
The end of the housing supply debate (maybe) - jseliger
http://cityobservatory.org/the-end-of-the-housing-supply-debate-maybe/
======
quotemstr
That there was ever a debate at all is still astounding. Economics has fuzzy
areas, but basic principles of supply and demand are very well-established.
It's clearly nonsensical to imagine that we can simultaneously lower prices,
limit supply, and allow for demand growth. The longevity of this bizarre idea
demonstrates how strongly political ideas of how the world _ought_ to work
blind us to how the world _does_ work. We'd do well to take the wool from our
eyes in other contentious disputes.

~~~
jjxw
It is perplexing to me why the burden of proof was ever placed on "increasing
supply decreases prices" when the mechanism by which rent control + limiting
construction is supposed to benefit anyone besides those already occupying
those units is totally unclear.

I don't even think it's "ought" vs "does" \- it's more NIMBY interests being
more ingrained into local politics allowing them to somehow gaslight everyone
into thinking the laws of supply and demand don't apply to housing.

~~~
leggomylibro
Yeah, it's not about economics or politics at all.

People who live in an area want policies that will benefit them at the expense
of newcomers, full stop.

And when you concentrate value and therefore power in those existing
landowners to an extreme degree, you get a political feedback loop strong
enough to overpower something as trivial as reality. After all, the market can
stay irrational longer than you can stay solvent.

~~~
JPKab
Here in the Denver area, we have a lot of people moving here for good jobs,
strong economy, etc. The locals bitch and moan endlessly.

A lady the other night at a dinner party was, in the same conversation,
complaining about the "high-density" (townhouses, but she acted as if they
were high-rises) housing being built in the area, and moved on to whining
about how her daughter was priced out of a home in the area.

I stopped myself.

~~~
breischl
I can absolutely believe that would happen. Also interesting to watch the
debate around conditional removal of the parking requirements for new builds.
You see people that complain about lack of affordable housing, but also demand
a parking lot/structure for every new building - these things are in conflict.

I do understand the bitching & moaning. I remember, and miss, the days when
there wasn't a standing jam on I-25 every single Saturday, you could show up
at a trailhead later than 8 AM and actually find parking, or rent a nice
apartment in Wash Park for $600. But then I'm an immigrant too, so I don't
have much moral authority to tell the more-recent immigrants to GTFO.

------
rayiner
> . . it has become an article of faith that building market-rate housing
> raises rents, rather than lowers them. The logic of Econ 101 — that an
> increase in supply lowers price — is alien to many progressives, both in the
> Bay Area and around the country.

Pretty much. I'm progressive on a lot of issues but many public-interest
minded people are immune to economic realities. The example about subsidized
versus market-rate housing is a great one. Subsidized housing reducing
displacement twice as effectively as a market-rate house sounds great. But put
another way: permitting two market-rate houses that bring in tax additional
tax revenue is as effective as building a subsidized unit, which costs the
government a bunch of money.

The "trickle down" effect is also real.

> Building more market rate housing isn’t so much about “trickle down” as it
> is building enough new housing to keep higher income households from moving
> down-market and bidding up the price of older housing that would otherwise
> be affordable to moderate and lower income households.

In Chicago, which has never had rent controls, there are tons of high-end
highrises going up. But the high-end units there were built in the 1970's and
1980's have been retargeted now as more value offerings.

~~~
TulliusCicero
Exactly. Affordable, market-rate housing is just old housing that used to be
luxury.

It's not that much different from cars. In the US, working class people can
largely afford cars, they just buy used.

------
iandanforth
I live in a very interesting area, across the street from me is a different
city with housing costs roughly 10x the costs of mine. I am daily confronted
with the absurdity of pricing of housing.

In addition as I've watched rents around me rise, and anticipated my own rent
rising, I wonder at the expectation that we should continually get less for
more. My house isn't getting any newer after all.

If my employer decided to cut my pay by 10 or 20% every year there's no way I
would stay, and yet I must admit that I have tolerated this behavior from my
landlords.

Unlike commodities or consumables, for which unrestrained markets influenced
by collective expectations of supply and demand are not routinely shocking,
the expectation that my house, in which I already live, and for which I have
been paying consistently for years, suddenly being much more expensive ...
well that feels like a hole in the social contract. A problem to be remedied
by legislation if the governing societal expectations do not naturally lead to
a different equilibrium.

What if the expectation was that if you let someone live in your home you are
granting them significant rights, significant stability, and are assuming
significant risk of losing money? This set of expectations is well known
elsewhere, but not so much where I live.

So while I am willing to be convinced that a humane and equitable improvement
to a cities housing situation can be achieved by building more housing, I
would hate for legislative restrictions to be ignored as complimentary and
beneficial efforts.

