NYT: Why Your Next Place May Cost More....

Wow, so desperate that he's resorting to posting articles months old that have already been dissected....

you need to recycle news, such as it is? and from the new york real estate times, no less.

http://streeteasy.com/nyc/talk/discussion/24684-why-your-next-place-may-cost-more

btw, i'm seeing all sorts of new and renewed development.

Yeah, crain's has covered a lot of restarted residential projects.

Material costs are up too. The Port Authority is already coughing up extra bucks for steel to be used in the new World Trade. Higher material costs do not reduce real estate prices they increase them.

broken record. you've been talking about steel prices for years.

say it after me, not all input costs can be passed on in the form of higher prices. your last sentence is nothing but supposition, with no facts to support it.

Nope.

Yes, commodities have gone up overall somewhat recently, but the residential-specific building costs were so high at peak and fell so much since that we're actually way under. Money Magazine print edition just last month noted 20-40% down.

*yawn*

"say it after me, not all input costs can be passed on in the form of higher prices. your last sentence is nothing but supposition, with no facts to support it."

And AR is right there too...

In the Manhattan market, sellers sell for the max they can get.... not what they think they should be getting based on input costs.

Ahahaha! FSteve! I'm surprised you havn't posted that yet:
http://www.time.com/time/covers/0,16641,20050613,00.html

same tiring issue we discuss re rents--which are based on what the market will bear

Hmm. Again economic nonsense by Riversider, monetaristic crap last extolled by Adam Smith (the input theory of prices).

RS, the price of goods is completely unrelated to the cost of producing them. If it were not thus, then all suppliers at all prices would completely sell out all of their goods, and demand would be infinitely inelastic.

The price of any good is a reflection of its usefulness - whether or not it gets produced depends on whether its cost of production is below what people are willing to pay for that usefulness. If you build a building and it costs you $3,000 per square foot to do it, there is no reason to believe that anybody will pay you $3,000 per square foot for it.

The skills involved in liposuction are not as refined as those for heart surgery, yet plastic surgeons make more money. Why, ONLY because people are willing to pay for the service, not because it costs more to produce it (which it doesn't).

steve your rental website must be raking it in these day$$$..

pimp those suckers

hi-five!

"The skills involved in liposuction are not as refined as those for heart surgery, yet plastic surgeons make more money."

I doubt a plastic surgeon doing only liposuction makes more than a heart surgeon, assuming they work the same number of hours.

"the price of goods is completely unrelated to the cost of producing them"

Really??? In what universe?

steveF, you would be more convincing if you do not appear so desperate. Potential buyers can smell your desperation.

Sunday you are wrong re heart surgeons.

To make this even easier.

Why does an investment banker make more than a heart surgeon?

Cost?

Heart Surgeon (Surgeon - Cardiothoracic $474,404 median; Surgeon - Heart Transplant $512,287 median)
http://swz.salary.com/SalaryWizard/Surgeon-Cardiothoracic-Salary-Details-New-York-NY.aspx
http://swz.salary.com/SalaryWizard/Surgeon-Heart-Transplant-Salary-Details-New-York-NY.aspx

Plastic Surgeon - $379,442 median
http://swz.salary.com/SalaryWizard/Surgeon-Plastic-Reconstructive-Salary-Details-New-York-NY.aspx

Median means nothing.

Particularly in this case.

Are you actually disputing that plastic surgeons can and d o make more money than heart surgeons ?

Or are you saying that they shouldn't?

And are you seriously suggesting that Salary.com is a credible source?

cc, are we comparing the highest paid plastic surgeon vs. the highest paid heart surgeon? If yes, then you are right.

Fair enough.

That's the point.

Compensation/price is not based on cost except for strictly commodity items.

And how d o you explain any investment banker making more than a heart surgeon?

cc, I do not want to be the defender of investment banker paid. I would GUESS that the reason is primarily due to the competitive nature of the job and the price tag of the transaction they are involved in.

Back to housing, to say that material cost in housing does not effect pricing is silly.

This statement is ridiculous: "the price of goods is completely unrelated to the cost of producing them"

Do you acknowledge that the margin to the auto companies on a percentage basis was far higher on trucks and SUVs than on cars?

Do you believe that the cost of building new housing was the driver for the increase in prices between 2001 and 2006?

>The skills involved in liposuction are not as refined as those for heart surgery, yet plastic surgeons make more money. Why, ONLY because people are willing to pay for the service, not because it costs more to produce it (which it doesn't).

In this example, the liposuction represents the rental or the condo? I'm confused.

>And how d o you explain any investment banker making more than a heart surgeon?

Well, how many people does a heart surgeon help in a given year, and how valuable are those people?

