In the very near term, this seems right. Over the long run, I'm genuinely uncertain whether to believe this.
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Many people in the Bay Area argue that NIMBYs ignore the basic economics of supply and demand. Build more housing, they argue, and prices will inevitably drop.
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In Braess's paradox, increasing the capacity of a road to carry traffic may actually lead to more congestion, since more people will want to use it: https://en.wikipedia.org/wiki/Braess%27s_paradox …
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What bothers me is that generally speaking the biggest cities (a) have the largest supply of housing; and (b) have the highest prices, because being big makes them so attractive. So a large supply is actually anti-correlated with low prices.
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So while I believe the supply-and-demand argument over, say, a 1-year timescale, I wonder if it's false over 20 years. Make housing a lot easier to build, SF will become a much bigger city, and prices may go up even more.
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A counter-argument would be to say something like: what's needed is to ensure a permanent structural increase in the _fraction_ of the city's housing stock that is available.
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That argument seems pretty good to me (though, as with the first argument, I'm also not sure of it). But it's not the argument I often hear from the NIMBYs-are-ignorant-of-economics people.
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I first read that 1st sentence as “NUMPY” and exclaimed, “how DARE they!”
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Hi Michael, the Oxford economist
@sjwrenlewis wrote about a UK version of this problem recently. tl;dr Supply of housing is greatly affected by share of housing assets available for rent, which in turn is greatly affected by interest rates. https://mainlymacro.blogspot.co.uk/2018/02/house-prices-and-rents-in-uk.html …Thanks. Twitter will use this to make your timeline better. UndoUndo
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Housing supply is an important aspect of the problem, but far from the only thing that matters. Re: increased demand, the biggest factor is jobs. And many Bay Area cities love adding jobs but never add housing. PA has a 3:1 ratio.
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Good thread. I too have wondered about the paradox of high prices in dense cities that have limited building restrictions. And also wondered about the sensitivity of price to supply changes. Difficult to argue this with urbanists, though, who tend to be quite ideological
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Have also looked for any attempts to model this without success
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