Any time we write about how more housing will lower housing prices, or at least limit their growth, some commenters say that we’re wrong because New York is dense and expensive. It’s as if we’re citing the “law of supply” instead of the law of supply and demand.

Anyhow, via Vox here’s a Trulia chart comparing new construction vs. rising prices.

Sadly, Seattle isn’t one of the labeled dots. Regardless, the density naysayers would have you believe that cities can sustainably be in the upper right quadrant of this chart. That may be so, but there’s no empirical evidence to support it.

44 Replies to “More Construction = Lower Prices”

      1. Probably right. So that means that if you plotted the other way it’s parabolic, meaning that restricting construction leads to increases in rents that are x^2, which is crazy. That shows how important development is to affordability!!

      2. Or maybe the points at the extremes are just outliers. The choice of units on the X-axis includes all the build up of the housing bubble, it’s bursting and the subsequent recovery. From what I read, I don’t know where the pricing data comes from, but I expect that’s at one point in time. Places that suffered most from the housing crisis are close to the X-axis. Places that retained property values and suffered less from the housing crisis are high on the Y-axis. Other cities make a nice scatterplot.

      3. That’s the thing about housing. Most houses aren’t for sale.

        For example, take a supermarket with a bunch of peaches. Now, you can have any peach you pick.

        Ok, now imagine a rack full of peaches, but about 95% of them have a little blue label meaning someone else already owns them. You can only pick from the other 5%.

        So for a newcomer, he is bidding on the 5% of homes that are actually for sale.

        For the longtimer, he is sitting on property that can be rapidly “leveraged” up.

        Now back to the peaches. Suppose there are ten peaches, and nine have blue dots.

        Two people come in an want a peach — no, say they need a peach. Say they are starving. What is the price of the tenth peach. Yes, in the abstract, the price, if there is no collaboration, would go up to the entire wealth of the poorer of the two people.

      4. Substitution, John; look it up. The peaches are a nice 3rd grade math book style illustration, but they’re substitutable products. One of the people would just buy a pear.

  1. http://www.amazon.com/Adam-Smith-Enlightened-Walpole-Eighteenth-C/dp/0300177674

    Am I wrong that the original calculation of supply and demand originated in the Age of Reason? What throws the theory off is exactly the difference between healthy growth and cancer.

    What we’ve got now, which is interestingly personified by the entity responsible for my becoming a regional passenger unable to vote to save KC Metro, is a proliferation of people the opposite of capitalists.

    There’s an honest reason for the term: building wealth to increase productivity in the future. However, a predictable and preventable disease of the philosophy is an operating mode whose goal is to make as much money as possible in the shortest amount of time.

    Regardless of whatever waste and damage is left behind- that’s what gated communities and property in places without extradition treaties are for.

    And then invest earnings in something else that will yield similar results. “Sub-prime mortgages” are a perfect example. Notice how much olifactory similarity they have to “Sub-prime meat.” Also respective results to economic and human bodies.

    In other words, there’s a reason why, starting with the German merchants who started capitalism, there was an understanding that intelligent regulation was necessary to its survival- like a governor on a machine.

    Hate to think of the number of newly-arrived young people centralized in Ballard, whom I had really come to like, being home when all that wet cardboard behind the Spirit station meets its end.

    Mark Dublin

    1. “, is a proliferation of people the opposite of capitalists.”

      You’re referring, I take it, to what Thorstein Veblen called “the leisure class” in his famous book? The people whose game is to “score points” by bankrupting their neighbors?

      (If you haven’t read it, you might like it.)

  2. I found what seems to be the source article of that graphic. It’s also interesting. Check out their graphic for affordability by education – Seattle’s listed in that one as the 4th least affordable to those with graduate degrees.

    I liked this: “short of filling in San Francisco Bay or paving over the Everglades, local governments have a lot more control over regulation than geography. So why don’t expensive cities relax regulations in order to build more?”

    Whatever the reason, we absolutely could if we wanted to.

    1. Another factor that links Seattle and San Francisco is a restriction on property taxes.

      Low property taxes means that people can hold on to large swatches of land with little or no costs to them.

      That takes a lot of property off the market, or lets people indulge themselves of the services of a major city without paying fair share.

  3. So you are recommending rescinding the GMA? Seems like a commonality behind the cities that build is no regulation on how far and wide they build.

    1. I would gladly rescind the GMA if we eliminated all restrictions on urban density as well. But favoring the environmentally destructive one over the other is madness.

      1. I agree with GMA in the sense that I think Seattle is over capacity. Just allowing people to rip up forest land will turn this state into New Jersey.

        A better approach is to increase the growth of Inland Washington cities — Pasco, Spokane and Yakima. Bellingham. These can be “New Seattles” to which people can move and find affordable homes and yet the amenities of the city.

        And of course, the base in all this is population control. We can no longer be an unregulated pool for immigration. We need to put strict controls in place and to make parents more responsible, especially financially, so they start to think twice.