The investment banker, how much by way of transactions are they involved in, and how much money is made in those transactions?

cc, it's one thing to say the final cost is not based ONLY or PRIMARILY on material cost. It is another to say material cost has nothing to do with the final cost. Depending on the final product/service, the percentage the material cost impacts the final cost varies, but it is usually significant.

>This statement is ridiculous: "the price of goods is completely unrelated to the cost of producing them"

Sunday you are absolutely correct. Guys like columbiacounty have their ridiculous academic theories like "utils" http://www.youtube.com/watch?v=YlVDGmjz7eM , and their pathetic adolescent ivory tower desires for social justice. You won't be able to get the real world through to them.

only for low price, commodity items.

the goal in business is to find a way to de-couple cost and price. the more a business can find ways to do that, the more successful they are.

how about google?

how about the airlines in the other direction?

when fuel costs go up, they generally get killed because they can't pass them on.

"Do you believe that the cost of building new housing was the driver for the increase in prices between 2001 and 2006?"

No, but I believe it contributed to it.

>how about google?

You mean Google adds value to marketers, like investment bankers add value to marketers, other businesses and asset owners?

"how about google?"

I'm sure google spend a ton of money on servers.

oh come on, really?

consider the chicken and the egg.

did contractor's not worry about pushing back because they figured they would get so much more that it didn't matter?

>the goal in business is to find a way to de-couple cost and price. the more a business can find ways to do that, the more successful they are.

Brilliant. You've been reading Warren Buffett lately. Except in late 2008 and early 2009, he was buying stocks. And you were selling in early 2009.

columbiacounty's version of the real world:

>consider the chicken and the egg.

sunday--you would do well to consider the difference between the world we live in and the world we wished we lived in.

"how about the airlines in the other direction?
when fuel costs go up, they generally get killed because they can't pass them on."

They cannot pass it on right away and they might not be able to pass all of it on eventually. That is not to say they cannot pass it on at all.

hey--you're off the hook. its ok.

>sunday--you would do well to consider the difference between the world we live in and the world we wished we lived in.

You mean the world in which a politician stands up and starts to say that we should have a lenghy dialogue about possibly considering some mythical solution?

>columbiacounty
hey--you're off the hook. its ok.

Columbiacounty, were you miserable before you lost a ton of money or just because of it? If before, what turned you into a wretched troll? Was it no accomplishments in the past? Or no potential future to dream of?

"consider the chicken and the egg."
in nature: the egg

In business sometimes it's the egg, sometimes it's the chicken, even in within the same business.

forgive me but i have no idea what you are saying.

>forgive me but i have no idea what you are saying.

Well, you did ask a stupid question.

"I doubt a plastic surgeon doing only liposuction makes more than a heart surgeon, assuming they work the same number of hours."

Wanna bet? My brother-in-law is a heart surgeon. The lipo-doctor makes 3x as much.

"This statement is ridiculous: "the price of goods is completely unrelated to the cost of producing them""

That only shows your ignorance of economics. If input prices determined output value, then high-cost producers would have no incentive to lower input costs; they would sell just as much as low-cost producers, all things being equal. Bankruptcy laws would be unnecessary, and the world economy would not function.

Things are worth the value of their outputs - that is why, fundamentally, rents = owner's carrying costs for real estate, because buying a place to live is just capitalizing a future stream of rents.

You probably thing that them marble countertops are worth all that money. They look nice, but butcherblock does the same job.

>My brother-in-law is a heart surgeon.

Congratulations

>"This statement is ridiculous: "the price of goods is completely unrelated to the cost of producing them""
>That only shows your ignorance of economics. If input prices determined output value, then ...

Isn't there a middle ground steve? "Completely unrelated" were the words used and are quite absolute.

>because buying a place to live is just capitalizing a future stream of rents.
That's absolutely directionally right, but misses that with any future projections model, the future is hard to project. Rents are hard to project. Regardless of what an apartment or house did between 2000 and 2007, if someone bought in 2000, they locked in a majority of their ownership costs and left a smaller percentage of their living expenses (monthlies, etc) to uncertainty. The alternative in 2000 would have been to rent, and the person making the calculation "capitalizing a future stream of rents" would have been pretty far off (to the benefit of that person in this case) because of the abnormal rise in rents from 2000 to 2007/8.

No there's no middle ground - COMPLETELY UNRELATED.

Now then, whether a good gets produced or not will depend on the relationship between the input costs and the output value, but the former do not determine the latter. Unless, of course, you're LICCdope, who doesn't believe in supply and demand because it's an idea of Keynes' and only Milton - I guess we'll just flood the market with money - Friedman's voodoo economics, according to which there is only the supply side, work.

