Anonymous asked in Business & FinanceRenting & Real Estate · 3 years ago

Residential real estate developers actually have a vested interest in NOT building enough housing to meet demand. True?

Why would a residential real estate developer build enough housing to meet demand if there's even a slight chance they might have vacancy? Don't they typically underbuild in order to try and keep demand significantly higher than supply? Or does competition among developers pressure them to sometimes overbuild?

2 Answers

  • glenn
    Lv 7
    3 years ago
    Favorite Answer

    In a city of much size there will be multiple banks and developers. They each will compete to see who can sell the most lots. If developer A sells 100 this year and Developer B sells 150 then it is Developer B that makes the most money. The banks actually often push a developer to build as big a development as is practical to meet the demand. The only way -what you are suggesting could be true is if only one guy does all the developing in the town, and even then a new guy could show up to meet the unsatisfied need.

    However- developers have to plan five or more years in the future (since it takes that long to buy, get approved by city and build the seweres and streets and such) so they may guess or estimate to low and it may take them a few years to catch up with demand.

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  • 3 years ago

    No that is false. Just like any other business owner, they want to sell their product to as many willing buyers as possible. But business owners also need to be careful not to have more stock than necessary to meet demand, because that only serves to cost them money to hold it unsold since much of their stock is bought using credit (loans).

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