Debunking the Housing Supply Myth
Just because they keep saying it doesn’t mean it’s true.
By Andrew Dobbs
Systems of injustice can’t rely on violence alone to reproduce themselves, they need the willing participation of both oppressors and the oppressed to keep going. They do this through the institutions of ideology, and ideology’s basic mechanism is to simply repeat the same wrong thing over and over again until it becomes background noise and everyone just accepts it as a fact of life.
The USA is the freest country in the world. If you work hard you are guaranteed to get ahead. You can throw things “away” and they disappear forever. Each is demonstrably false, but we’ve heard them all so much we get uncomfortable when someone challenges them.
One myth still in the early stages of its perpetual repetition: housing prices are going up because there isn’t enough supply, and local land use regulation is to blame. This is likewise totally false in almost every instance, but contesting this idea really pisses people off. Regardless, we need to challenge supply-side housing economics if we aren’t going to make our current gentrification and displacement crisis even worse.
Here are 7 situations that prove the supply-side housing myth wrong.
Why Do We Tear Down Houses?
Generally speaking, if you look at the property values that are spiking so sharply you’ll see that their land values are soaring even while the values of the structures on those lands decline. Nobody contests this.
If the problem right now is demand for housing, however, then why would the structures be declining in value while land prices climb? Empty land offers no satisfaction for that housing need, but the structures that would satisfy the demand are losing value. The housing there may not be great but if there’s an overwhelming demand that no supply is able to meet because of the damned NIMBYs, then shouldn’t it at least maintain its value?
The clear implication here is that the rising prices for housing aren’t driven by a demand for housing, the demand is for property, not housing, as an investment vehicle. The best way to capitalize the value of these investments is by transforming them into high price housing or commercial spaces or better yet both, a mixed-use development.
The supply-side argument convinces policy-makers that packing as many people and businesses into as many properties of this sort is an urgent need that will benefit everybody. In truth, only the developers, speculators, and landlords profit from it. If the need was for housing we’d see pressures to maintain existing stock so we don’t lose any ground while we build much needed supply, but instead the pressure is all towards tearing down what we have and replacing it with something more luxurious.
Gentrification actually in and of itself disproves the supply-side argument.
No Correlation Between Wharton Index and Rent Increases
We also have some data that land use regulation does NOT seem to correlate to rising unaffordability. At this point the best empirical measure for local land use regulation is the Wharton Residential Land Use Regulatory Index (WRLURI). Developed by two researchers at the Wharton School of Business in 2007, the WRLURI uses survey data about the complexity and costs of residential development and public information about state land use policies and elections to develop a score for how restrictive various metropolitan areas are.
So how do the scores match up to affordability outcomes? The worst metro area of all identified in the study was Providence, RI — in fact, by their score they were TWICE as restrictive as urbanist boogeyman San Francisco. But since 2010 Providence has gotten MORE affordable — the ratio of average fair market rent to average weekly earnings is nearly 13% lower in 2017 than it was in 2010.
Across the board there is little association between WRLURI score and the cost of housing in a metro area. Pittsburgh and Chicago both had the same score, and since 2010 Chicago has gotten 5.7% less affordable and Pittsburgh has gotten 7.6% more affordable. Metro Boston is second only to Providence in its restrictiveness and indeed, it got 4.4% less affordable, but the St. Louis metro area was the third LEAST restrictive and it got more than 15% less affordable — nearly four times worse than Boston.
Measuring affordability by comparing fair market rents to average earnings means that some areas got less affordable not because their rents went up but because wages went down. But again, most restrictive of all Providence saw rents DECLINE by more than 8% when adjusted for inflation, and Oklahoma City — the sixth least restrictive — saw rents go up 11.7% in that same period.
If supply is a problem, it isn’t because of regulatory interference or “NIMBYs” unless there has been a rush for regulation in Oklahoma City and libertarian principles overtaking Providence and Boston.
Vancouver: Gentrification and Supply North of the Border
Getting more specific now, Vancouver, British Columbia housing prices have climbed sharply in recent years, even with province-wide rent control.
So is a lack of housing supply to blame? This past November Dr. John Rose from Kwantlen Polytechnic University in British Columbia answered that conclusively in his report “The Housing Supply Myth.” Using census data Rose found that between 2001 and 2016 the Vancouver metro area added 119 housing units for every 100 households that formed. In fact, Vancouver had both the largest increase in housing costs AND the largest increase in housing supply.
Sharp-eyed supply-siders might notice that Rose’s research deals with the metro area as a whole and so could include suburban sprawl and not just the city proper. But Rose’s research does apples-to-apples comparison of metro areas across Canada and there is little to no correlation between supply growth or restriction and the direction of housing prices. He looked at every metro area in Canada and by 2016 seven of them had problematic levels of unaffordability; in six of these areas housing supply had grown substantially faster than demand — on average 16% faster.
Note also that the still affordable areas actually added housing at a slightly SLOWER pace — about 13% greater than household population growth. For Vancouver in particular this growth actually meant that their surplus housing supply increased by 85% even as housing prices have soared.
Across Canada gentrification was no respecter of surplus, supply growth, or any of the other factors cited by developers to argue for increased entitlements. Just because they say it over and over again doesn’t make it right.
Baltimore: Plenty of Supply and Gentrification Too
Vancouver saw rents go up with increased supply, what about a community with declining population? They should see no problems with affordability or gentrification so long as housing supplies are maintained, per the supply side theory. Baltimore, Maryland — by way of example — lost about 4% of its population between 2000 and 2013.
