The affordable-housing crisis in the Western world’s most expensive cities is routinely framed as a “housing shortage” that can be fixed by increasing supply.
I’m skeptical. First, has increasing supply actually worked thus far to bring housing prices down? For one thing, it’s well known that investors buy up luxury apartments as investment properties and then keep them empty or underused.
Second, a meaningful increase in housing supply puts a strain on existing, underfunded infrastructure (transport, schools, etc.) and can easily ruin what makes our cities special. Does anyone want San Francisco’s built environment to look like Hong Kong’s?
What surprises me is that the “solution” of building more housing often comes from knowledgeable left-of-center opinion-makers. In other contexts, these folks are the first to recognize the real-world flaws and distortions of seemingly “free” markets.
I believe the affordable-housing problem stems from housing being treated by corporations and the mega-rich as just another investment. I would like the affordable-housing discussion to shift toward options for de-financializing housing. Legal regulations and the tax code could do much more to curb corporate speculators, as opposed to those owners who actually live in their own houses.
Increasing housing supply has the benefit of using the most basic economic concept out there to deal with a difficult problem. Increasing the available supply of something (in comparison to demand) almost always results in downward pressure on the price of that thing. It doesn’t require complex management, goodwill, or enforcement, it just happens because that’s how a market economy works.
Honestly, I genuinely like the idea of directing additional economic resources to give people jobs while they work to increase the supply of a fundamental human need.
I wonder if the existing stock of housing exceeds the need or not. I would guess that there is currently an available residence for everyone who needs one. If there are about 10,000 homeless people in Seattle, someone should know if there are 10,000 available places for people to buy or rent. If there are, then supply isn’t the problem, cost is.
I found this on the web. No idea if it’s accurate.
Seattle has 12,000 people experiencing houselessness; in 2021, it had 33,100 vacant homes .
We could build more houses, but they’ll be expensive too.
I’ve heard many people complain about the cost of an apartment or house, but never about the availability of one. We recently had a discussion about vacant office space due to the increase in working from home, and pondered whether landlords would reduce rents as a result. The consensus was they would keep rents high, even if it meant vacancies, rather than adjust pricing due to supply and demand issues.
It is if the builders are preferentially building high-end units that they know they can sell to investors for a premium, instead of low- or mid-range units.
But fundamentally, yes, we’re just not building enough new units. At least around here, it’s commonly acknowledged that the growth of housing is lagging our population growth by a significant factor, to the tune of thousands of people a year simply not having any real opportunity to find their own unit, and having to resort to having room mates and the like.
I’m in favor of placing strong controls on things like corporate ownership of housing, and taxing vacant units, and the like, but even the most extreme such measures won’t make much difference if we’re literally not building enough new units, regardless of which market we’re aiming for.
It’s not just a factor of how many homeless you have, though, it’s also a factor of, how many people share homes, because they can’t afford or can’t find a unit of their own.
Room mates are great for a few years when you’re young, but do we really want a society where people in their 30s, 40s, and 50s can’t afford a place of their own? People are complaining about Gen Z and Millennials not having kids, but how do you start a family if you don’t even have your own place?
The county in which I live just announced they will need at least 17,000 new homes a year for the next 5 years to meet demand. But there are places like in the city of Seattle that wants to charge someone $77,000 in permit fees to build a second home on their existing lot. The county government also thinks the taxpayers should help pay for this, they are planning a referendum to raise $100 million to pay for new housing. This is on top of the $1 billion they want to raise to deal with the homeless problem. The county might get it’s way, people like me that can’t afford all the new property taxes will move out of the county. The county might get it’s wish, only the wealthy and upper middle class will be able to afford to live here.
Some of the problem is the difficulty in entry into the housing market. In places where there are minimum requirements of size and other things that drive up housing costs that can be a problem. It prices the newcomers to the market out of housing. Zoning and HOA requirements might be well meant, but it can also mean people are priced out of the area and when you’re priced out of housing you become one of the homeless, which is a growing problem.
If you have 12,000 homeless and 33,100 vacancies the problem isn’t merely a matter of supply. Sure, some of those vacancies are probably in need of major repairs and/or tear-downs, but far from all of them. If the 12,000 homeless don’t have the money to pay either mortgage or rent asked on those vacancies then supply is not the problem.
On the other hand, if you look at someplace like Sanibel Island, Florida where the housing stock was largely demolished by a hurricane then supply really is the problem - there are simply not enough intact homes to go around. Likewise, war zones and post-earthquake areas can have the same problem. We don’t currently have that sort of war in the US (I hope never) the other two problems are ones that can happen and do happen.
Like any other complicated problem, there isn’t a single, simple solution. “More housing” doesn’t help unless it’s at a price point those at the bottom of the socioeconomic ladder can afford.
