In a recent piece published by 48hills, former Berkeley planning commissioner Zelda Bronstein takes aim at…well…too many things for me to succinctly recount in detail. So instead of attempting to respond to every single argument littered throughout her 7,000 word article, I’ll focus on the big stuff.
Supply and demand: it’s a thing…we promise
Ms. Bronstein asserts that supply and demand is, in fact, not a thing. Or at least if it is, it doesn’t apply to the Bay Area housing market. She writes that in California generally and the San Francisco Bay Area specifically,
…the textbook theory of supply-and-demand—prices fall as supply increases—doesn’t apply.
I’m unsure why Ms. Bronstein thinks the laws of supply and demand (ceteris paribus) don’t work here, but they’ve certainly been in force in Tokyo. Japan’s capital has seen sustained population growth as well as productivity increases over the last couple decades. And after twenty years of allowing housing to be built when and where people demand it, prices have remained gloriously flat. Just as expected.
And when we look at American cities with the most supply elastic housing markets, we see a strong relationship between the ease with which new market rate construction can be developed and lower price increases overall. Unsurprisingly, San Francisco has one of the least elastic housing markets in the country and has experienced some of the most extreme percentage increases in housing prices as a result.
No matter what example we look at or how we cut up the data, there’s nothing out there to contradict the basic YIMBY story about supply, demand, and price. Unless, of course, you don’t actually understand the story, which may be the problem in Ms. Bronstein’s case. For her benefit, I’ll restate the general position.
More supply equals lower prices (in the aggregate and over time)
The pro-supply position is that if we allow supply to chase demand across the entire Bay Area housing market, we’ll get lower prices in the aggregate and in the long run than would otherwise have been the case. Properly understood, this should not be a controversial statement. But let’s flesh out a few of the details and qualifications below.
Prices across an entire regional housing market might still be subject to short run increases, even in a supply friendly regulatory regime.
- When demand for housing kicks up (because more people begin looking for housing, or the people that are already here have more money, or both) prices begin to rise
- As prices begin to rise, developers* begin to create additional supply as well
- Only after supply comes online (which involves significant lag time in housing markets) is there any impact on price
- This means price signals are more of a trailing indicator for producers in housing markets than in other contexts
- Which further means that supply will always lag behind demand in a hot market…
- But that supply can also dramatically overshoot demand in a sudden downturn, providing consumers with a glut of housing at reduced prices
Prices in every subsection of the Bay Area won’t necessarily decrease in real terms, even over the long run
- Certain blocks or neighborhoods may only become more expensive over time
- More housing would mean they’d be less expensive than would have otherwise been the case, but prices can still go up if space in a particular neighborhood comes into high demand
- See Tokyo’s Minato Ward
- The natural state of affairs, though, is for the fortunes of particular neighborhoods to wax and wane over the long run
- See Bill Easterling’s discussion of urban development in Manhattan
Lowering aggregate prices by providing additional supply doesn’t preclude displacement, strictly speaking; but it does mean displacement would far less sudden and extreme
- In a more functional housing market (i.e. one in which it’s easy to kick up new supply) the financial pressures being faced by low SES Bay Area communities would be far more muted and manageable
- Price increases that have happened over a period of years would have taken decades
- And individuals facing displacement would be considering relocation to different neighborhoods instead of different counties
The supply & demand story does not mean we can not or should not think about subsidies for the least well off; but it does mean we have to be thoughtful in constructing social safety nets
- Inclusionary zoning (IZ)–up until the point that we see a reduction in the total number of units produced–is probably the only quasi workable safety net policy on the table
- IZ, however, is a generally poor way to provide housing subsidies
- It increases the cost of market rate construction, bifurcating the housing market
- It’s also woefully unscalable
- And if you increase the percentage mandate past a certain point, projects cease to pencil and nothing actually gets built
- Housing vouchers (if not a straight up basic minimum income) funded via a land value tax, would be a far more effective policy for stabilizing the least well off
No one in the pro-growth camp is claiming that reducing supply constraints will bring Jesus back early or cover the earth in gumdrops and candy canes. We’re identifying the housing crisis as a problem of excessively high aggregate housing prices and offering a solution based on a widely accepted** and empirically substantiatable interpretation of the facts which suggest the more the housing supply expands, the lower prices will be (compared to what would have otherwise been the case).
If Ms. Bronstein wants to agree with that interpretation but cite concerns other than region-wide affordability, we could perhaps have an honest discussion about what our housing problems are and what solutions we ought to pursue. But Ms. Bronstein claims to care about housing prices per se and refuses to accept the basic relationship between supply, demand, and price. As such, I’ll respectfully ask her to defend her position in the comments below or address these criticisms at length should she feel a more thorough response to be appropriate.
*This doesn’t necessarily mean developers in any strict sense. It could include homeowners installing an ADU on their property or anyone else willing and able to produce additional housing for others.