      2. John fears Hong Kong, but Seattle is no Hong Kong. What is so bad about Hong Kong anyway?

        John your desires are impossible and impractical.

    2. Na. The GMA is the right thing, it just can’t be paired with growth restrictions in the urban core. You have to allow growth inside the GMA boundary in order for the GMA to work.

  4. It is interesting to observe that the cities in the lower right quadrant are all SPRAWL oriented cities.

    1. Yeah but San Jose and Orange County are in the top left, and are hardly models of density.

      1. It’s almost as if the influencing factors are complicated, and not easily reduced to the condescending soundbites of a Chicago School purist teaching a roomful of impressionable college freshmen!

      2. (It’s also almost as if the chart is including broad swaths of each metropolitan area, rendering the resultant “cost/square footage” averages fairly meaningless and stripping the chart of any instructive value of any sort. Thus far, Vox has been little better than a Buzzfeed with infographics.)

  5. This chart doesn’t seem to address density, or baseline demand either. The cities on the right are all low-density sprawl, with only a token amount of TOD infill. The cities in the left column are diverse densities. Not only that, but some are uniform density (Los Angeles) and some have wide variations (New York). You’d need a specific density axis to tell anything about density, and you’d have to exclude the sparse peripheries of dense core cities (and perhaps treat them as separate cities, e.g., Inner New York and Outer New York).

    The reason is that permission to build is independent of density. The chart shows permission to build units. It doesn’t say whether the units are dense or sparse or large or small, because sparser cities are scattered all over the map. Chicago seems to be the only city that combines medium/high density with permission to build as much as demand wants. That gives people a wide choice of walkable/transit-rich neighborhoods at prices similar to 2004 Seattle. (Caveat: I haven’t checked Chicago’s latest prices.) That’s still higher than most Americans can afford but it’s better than the other largest cities. The reason we don’t have “more Chicagos” is anti-density zoning restrictions (San Francisco, Seattle) and universal parking requirements (Los Angeles). But the chart doesn’t directly address that issue.

    1. But for the purposes of debunking the supply-demand denialists, that those cities grew with sprawl rather than infill and density is irrelevant. Either sprawl or density-based housing construction is necessary to control costs under conditions of economic growth. When choosing between them there are many independent reasons to prefer density.

    2. Exactly, the chart is a meaningless graph of two variables. It would be just as informative to graph rainfall vs pounds of banana production per acre. Hence, Las Vegas building over building leading to low prices psf and Detroit letting houses revert back to prairie can both be used to “prove” the two ways to lower housing cost is to build as much as possible or tear down as much as possible.

      One thing that the bulldoze and build crowd never seems to mention, unless it’s about more lanes of traffic, is induced demand. Good jobs > demand for upscale housing > more upscale housing > more people willing to come > more companies locate/expand providing more good jobs > … “Affordable” housing isn’t in the loop unless you’re one of the influx of people with the good jobs.

      1. Especially if you don’t let enough housing for all of those new employees! I promise it won’t be the low-wage worker that keeps her rental in that scenario.

        (by the way, isn’t banana production correlated with rainfall? that sounds like a useful chart to me)

      2. Yes, banana production is correlated to rainfall! That’s exactly my point. You can’t take that one data point and graph it equally with places that have a normal daytime temperature of say the Olympic rain forest with somewhere in Costa Rica and claim to make any sort of reasoned conclusion. The graph is an over simplification to the point of absurdity.

      3. Well the one example we have of a metro area with strong jobs growth and a low number of new units is the Bay Area and especially the City of San Francisco.

        Lower income people are priced out of much of the metro area already and the problem is just going to get worse. Unfortunately the conclusion of activists is if even fewer new housing units are allowed it will magically lower housing prices or at least keep them from rising even further.

        What people forget is the rents on those crappy old apartments go up too. Some of the older buildings are renovated into more upscale digs allowing even higher rents to be charged.

    3. Chicago doesn’t have have more affordable housing than Seattle because ‘Chicago seems to be the only city that combines medium/high density with permission to build as much as demand wants’. Chicago has more affordable housing because its economic model is not nearly as successful as Seattle’s. Its job growth is anemic while Seattle’s is booming. Chicago is experiencing domestic out migration and little foreign in migration while Seattle is experiencing substantive in migration from both groups. Seattle incomes are growing dramatically; not so with Chicago.

      In addition, Chicago is a city with a relatively vibrant central core, surrounded by a doughnut of poverty and disinvestment and fairly anemic suburbs. Meanwhile, Seattle’s central core, its neighborhoods and its suburbs are all booming. Seattle is built on hills and surrounded by water on two sides. Chicago is surrounded by miles of flat land. That means Seattle’s land is far more expensive…….and its cheaper to built on flat land rather than hilly land.