~~~
bhauer
> _my house ... for which I have been paying consistently for years_

If you are _paying_ for it, not past-tense, then it's not technically _your
house_.

The apparently uneven market for real estate is shocking to buyers because of
the variability of supply constraints, caused by geography but also in great
measure by zoning regulation. The hackneyed refrain of "location, location,
location" as the chief determinant of the value of a property illustrates this
point.

> _I must admit that I have tolerated this behavior from my landlords._

You have tolerated it precisely because you actually know that the value of
property is not fixed. As demand increases while supply does not, the
value/price goes up. Clearly you like the location, so you've not moved away.
You are part of the demand that is moving prices upward. Your _willingness_ to
pay more is precisely what sets the price, along with supply.

> _A problem to be remedied by legislation if the governing societal
> expectations do not naturally lead to a different equilibrium._

As the article points out, legislation focused on remedying the problem would
relax constraints on supply caused by zoning, regulatory hurdles, etc. But so
often the people complaining about the cost of housing are the same people
voting to keep supply constrained.

~~~
hackits
There does come a tipping point that most land lords don't like to talk about.
When interest rates go so low that the cost of owning your own home is cheaper
than renting. This is including all the cost of maintenance, water rates,
garbage collection, insurance, taxes, and also property tax's that come with
it.

Do be careful when you decide to enter the market as choosing the wrong time
can wipe out about 3-4 years savings within 2-3 months.

------
RangerScience
So, it sounds like:

1) Building any kind of more housing is beneficial

2) Building subsidized housing is more beneficial than market-rate housing

This leaves me with two questions:

1) Does subsidized have double the effect because you can build twice as many?

2) Zoning laws seem to prevent cheap housing from being cost-effective for
developers to build. If you made it possible to build cheap housing (in LA,
maybe by reducing parking requirements), would developers be building cheap
housing on their own, without prompting / subsidies?

~~~
OrwellianChild
In order:

1) Yes.

2) More beneficial in limiting _displacement_ only. No considerations of cost.

Answer 1) Subsidized housing provides more benefit because it provides
immediate housing stock at lower prices, replacing any stock lost to luxury
construction. It is definitely _not_ cheaper or easier to build more - the
same areas that _need_ subsidized housing are the ones where housing in
general is more expensive to build.

Answer 2) Absolutely yes, zoning laws increase the cost of construction,
leading to more expensive housing units. Explicit recommendations in favor of
more affordable housing include:

A) Removing parking requirements

B) Allowing more density (more floors, smaller required sq. ft per unit - yes,
this is a thing, and fewer yards, set-backs, etc.)

------
cwperkins
This is something I've been trying to understand for a long time. In New York
City because of the rent controls it seems like the market rate has diverged
alarmingly from the subsidized rents. From my perspective it seems like this
propagates the "Tale of Two Cities" and makes it a much wider leap to go from
rent-control or subsidized housing to market-rate. In my naive opinion it
seems like in a system without all of the controls in place there may be a
more even spectrum of price points and make jumping to the next level of
housing easier.

There are other forces at play here too such as foreign buyers speculating on
the Manhattan Condo market, look no further then the foreclosure at One57
penthouse to show how it has gotten. I think building more housing at all
levels is the best way to solve the affordability crisis, but naturally the
higher-end of the market would be built out first due to developers wanting to
cater to the highest bidder. The cities current approach of providing tax-
incentives to developers to allot a certain portion of housing to affordable
housing is seemingly a good strategy to tackle the problem of affordable
housing as well as integration.

~~~
cwperkins
Does anyone know anyone from Starsky robotics? I think it would be interesting
to deploy the remote technology used in it's trucks to construction vehicles.
Imagine being able to have continuous delivery at construction sites. For
example, excavation is a relatively quiet activity that seems like it just
requires a back hoe and a dumpster to haul away waste. If we can be able to
control these remotely, would we be able to increase the efficiency of
construction sites?

------
sliverstorm
This doesn't seem to address high end housing vs (unsubsidized) low end
housing. Is a hundred new units with marble countertops as good, holistically,
as a hundred with laminate?

I think a lot of the opposition revolves around frustration with developers
building luxury when the intent of the given policy was low or mid market
units, combined with a belief that units targeted at the needy market segment
would be the best solution.

