A new paper this week from UC Davis Law Professor Chris Elmendorf and some colleagues explores whether housing supply skeptics learn – the answer they posit is yes, they do, “And when they do, they become *much* more supportive of market-rate housing development.”
On a local level this is of critical importance because so many people locally disregard laws of supply and demand when it comes to housing and take the approach that we do not need more market rate housing, we need to focus on “affordable housing.” Moreover, they do so without grounding their arguments in data or recent studies.
While Elmendorf, et al, focus their study on whether housing supply skeptics can learn, on a local level, I find the introduction fairly informative.
The problem as economists and policy analysts see it: “(concern) about housing-supply shortages in major metropolitan regions of advanced economies.” As a result, “Elected officials have started to wrestle with the problem, urged on by a nascent “Yes In My Backyard” (YIMBY) movement” and we have seen a series of “(i)ncremental reforms (that) have been enacted in a number of U.S. states and cities.”
But they note, and certainly we have seen, “the prohousing movement also faces headwinds.”
As Been, Ellen and O’Regan (2019) explain, a cadre of “supply skeptics” insist that “the best medicine for escalating housing costs is strict rent control and prohibitions on building market-rate housing on sites that could in theory be developed for subsidized affordable housing.”
Sound familiar? We see this at the local level – and this debate has been playing out for a number of years now with various skeptics.
Elmendorf, et al., note: “Nationally prominent politicians on both the Left and Right are scapegoating large investors rather than attacking local restrictions on housing development… find overwhelming public support for putative “solutions” to high housing costs that would probably further constrain supply: rent controls, property-tax controls, affordability conditions on new development, and limits on so-called “Wall Street” investors.”
Key point: “The mass public appears to have little understanding of the relationship between housing supply and housing prices.”
In three surveys of U.S. urban and suburban residents, Elmendorf, et al., note “that while nearly all renters and even a majority of homeowners say they would like home prices and rents to be lower in the future, most respondents do not believe that a substantial exogenous increase in their metro region’s housing supply would reduce prices or rents.”
They argue, “This result seems to reflect uncertainty or confusion rather than well-formed beliefs, as respondents gave much less internally consistent answers, within and across surveys, to questions about housing supply shocks than to questions about supply shocks in other markets.”
One question that the Vanguard has long pondered – and is invaluable to the policy space – “whether ordinary Americans’ housing-market beliefs and policy preferences are responsive to new information about the effect of supply liberalization on the cost and availability of housing.”
They answer that they find is yes.
They test four “informational interventions” with each one conveying the same basic economic proposition in somewhat different ways.
The proposition is that “an exogenous expansion of the stock of new, expensive housing units in a metro region would reduce competition by affluent consumers for “second-hand” housing, enabling middle- and lower-income consumers to buy or rent older units at lower prices.”
This is an important finding because as I have long argued the public has recognized in places like Davis that housing affordability is the most urgent problem facing the local community, but there has not seemed to be a local consensus about how best to address the problem.
On the one hand, the voters have repeatedly elected at least moderately pro-housing councilmembers and largely and overwhelmingly rejected “slow growth” candidates.
On the other hand, that largely hasn’t translated into more housing or even community support for peripheral housing projects.
We have also noted repeated warning from the council that the city will not be able to address its housing needs into the future with just infill. And therefore, there needs to be an educational process.
The paper from Chris Elemendorf and colleagues points the way for both the city and community groups to begin educating the public on housing markets and how they impact prices.
Take a look at their paper here.