      Therefore, this whole notion that increased construction and density will lead to cheaper housing prices in Seattle is generally wrong. Here’s some articles that will help you to understand:

      http://www.sfbg.com/2014/01/21/manhattanization-revisited
      http://seattletimes.com/html/businesstechnology/2023310931_rentstrendsxml.html

      Bottom line: this forum needs to stick to transportation issues and stay out of housing.

      1. The Williamsburg Court development is just sad.

        Here, 49 compact residential units have sat for 100 years, an occupied bastion of density in the ocean of nothingness that became of the “Stewart Triangle”, occupying barely 17% of its block.

        But no, it must be replaced in its entirety by the useless lobby and garage access of a single, lazy profit-by-numbers investment. Because that’s “progress” to the bean counters and to the privilegers of Milton Friedman’s crumbling theory over actual learned human example.

        Seattle has barely any certified urbanity to even consider preserving and building around. Every last pre-1950 non-single-family building probably should be encased in amber.

    4. The Chicago metro area is sprawl to the extreme. It spreads into Indiana and Wisconsin. The city itself has had density for since the rebuild after the fire, it hasn’t slowed the spread of single family houses.

  6. I’ve said it several times before in the past and I’ll say it again:

    Evidence like this to the people that need to be convinced — not the highest level policymakers and elected officials, but those in the lower levels and the volunteers in the ‘trenches’ — is not going to help.

    The realities need to be stripped down to their base essence and spilled out in crystal clear night and day terms in a relatable way.

    1. I think we’re all ears if you have an idea. The problem with housing is it’s so complex and interrelated that its pretty hard to simplify.

  7. I’m man enough to admit when I’m wrong. I guess all those cranes in SLU, the Denny Triangle and downtown Bellevue are signs of prices going down.

    1. Certainly, relative to income. Every new home means one more household can afford to live here.

      1. One more high income household (mostly likely of one) can live there. There may indeed, in fact almost must be more people per sq-ft of planet earth living there but it’s not helping households that want a low cost per sq ft of place to live. Let’s just be honest capitalist pigs, the new development in urban areas is at the cost of low income housing. I’m not saying I favor protectionism for slum lords but OTOH don’t pretend that this is anything but gentrification. The deck will always be stacked against the have nots. Upzones and new development are bad for the poor and good for the yuppies.

      2. The issue is even if you don’t up-zone or allow new development you will still see gentrification, just with fewer net total housing units. You certainly can see examples of this in neighborhoods in cities like NY, SF, Oakland, DC, LA, and even Seattle.

        Short of starting a new wave of upper income flight to the suburbs or crashing the economy of a metro area I don’t know what you can do to stop or slow down gentrification once it starts.

      3. So what will happen to that relatively rich person rich person if you don’t build a home for them? Are they really going to leave their well paying job or leave for the suburbs because rents are slightly higher?

        No. The marginal income worker is the one that gets pushed out. Assuming there’s 250k households in the city that 250,001st highest income household is the one that can’t afford a home here. That rich worker just rents/buys a slightly lower quality home.

    2. Straw person. Building more housing units doesn’t necessarily guarantee housing prices will go down. But they will go down relative to what they would have been if the units had not been built

      1. Brent, that doesn’t make any sense. Let me give you an example. Let’s say there’s a rundown, low-density, low rent neighborhood that hasn’t seen any growth in years, and housing prices have been static for years. The area then starts to be developed and gentrified, we can all agree prices will go up. How can you then say that if the area hadn’t been gentrified, prices would have climbed higher if it had just remained a low density slum?

      2. Sam, when I moved back to the SF Bay area in ’95, prices were high enough in SF that friends were already settling in areas that were they wouldn’t have touched 5 years before. They were moving into older buildings, not new.

        Gentrification starts with artists, lowered payed professionals and students moving in for the low rents/location. Then stores, bars and restaurants move in to meet their needs and take advantage of the low rents. Then the developers follow and the cycle starts all over again elsewhere. Capitol Hill is a great example.

      3. Sam,
        As Phil said development is a symptom of gentrification, not a cause. If I build expensive condos in the middle of a run-down neighborhood in Gary, IN I’m not going to start gentrification, I’m simply going to own a white elephant.. Conversely there are examples of gentrification in neighborhoods where new development has been extremely limited due to historic preservation and a desire to maintain historic character.

        Frankly I find those who rail against gentrification to be extremely patronizing. Who are you to condemn a neighborhood to crime, poverty, lack of economic opportunity, low property values, and an inability to get loans for property improvement?

        Sure you may hate “yuppies” but if those “yuppies” allow a working class homeowner to sell and move to a retirement community who are you to tell them that is wrong?

  8. Looking at this graph, I can forgive Honolulu: what the heck can they build? There’s no land there to build on, basically. The rest of the super-expensive cities, though… San Jose is inexcusable.

    1. I’m a little surprised that San Diego has offered so few residential building permits; it’s not like there’s very much which is historic to preserve in San Diego.

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