~~~
jogjayr
There are reasons for developers to prefer to build high-end housing over low-
end housing.

1\. City parking requirements drive up the cost of construction to the point
that only luxury units would be profitable.

2\. Land acquisition costs (referenced in the article) are high due to zoning
laws, so developers prefer to build high-end housing to recoup those costs.

3\. Labor costs the same no matter what you're building (beyond some extra for
a marble installer or whatever). Labor cost is a function of cost-of-living in
the area, which itself is proportional to housing costs. Since the cost of
construction is high, a builder is going to build the highest-value product
possible at that cost.

So really all the problems boil down to city regulations, zoning, and
unaffordable housing creating more unaffordable housing.

"Trickle-down" is a dirty word in many circles but I think it does apply to a
certain extent for housing. Today's luxury apartment is tomorrow's mid-market
apartment. If I could get a better apartment than what I have for slightly
more rent, I'd probably upgrade, but the difference is stupid high (nearly
double). In turn, my current apartment would probably be rented by a middle-
income earner if it was located somewhere other than Silicon Valley.

~~~
sliverstorm
It's pretty obvious why luxury development is preferred; anybody, in any
market, would prefer to make luxury units.

Yet no other market seems to operate by supplying only luxury units and
depending on trickle down. Why are there Corollas, instead of just more
Lexuses?

~~~
kelnos
SF already has plenty of "non luxury" housing that has been gobbled up for
luxury prices, often displacing people who could normally afford such housing.
The theory is that building more luxury housing will take pressure off the
non-luxury stock.

I agree with that theory, but building more affordable and below-market
housing (instead, or simultaneously) will likely have a faster, more positive
effect.

~~~
jogjayr
But it's impossible to make affordable and below-market housing profitable
unless the underlying issues, land acquisition costs and zoning, are
addressed. That means the government will have to subsidize these units and
they still won't be enough to meet demand. So only the lucky few who win the
housing lottery will benefit. Everyone else (most lower-income people, middle-
income renters overpaying for low-end housing) still loses out.

I'd prefer that we solved the problem for most people rather than just a lucky
few. If people couldn't afford food because not enough farmland was available
for reasons like "preserving the character of the area" (imagine that you
can't truck food in from lower-cost locations in this scenario) you bet we'd
find a way to start growing more food stat. No one would say "Well we'll just
subsidize food for some people so fewer people will starve. But it's no use
letting farmers farm because they'll just grow Kobe beef and avocados instead
of wheat and corn".

~~~
kelnos
> But it's impossible to make affordable and below-market housing profitable
> unless the underlying issues, land acquisition costs and zoning, are
> addressed.

Totally agree. Developers don't want to build affordable housing because they
in some cases actually stand to lose money when doing so. SF's byzantine
planning process makes it that way, and that's not going to change without
some heavy reform there.

------
empath75
If you build new luxury housing presumably people now living in less desirable
housing will upgrade, making their housing available at lower prices, etc.

~~~
1_2__4
This claim keeps popping up. I’ve yet to see it include a citation. Maybe
today will be different.

~~~
empath75
It’s in this very article.

What other outcome could happen?

~~~
throwawaymsft
That new luxury housing makes a city more attractive and induces demand from
outside. Adding new roads can make driving more attractive and worsen
congestion.

Not saying that’s what happens, but a simple supply/demand analysis (ceteris
paribus) may not suffice.

~~~
OrwellianChild
No one has seen fit to build much luxury housing in Cleveland, OH lately, but
what exists already (at rock-bottom prices) doesn't seem to be attracting much
population from outside...

Induced demand is definitely a thing for roads, but that demand is from fixed
supply of people. In the roads case, it is counter-intuitive specifically
_because_ it causes the same number of people to drive more, on average.

That dynamic simply doesn't hold for luxury goods in general or luxury housing
in particular. There are effectively no replicable instances of more luxury
good = more buyers unless price falls or supply was previously constrained.

~~~
throwawaymsft
I'd posit it's hard to know what the dynamic would be. Consider certain luxury
goods
([https://en.wikipedia.org/wiki/Veblen_good](https://en.wikipedia.org/wiki/Veblen_good))
where increasing the price increases the demand. (Conveniently, economists
have a model and also a name for things that don't follow the model. The
universe can be divided into bananas and non-bananas.)

Cleveland isn't a prestigious world-class city attractive to the wealthy, but
if new luxury condos in a tier-1 city come online, it may induce demand from
wealthy/speculators who would not otherwise have considered that city, or were
picking between alternatives. (Investment, signaling/status-seeking, etc.)

Treated as an investment vehicle, increasing supply (e.g., having an IPO where
no shares existed before) can unlock latent demand (people divert income into
that investment and drive up the price). Perhaps housing needs to be modeled
as a mix of investment, local demand for shelter, status symbol, tax haven,
political baton (keeping existing homeowners above water), etc.

Again, not sure how housing actually behaves but it seems complex enough to
defy my econ 101 understanding.