Still, Governing Magazine’s analysis of Census data from that timespan found that median home values more than doubled in nearly two dozen neighborhoods over those years, tripling or more in some of them.
It is true that when adjusted for inflation rents were stable over this time, but the number of families paying more than half their income in rent still grew by more than 10%. The problem here was one of stagnant and declining income, but those rising home values mean that they are falling even further behind, and the population loss indicates that many are being forced out of their communities, leading to accelerating social decline.
If ever there were a city with plenty of housing supply, it’d be Baltimore, but even there gentrification and affordability are at crisis levels.
California: Increasing Supply and Sprawl
Still, supply-siders will interject, Baltimore DID see functionally no growth in rents in over a decade when adjusted for inflation. The problem — for them — is that the way vacancies typically go up is through sprawl. Dr. Murtaza Baxamusa is a planner in San Diego who looked at California’s vacancy rates in a 2017 article. In the 1990s vacancies statewide in California went up significantly, surpassing national averages. Baxamusa elaborates on the data:
According to research commissioned by the California Senate Office of Research, the metropolitan areas of Fresno, Los Angeles, Riverside, Merced, Sacramento, Oakland, San Francisco, San Luis Obispo, and Stockton all experienced the state’s greatest increases in urban sprawl during the 1990s. Average metropolitan growth in urban fringes between 1980 and 1990 were twice as great as growth in the urban population. And between 1987 and 1997, the average percentage of a California metropolitan area’s land devoted to farming fell by about 9.4 percent.
New subdivisions were being built by developers — often consuming greenfields and clogging freeways. Pro-sprawlers argued that infill opportunities were limited, and that a majority of sprawl was really attached multi-family housing. Sprawl was cheap and profitable, but cost municipalities twice as much to serve. In hindsight, this was an economically inefficient and environmentally destructive form of growth. By the late 1990s, California started running out of land to keep the growth machine chugging along.
This is likewise what’s kept vacancies up in Baltimore — people moving to suburban areas in the county — and even in Austin recent flattening of the demand curve seems to be offset by sharper population increases in nearby suburbs.
To get the same sorts of supply in already relatively dense urban areas means building up, which is exactly what urbanists want to do. The taller your building, however, the more expensive construction becomes. BuildingJournal.com has a great building cost calculator, and if you compare the cost of a 1–3 story, 100,000 square foot apartment building in Austin to the same size building spread over 4–7 stories your costs go up about 30%. Even if you add 50,000 square feet — make the building 50% larger — the costs only dip a little, to a 26% greater cost per square foot.
Quickly we get into a vicious cycle where the only way to pay for the increased development costs is to increase supply further which only adds more costs. Not only would this not prevent gentrification and displacement, it would require them at unprecedented levels. There has to be another way between this devastation and irresponsible sprawl.
Los Angeles County: More Surplus, More Gentrification
Even sprawl sometimes isn’t enough. Returning to California, Los Angeles County is the most populous county in the country, and they invented sprawl as we know it. Still, one analysis found that adjusted for inflation median rents had increased more than 28% since 2000.
These numbers don’t tell the whole story, of course. For that, a once-preposterous Los Angeles Times headline from December 2017 says it all: “Finding the LA real estate gold rush — in Compton, Watts and South LA.”
This is all because Los Angeles County has refused to let people build, right? Except that the county’s population grew at 4.7% while its housing stock grew at a rate of 6.7% between 2000 and 2016. Housing surplus was 45% larger in 2016 than in 2000 (a 6.3% vacancy rate versus 4.4%).
Supply has outstripped demand and even vacancies have expanded with rent still on the rise and displacing some of this country’s most historic Black and Brown communities. The supply-side myth cannot explain this at all.
Austin: A Frenzy of Housing Supply
Here in Austin the City Demographer, Ryan Robinson recently made a presentation to a combined work session meeting of the Planning and Zoning and Platting Commissions reporting that between 2014 and 2017 the City of Austin netted a total of 41,366 units of housing. In that same time period we added — at most — just about 34,000 households (assuming a household size of 2.3 — the lower end of recent reported figures).
That’s a surplus more than 7,000 housing units in just 4 years. Even better, if we build at this pace through 2030 — with no major changes in entitlements — we will build more than 41,000 more housing units than we need over the next 13 years. Supply is no problem under our current rules. In fact, we may even have a problem with glutting our housing market if we aren’t careful.
Indications are that developers have considered this too, as Metro Austin’s vacancy rate has remained very steady — between 6.9 and 8.3% for most of the decade. When vacancies start eating away at their profits they slow down building, yet somehow regulators are always the supply-side bad guys, never business. It doesn’t fit the myth, so it doesn’t get repeated.
All of the messages we repeat over and over all have a common thread uniting them. They all insist upon a world that reflects the interests of our present ruling elite, and they all demand that the rest of us stand down.
The result is that we can’t even imagine solutions or scenarios not approved by that class. Ask 10 average municipal policy wonks for supply-side solutions on housing and they’ll have 15–20 dream projects for helping developers build more stuff. Ask them for demand-side solutions instead and you’ll get silence, incredulity, or bad faith suggestions that demonstrate just how impossible they imagine it all to be.
So we end up with two basic choices: we can either stay silent and let the big property-owners bulldoze our communities or we can make a whole lot of people — including ourselves — really uncomfortable. We can repeat the myth or we can start to deal in reality.
Obviously, I counsel the latter choices, and the important thing to remember as it gets tough is that If we don’t play along, the game can’t go on. The demand for that sort of change has never been greater, and it’s one we ought to be eager to supply.