Building new, expensive homes would help, if the people already at the top of the market were to move into such houses. In theory, that would tend to make every level of housing below the top level less expensive, as it would decrease the demand. Everyone moves up a level, and then the homeless people get the oldest, smallest houses at the bottom of the market.
Of course, this doesn’t work if even the number of new expensive houses isn’t keeping up with the growth of demand, and a certain number of those units are being kept empty for some complicated investment reason.
It also doesn’t help as the older and smaller houses are eliminated via natural attrition, to the point that the supply of “entry level housing” is greater than those who need such housing. Because older and smaller housing stock does decrease as some portion of them fall into decrepitude, burn down, the lot is bought and a McMansion is built, property values rise to the point that even small homes are priced at an unaffordable level, etc.
What is really limited in supply is land, as long as people want to live near (but not too near) other people. Urban sprawl does not appear to be good for the planet. Urban density does not appear to be pleasant for those living in it (although it can be, it just requires a lot of controls and planning and intention).
If the new units aren’t aimed at the people who need them, and need them to be affordable, that will do nothing about homelessness nor families not being able to “have their own place.” How do you force the right kind of units to be built? One way is for the cities to build them and sell* them at below-market rates. This has a lot of inequity built into it, especially towards those who are just barely above the economic cutoff for below-market housing. It can even discourage families from stretching to improve their economic situation so they can afford a home. This is a very complex issue, but I would like to see more from the OP about the quoted line above.
*Note that, based on past experience in San Francisco and elsewhere, just renting properties at below-market rates creates instant slums. Political entities do not make good landlords.
If you dig into it, you’ll see that the numerous elements that conspire to create artificial scarcity tend to make the “free market” of housing more of a classic market failure.
I think it means doing things like I mentioned above: banning corporate ownership, and adding tax burdens to the “investor class” buyers. There’s probably also a plan for rent controls*. The notion is, housing is for living in, not making bank off of.
There are other problems that can come of this, as you note, but there should be solutions to those problems.
*In Ontario, where I live, there used to be rent controls on all properties, but then a few years back, they removed these limits on any “new build” units. I suppose the intent was to encourage building even more new units, but in practice, the builders kept building at about the same rate, but now can jack up the rent almost any time, by almost any amount. This has led to massive increases in the rents around here. Were I to have to move into a rental place, I’d have a hard time covering that, and I’m doing pretty well, employment-wise. People working low pay jobs? They’re basically fucked.
True; and also, in some areas it also decreases as what used to be either single-family homes or houses for rent by the month get turned into short-term rentals; which effectively take the house out of the pool available for actually living in.
There may well be specific areas in which there are more empty houses/apartments than there are people needed them, and the problem is getting enough money to the people who need them so that they can afford to buy or rent. But there are also areas where there aren’t enough houses/apartments to go around.
Before we get into de-financialization, let’s define financialization:
“The financialization of housing” “describes the increasing tendency for owners and investors to value housing as a financial asset, like stocks or bonds. This process increasingly divorces housing from its purpose as shelter by using it to generate profits in financial markets.”
(This article is a great introduction to the subject.)
This is not “the invisible hand of the market” – this is the result of the legal and tax code being bent over many years to favor the investor class.
De-financialization can take many forms. For instance, in New Zealand, investors who live overseas are not allowed to buy homes. You must reside in the country to do so. Another example of de-financialization (as @Horatius mentions above) would be levying much higher taxes on corporate owners than on individual owner-residents.
Your link recommends a supply side solution to high housing costs. Not simply letting the market do what it has been doing, but easing the legal and administrative restrictions on expanding the supply.
When people advocate for a “free market” solution, they’re suggesting that government involvement is restricting the growth in supply, and we should reduce that impact before trying other solutions.
Those areas may have more housing stock than people due to lack of employment opportunities and such - in which case there may be people who can afford the housing who need housing but they may be unwilling to move to the area due to excessively long commutes or inability to keep paying the bills after such a move.
Sometimes an area is deemed undesirable for reasons of crime - I live very near to Gary, Indiana which has LOTS of affordable homes, but no one wants to live there due to the crime rate. Except for the desperate and a fair number of squatters who are living in abandoned housing illegally (and often in hazardous circumstances).
The whole question of affordable housing vs. people needing housing is surprisingly complex.
But I couldn’t tell if @Crafter_Man (or some hypothetical other person) was implying that the market should be freed up to do its thing or that we should just sit back and let things play out as they are (implying that housing is currently a free market).
In my area, there’s no end of dedicated green space that can’t be built on and may very well contribute to “quality of life” (for those who can afford entrance to the housing market), but it also does create that artificial scarcity which drives up prices.
An acquaintance is a builder. I know he’d rather build 10 houses that sell for $10 Million per than 1,000 houses that sell for $100k per.