~~~
OrwellianChild
I'm assuming you're suggestion that housing is a Veblen good is in jest - I
can build a shining, gilded tower in the middle of Wyoming and I'm not going
to attract America's wealthiest citizens to Cheyenne...

It seems like you're conflating cause and effect here - If Cleveland isn't
good enough, then it must be the tier-1 city that is the cause of the demand.
Not the housing itself. Further, unless the new luxury units are sitting empty
(a problem Vancouver, BC dealt with for awhile), then the market for rents
functions regardless of whether speculation is occurring. I invite you to find
an example of vacancies increasing in the same place that housing/rents climb
- it won't exist in any of the real estate hot-beds in America.

The main thrust of this article and the research surrounding it by folks like
City Observatory, Sightline Institute, etc. is that we now _do_ know the
dynamic of housing prices in booming economies. I don't feel like you've
provided any evidence that contradicts the conclusions presented in the
research, so I'm having trouble pinpointing your skepticism. Let me know if
I've missed your point!

------
alexasmyths
Folks - please add immigration.

Why on earth people don't grasp that when population is increasing mostly due
to newcomers it affects housing ... this bothers me - because it's
politicized, nobody can talk about it it seems.

Immigration is just a reality, it's part of the equation - it has real effects
on housing costs and wages, one can't ignore it because sometimes the answers
might not jive with one's politics.

So, immigration (or rather, population change, which can include births etc.)
- is an important driving factor.

Which includes migration between states/regions obviously.

~~~
ouid
just build more housing.

~~~
Danihan
Not everyone wants to live in a super over-populated / densely populated
area...

In general, more saturation of humans == more problems.

People make fun of NIMBY, but at the end of the day who better to manage the
neighborhood than the people who are already invested in it..?

~~~
OrwellianChild
You wish to extend control of property beyond the borders of what they own
outright?

~~~
AnimalMuppet
But that happens all the time. Neighborhood zoning restrictions, restrictive
covenants, homeowner association rules, and so on. So Danihan's position is,
_de facto_ , what the situation already is in many instances.

So: You wish to _not allow_ any control of property by anyone other than the
property owner? Are you sure you really want that?

~~~
OrwellianChild
You just listed the principal agents in the NIMBY crusade, which I suppose
it's clear I am in pretty strong opposition to in most cases. Tyranny of the
majority is a serious problem in race, class, social, and wealth spectra, and
these groups represent that form of tyranny in action. They're great right up
until you do something that the majority disagrees with. Not recognizing the
red flags this throws up makes me think that you've probably found yourself in
the majority most of your life. It's worth considering what these systems mean
for folks who fall outside of the majority on any of these issues.

~~~
AnimalMuppet
OK, but I don't have to be part of the minority to understand why I don't want
my neighbor to be able to tear his house down and replace it with a 7-11, or
an oil refinery, or a landfill. Do any of _those_ things throw up red flags
for you?

I mean, sure, it changes the value of my property if my neighbor doesn't keep
his bushes neatly trimmed. But there's stuff that he can do that's a lot more
serious than that. I don't regard opposing a 7-11 on my neighbor's property as
"tyranny of the majority" \- or at least I regard letting my neighbor freely
choose to do those things as "tyranny of the minority", which I regard as
worse.

Now, obviously you can take this to extremes, and you can get upper-middle-
class white-bread cisnormative-with-2.3-kids neighbors who insist that you
have to have exactly 2.3 kids or you can't live in the neighborhood. Also,
your garage has to be painted the right shade of blue. That's definitely
tyranny of the majority, and I agree that it can be oppressive.