It's very dangerous to take an anomalous behavior such as housing during a bubble and extrapolate it. As Schiller nicely showed, if you had bought a house in downtown Amsterdam 350 years ago, it would still be worth the same today in real terms. In real terms Golgotha is worth no more than it was 2015 years ago, except for its added tourism value.

Stevejhx,

Your argument fell right into the trap of the posted article. Since the price of the finished product, the apartments here, had fallen in the last few years, developer stopped building new projects to avoid losses. They saw HIGH input cost and low selling prices. The article projected inventory will be low in a year or two because of this supply interruption. Price may go up at that time. In conclusion, input cost will affect product price down the road. Price is always a function of Supply and Demand. Cannot just omit one of the two.

>No there's no middle ground - COMPLETELY UNRELATED.

Ok, the ALL CAPS convinced me.

"That only shows your ignorance of economics. If input prices determined output value, then high-cost producers would have no incentive to lower input costs"

Sure they do - they are purchasers themselves at first, and when you input prices go up, that ups the need for up-front capital, which last I checked, does not grow on any tree or shrubbery.

"Things are worth the value of their outputs - that is why, fundamentally, rents = owner's carrying costs for real estate, because buying a place to live is just capitalizing a future stream of rents."

Does an owner's mortgage factor into this, Steve? If so, does an all-cash buyer offer lower rents?

you got it exactly backwards.

the point is that rents are a function of what you can get in the market not your costs.

so, the rent for a place is the same regardless of your financing.

cc, my last question was tongue-in-cheek. Does not always translate well on the internet, but assumed that one would be fairly obvious.

Lets get the facts straight:

When there is no demand, there is no price
When there are demand, the price will be affected by the magnitude of both demand and supply.
The amount of supply is ultimately affected by the projected profit margin of the product producers
Input cost will affect the projected profit margin
Out of short term factors, such as a temporary excessive inventory, input cost will affect pricing down the road
Period

vic, NYC developers start planning their new projects three or more years (sometimes many more years) before they are completed. they are projecting what demand will be. they are often projecting what input costs will be. the projected profit margin is an elusive number.

aboutready,

I can agree with what you said on the temporal shifting issue, but that was mentioned in the article as well. Their ultimate projection was that 2012 would be the time when inventory becomes low and with no new supply. Any argument would only be - is the timing correct ? or the inventory level correct? Not a discussion of - does input cost affect pricing. That is beyond discussion.

well, riversider brought up input costs.

i disagree with the article to the extent that i think there is still a fair amount of inventory out there, much of it not revealed, but even if there is a slight squeeze in 2012 everything i'm seeing now seems to indicate that the party is about to gear up again (i recently read that insurance companies have plans to finance new development here). it really only slowed down for a while. and unlike earlier years, many of the building locations are prepped and ready to develop, with plans. it won't take four years to build, and many of those building sites have loans that can't be repaid without development. it never stops until it truly has to stop, and we don't seem to be there yet.

Well said aboutready.

BTW, riversider was not wrong. Other people just critized too quickly.

"Any argument would only be - is the timing correct ? or the inventory level correct? Not a discussion of - does input cost affect pricing. That is beyond discussion."

Exactly!

For the record, I disagree with the article's conclusion, though I admit there is a possibility I could be wrong. However, I cannot believe there's any question on whether input cost ultimately affect pricing.

Sunday: hmmm, I get pretty excited maybe that can be taken as desperation. My apts are fully rented and I'm def not selling. I s/b more concerned about increasing rents which would add to my cashflow. But of course, as anybody else would, I get excite at the increasing owner's equity. Just as someone would over an increasing stock price....anyhow,waiting on Fridays Payrolls. I hope they are blowout numbers. Get everyone back to work!

"Sure they do - they are purchasers themselves at first, and when you input prices go up, that ups the need for up-front capital, which last I checked, does not grow on any tree or shrubbery."

What? What does that have to do with the price of tea in China?

"Does an owner's mortgage factor into this, Steve? If so, does an all-cash buyer offer lower rents?"

It doesn't matter if you buy all cash, or finance: if you pay all cash, you have a higher opportunity cost, which exactly equals the price of your mortgage.

This is some basic Econ 101 stuff, gentlepersons: you are advised to learn it, lest you get caught in a bubble.

Oh wait - too late for that, isn't it?

"Input cost will affect the projected profit margin"

Which is what I said.

"But of course, as anybody else would, I get excite at the increasing owner's equity. Just as someone would over an increasing stock price...."

Of course, difference is.... the price would *actually* be going up.

If coke stock goes down 13%, and someone who bought it claims it went up, we'd call them a moron, too.

Stocks are not products, SWE - they don't have a cost of production. So what's your general point?

Different conversation, Steve. The stock part had nothing to do with the cost of production argument vs. price argument... where I believe you and I are in agreement.