Portland condo, flickr user edmontonenthusiastHere’s uber-wonk Matt Yglesisas on housing affordability:
[H]ousing can become more affordable if you build lots of new housing or else if your city becomes a less desirable place to live. Since few mayors or city council members want to outline “make the city a worse place to live” as a policy goal, that means you need to focus on allowing higher-density construction in desirable areas and on scrutinizing regulations that make new construction more expensive or more time consuming.

Overly simplistic, perhaps, but also importantly right.  If population is growing and you want to keep a city both livable and affordable, there’s pretty much no alternative:  over the long run, you’ve got to boost housing supply.  (Well, you can also try monkeying around with what landlords are allowed to charge for housing—but rent control can have vicious unintended consequences both for livability and affordability.)

Of course, people who’ve sat through a day or two of Econ 101, or at least heard some talking heads on TV babble about markets, should understand that increasing supply tends to decrease prices.  But for many folks the link between constrained housing supply and rising housing prices isn’t obvious—and I’ve got a few thoughts about why that is.

  • First:  Many of the same people who talk about affordable housing actively oppose the construction of new housing.  Some advocates for the poor equate new development with gentrification that obliterates existing low-cost units (which, of course, is sometimes true). Just so, many neighborhood activists pay lip service to maintaining affordability, but often dig in their heels to fight new development in their back yards.  This contradiction—public figures who are outspokenly pro-housing affordability and anti-housing supply—adds to people’s confusion about whether new construction is the cause or merely the consequence of housing affordability problems. 

    Second:  The word “affordability” conflates two separate problems: problems for the middle class, for whom supply and demand constrain the kinds of places people can afford to live; and problems for the very poor, for whom market dynamics are largely irrelevant.  If you’ve got no money at all, boosting the supply of market-rate housing does nothing to help you find a place to live.  Your problem is more about poverty than housing, yet we still talk about it as an “affordability” problem.  Perhaps simply changing our terminology might affect how we think about the issues—or at least clarify which problem we’re talking about when we bemoan  “affordability” trends in our cities.  (Even for the very poor, of course, boosting the supply of housing is key to increasing access to housing; yet it’s often a process that happens through government intervention rather than the market.)

    Third:  The Econ 101 view of housing costs often falls short, or fails to jibe with what we see in the world.  During the real estate bubble, for example, price trends had very little to do with fundamentals of supply and demand. (I’d argue that the bubble distorted everyone’s thinking about housing markets, since things were just so crazy for so long.) Just so, it’s easy to find neighborhoods or even whole cities where housing prices have gone up in tandem with supply—say, when neighborhoods improved rapidly or local economies boomed.  The exceptions are so common, in fact, that it can be hard to see the rule.  But over the long haul, and all else being equal, squelching new housing development tends to make housing costlier.  Econ 101 doesn’t teach us everything we need to know about housing—not by a long shot—but we ignore it at our peril.

    [Condo construction image from Flickr user edmontonenthusiast, released under a Creative Commons license.]