have used the road or moved to the city instead do something else. The normal amount of demand that would exist in a functioning system is suppressed.
If you then alleviate some of the shortfall, that demand comes back. But you haven't induced it, you've just stopped suppressing it through congestion or high prices.
The most important thing about this is that the amount of demand at the lower cost isn't infinite. It's just more than there is at the higher cost. What this means is that you thought you had a shortfall of 100,000 units but you actually had a shortfall of 250,000 units. What it doesn't mean is that you can't solve the problem by building more units -- you just have to build 250,000 rather than 100,000.
> Again, the practical example in real estate is Colorado mountain towns.
This is not a practical example because Colorado mountain towns are not fungible or reproducible. This applies to much of the western US that features amenities in very limited supply that cannot be increased, such as low humidity, tall mountains, surfing, and vast expanses of public land. So the US west will always be expensive, especially if you have an airport/Costco/Apple/Trader Joes nearby.
NYC has a similar dynamic, since no other US city will come close to having a comparable subway transit system.
But this would not apply to places that are relatively fungible and in greater supply, which include many metros in the southeast/midwest/northeast.
Induced demand is a thing, but the population of people is limited hence total demand is limited.
well, no real-estate is fungible, that's not an actual distinction between GP’s thesis and mine.
I don't think that's the fundamental/underlying dysfunction of the real-estate market, because the same induced-demand effects clearly exist in other areas. Again, things like Bitcoin pretty clearly demonstrate that supply can induce its own demand and then build a positive-feedback loop that would not have existed exogenously.
But regardless, it's equally true of the real-estate that both grandparent and I were talking about. If induced demand doesn't count because every real-estate parcel is a unique good, then you also can't ever compute a curve for price, because supply will never exceed n=1 either. Therefore the Law Of Supply and Law Of Demand do not exist in this universe and GP's assertions are still false.
I'm not sure that's a useful way to think about the world, clearly real-estate is at least somewhat fungible (people don't not buy an apartment because they lost a single bid) but if you want to use that model, grandparent's arguments are equally broken, for whatever value of broken you are asserting here.
The more useful analysis imo is that real estate is mostly actually not about real estate - it’s about community, economy, etc. And those are clearly things that are highly susceptible to induced demand. There is a near-infinite supply of beautiful mountain slopes, but that’s not really what people are buying homes in Vale or Breckenridge for. They are buying it for the social factors, which is effectively 100% pure induced demand in this context.
An interesting example of this phenomenon is the development of derelict neighborhoods. I used to live in an area which was re-developed from abandoned buildings and working class housing to a luxury playground. While supply was significantly increased, typical rents skyrocketed.
But what happened to prices in the areas the new residents moved from? Didn't it make them more affordable?
And what would happen to prices in the new area if you kept building, instead of stopping? Finding an inflection point in the curve and passing legislation forcing everybody to live inside it is no proof that there isn't a point higher on the curve where more supply reduces prices again.
People make the same specious arguments about gpu production during mining booms etc. Surely producing more gpus will lower the price, or reduce the profit per gpu at least? Are you saying prices don’t fall with increased supply!?!? that’s a counterintuitive statement, Mr Bear!
it just also turns out to be a true one. Getting more people into the bubble etc, or building more hype around the bubble, often only drives the bubble higher even with increased supply. Macro and micro are different things and the forces can work very differently!
now, ponder the way we’ve turned housing into a bitcoin-style money machine full of people who never want the number to go down… yeah there actually is all sorts of counterintuitive and hazardous second-order effects involved in housing, why would you ever think there aren’t?
(The American housing market is basically the exact same kind of “deflationary asset” as bitcoin by design, in fact - if the system is built around the idea the number can never go down (can never be allowed to go down, in fact) that’s what you’ve got, regardless of any actual utility delivered in the process. We have turned housing into bitcoin instead of a place to live and that’s the overarching problem here.)
Maybe increasing the supply only increases the supply of luxury condos, which if they are all consumed by wealthy individuals might push housing prices upwards etc. Such activity could, similar to bitcoin, actually stimulate enough economic activity in an area itself to sustain upwards trajectory on pricing, or merely crowd everyone else out without prices actually dropping “on older condos” as everyone blithely handwaves. These effects are observable in real towns - Colorado mountain towns have a massive worker shortage yet no workers able to afford housing, so the area has been wracked with crippling labor shortages for multiple decades now! Markets are weird and inefficient in all kinds of exciting ways!
https://www.rmpbs.org/blogs/news/breckenridge-historic-home-...
https://www.nbcnews.com/news/amp/rcna17970
Basically economics 101 is barely sufficient for economics 101, and frankly every assertion you can pull from such content is somewhat incorrect and massively oversimplified, even one as simple as “prices will decline if production volume increases”. No, not always - and that’s not the only case I can think of where that simple, confident assertion is completely wrong, it’s not true of giffen goods either for example.