And I guess opposing a 7-11 next door, or an oil refinery, or a landfill is
exactly NIMBY-ism. But I moved into a neighborhood where part of the
restrictive covenants said that I _couldn 't_ open a convenience store on my
lot - because it was going to conflict with the one that they were planning
for a block or two away, on the corner of the subdivision. That was known in
advance to everyone who bought into (or built in) the subdivision, and I don't
have a problem with that. I don't have a problem with an oil refinery next
door, either, _if I know it 's coming when I buy the property_. (I would
probably not buy, but if I did, I would know what I was signing up for.)

And I didn't have a problem with the neighbor two doors down starting a hair
salon in her house, even though I _didn 't_ know that was coming when I bought
into the neighborhood. There was a mechanism where anyone who had a problem
with it had a chance to be heard, though. (I don't know if they could have
blocked it, or if someone else got to judge the seriousness of the objection.)

TL;DR: I'm not opposed to people being able to do things. I'm opposed to
people being able to do things that significantly harm the value of their
neighbor's property in ways that the neighbors didn't know was coming at the
time they bought the property.

~~~
OrwellianChild
I realize I was being somewhat inflammatory with my talk of "being in the
majority" and "missing flags" \- thanks for being willing to engage anyway.
:-) I also like your characterization of "upper-middle-class white-bread
cisnormative-with-2.3-kids neighbors" \- this is who we're usually speaking of
when we talk about the "NIMBYs".

You're right that there _is_ a difference between starting up an oil refinery
and building an apartment complex. The problem with many of these
organizations you mentioned is that they weaponize their power (intended for
use against oil refineries) _against_ people, lifestyles, and forms of housing
they don't like. In Seattle (as elsewhere) it is justified in order to, for
example, preserve the availability of free public street parking in front of
and near their home. This perceived "right" to public, shared property has
extended to mobilizing against dense housing like "apodments" for fear it
would "take up street parking" in my town. In my opinion, if you want parking,
you should build it on your own plot and not expect the city to limit
development to provide it for you free of charge.

You seem to have a pretty reasonable expectation of entitlement - no 7-11, but
fine with small in-home business - and I wish there were more like you out
there. In practice, these "NIMBYs" move to an area circa 1970 and expect it to
_never change again_. This is untenable in downtown SF, Seattle, or any other
major metropolitan area, as I think you realize. The natural evolution of
these HOAs, neighborhood associations, and like seems inevitably to be towards
oppression - anyone more Laissez-faire wouldn't bother joining one in the
first place.

------
xenadu02
The idea that a government - at any level - is going to fund enough subsidized
housing to make even a tiny dent in the housing problem is completely
laughable. Anyone proposing such nonsense isn’t serious about the problem in
the least.

That’s what bugs me so much about so-called progressives who oppose more
housing. There is no half-plausible scenario where SF or CA comes up with the
hundred billion it would take to solve the bay area’s housing shortage.

------
purplezooey
A major part of the problem is that it costs too much to build. Too many
construction entities living on cheap funny money and a supply shortage after
the real estate crash that has still not rebounded. Why does it cost $200,000
to add a second story to a house, for example.

------
ouid
I said it before here, but the situation in oregon is fucked up more than
normal. The state constitution limits the rate at which property taxes can be
raised to 4% a year, provided no new construction occurs. Increasing housing
supply is actually penalized here.

~~~
jackcosgrove
I think that's the point.

Didn't the governor of Oregon tell people from other parts of the country not
to move to Oregon in the 70s? Everyone wants their own private paradise
without having to share.

------
gech
As long as we don't have developers that are willing to build only luxury,
bought by speculators and remaining vacant. Please answer this.

------
hardlianotion
Interesting article. However:

"Rent increases, which were measured in the double digits eighteen months ago,
have gone negative."

I call those kind of increases: decreases.

~~~
elhudy
That kind of wording leads me to believe that he is referring to the rate.
I.e. Rent increases are still occurring but at a decreasing rate. Maybe?

~~~
icahnvalyou
Possible, but I think it's more likely poor wording than linguistic calculus.

------
verulito
We don't build housing, builders do. We simply decide what is permitted to
happen. We could eliminate restrictions on construction and that would help
but the rate of housing growth would still be limited by money available to
pay for new housing, which is a lower bound to affordability. It's actually a
worse problem than it sounds for, if we're decreasing building restrictions
then we're slowing price growth and decreasing the attractiveness of housing
to investors. To accelerate affordability, we probably also need to subsidize
or at least incentivize then.

That gets to be fairly expensive so where's the money going to come from? My
proposal is a national growth tax, whose money is redistributed from areas
which don't grow to those which do. That money will be used to pay for
infrastructure improvements needed to house those people as well.

