> The business model of construction companies is to buy a piece of property, develop it and then sell it for something more than the cost of buying it plus the cost of developing it. Constraining supply increases the cost of property which they then have to pay in order to acquire properties to develop. It isn't really in their interest to increase their own costs.
Let's say for a moment that this is close but not quite actually the business model.
Let's say that the construction companies have spent a long time buying up vacant lots, faster than they are developing them, such that they now have a large inventory of land and would not have costs go up to continue operating if they did what you say.
What would you expect would happen in that case?
At that point you've ceased to describe construction companies and are now describing real estate speculators while calling them construction companies.
Moreover, notice how little sense that business model makes. To do that you would be sinking capital into vacant lots that you're neither developing nor receiving rents from while paying both property taxes and opportunity costs. You're paying interest on the loan or could have been getting ~10%/year by putting your money into the stock market. A real construction company would be trying to minimize the period they're holding an unproductive property.
And even if you wanted to be a real estate speculator, how does that make you more money than investing in rental properties and then actually renting them out so you receive rental income on top of any price appreciation?
Meanwhile, what, if not for zoning rules and other regulations, is preventing anyone else from undoing your attempt to constrain supply by opening up a new construction company which is actually a construction company?
You must be drawing from experience in a specific locality in the US, probably a rural one, because what I described is how land sales in the largest cities in the US has worked for half a century.
Doing what I described in New York City is exactly how Donald Trump made an initial fortune back in the 80s. It's happening right now in Seattle.
The business model not making sense, is due to the incorrect assumptions you make. For one, that land or buildings in cities appreciate less quickly than the stock market.
> At that point you've ceased to describe construction companies and are now describing real estate speculators while calling them construction companies.
I'm not sure what you think the difference is in practice. There may exist some construction companies that don't engage in real estate speculation, they just aren't the big or most profitable ones. Which addresses:
> Meanwhile, what, if not for zoning rules and other regulations, is preventing anyone else from undoing your attempt to constrain supply by opening up a new construction company which is actually a construction company?
The fact that the most valuable land is owned by other construction companies who have more money because of the real estate speculation.
> Doing what I described in New York City is exactly how Donald Trump made an initial fortune back in the 80s.
The total value of NYC real estate is approximately $2.8T. Trump has a net worth of something like $5B. Even if all of that was invested only in NYC real estate (which it isn't), it would be less than 0.2% of the NYC real estate market, which is hardly enough to have market power.
> The business model not making sense, is due to the incorrect assumptions you make. For one, that land or buildings in cities appreciate less quickly than the stock market.
That doesn't appear to be accurate. Metro housing prices have increased by more than wages but not by more than e.g. the S&P 500.
> I'm not sure what you think the difference is in practice. There may exist some construction companies that don't engage in real estate speculation, they just aren't the big or most profitable ones.
You're just pointing out that real estate speculation has been more profitable than construction, which is exactly the problem -- we make construction too expensive, on purpose, which is what increases the profitability of speculation. That some companies do both is a poor excuse to blame the construction companies for what the speculators are doing.
> The fact that the most valuable land is owned by other construction companies who have more money because of the real estate speculation.
Nobody even owns most of the land in any major US city, much less all of it. The properties that could derive the largest increase in housing units would be to replace single family homes with multi-unit complexes and the majority of existing single-family homes are owner-occupied.