This is a great article that I'll definitely reference in the future.
I do have one potential objection in mind, and I'd love your take on it. What do you think about real estate being seen as an investment?
It seems to me that all asset classes must continually get more expensive at a rate that outpaces inflation in order to be investments, and so the presence of any housing investors is a huge problem for affordable homes in general. In other words, in order for housing prices to drop (or at least only appreciate with the general rate of inflation), we'd have to make so much housing that real estate would no longer be seen as an asset class at all. Doing so would definitely piss off the institutional investors, whose livelihoods are dependent on housing becoming more expensive, and who thus have a vested interest in artificially constraining housing supply with zoning regulations and other such nonsense—and they definitely have more lobbying power than us.
You raise a great point about corporate investors having incentives to manipulate markets for artificial scarcity—that does seem like the incentive structure and would be genuinely concerning! But corporate investors own such tiny market shares even in cities where they're most active, so they can't really pull off cartel-like behavior. Plus, the research I was looking at indicated that rent increases lead investor activity, not the reverse. (So it's like Noah Smith's "umbrellas don't make it rain" piece, which is great if you haven't read it.)
My more on-the-ground answer is that as a planning commissioner I never see corporate investors showing up to block housing projects—only local NIMBYs. When corporations do show up, it's as frustrated applicants trying to build more housing, not to restrict it.
Who knows what would happen if there was some concerted effort to truly decommodify housing across the board. I personally think that would have, in the end, good effects. But it would be a painful pivot and as you say, it would piss off a lot of vested interests. I'd say homeowners more than corporate investors, going by what I see on the ground, but who knows?
This is really interesting. I guess that makes sense if corporations that rent out their property all have individual incentives to build more housing.
I've noticed similar things with local NIMBYs too—it's come up at my internship at the Cook County Treasurer, in which voter turnout in property tax referendums are overwhelmingly dominated by individual higher-income voters who obviously have vested interests in maintaining their wealth. (https://www.cookcountytreasurer.com/pappasstudies.aspx if you take a look at the ones that have "voter turnout" in their name. Conveniently they all have executive summaries attached.)
Right?!?! I'm really pissed off that I'm being forced to take a bedrest (got hepatitis a somehow) because I am really liking the internship so far and am really hoping they'll take me on full-time
Excellent column! What I wanted to see, though, was an example of building more houses reducing costs in an entire area. For example, metropolitan areas tend to have lower cost housing in outlying suburbs, but that seems to have little impact on housing prices in the central city where land itself is pricey.
I’m not trying to be difficult. I’m just wondering about evidence that increasing housing supply has actually reduced costs somewhere. It seems self-evident and I believe in the law of supply and demand. But actually increasing supply in areas that need it is easier said than done. It’s complicated.
I don't think you are being difficult ... but I did offer up that very evidence in my piece. I talked about the somewheres.
Actually increasing supply is hard because of many things, but mostly because of our regulatory framework. There are lots of real-life markets that show how this has played out. I talk about them in this piece and across all my work!
This is a great article that I'll definitely reference in the future.
I do have one potential objection in mind, and I'd love your take on it. What do you think about real estate being seen as an investment?
It seems to me that all asset classes must continually get more expensive at a rate that outpaces inflation in order to be investments, and so the presence of any housing investors is a huge problem for affordable homes in general. In other words, in order for housing prices to drop (or at least only appreciate with the general rate of inflation), we'd have to make so much housing that real estate would no longer be seen as an asset class at all. Doing so would definitely piss off the institutional investors, whose livelihoods are dependent on housing becoming more expensive, and who thus have a vested interest in artificially constraining housing supply with zoning regulations and other such nonsense—and they definitely have more lobbying power than us.
Would love to know your thoughts!
You raise a great point about corporate investors having incentives to manipulate markets for artificial scarcity—that does seem like the incentive structure and would be genuinely concerning! But corporate investors own such tiny market shares even in cities where they're most active, so they can't really pull off cartel-like behavior. Plus, the research I was looking at indicated that rent increases lead investor activity, not the reverse. (So it's like Noah Smith's "umbrellas don't make it rain" piece, which is great if you haven't read it.)
My more on-the-ground answer is that as a planning commissioner I never see corporate investors showing up to block housing projects—only local NIMBYs. When corporations do show up, it's as frustrated applicants trying to build more housing, not to restrict it.
Who knows what would happen if there was some concerted effort to truly decommodify housing across the board. I personally think that would have, in the end, good effects. But it would be a painful pivot and as you say, it would piss off a lot of vested interests. I'd say homeowners more than corporate investors, going by what I see on the ground, but who knows?
This is really interesting. I guess that makes sense if corporations that rent out their property all have individual incentives to build more housing.
I've noticed similar things with local NIMBYs too—it's come up at my internship at the Cook County Treasurer, in which voter turnout in property tax referendums are overwhelmingly dominated by individual higher-income voters who obviously have vested interests in maintaining their wealth. (https://www.cookcountytreasurer.com/pappasstudies.aspx if you take a look at the ones that have "voter turnout" in their name. Conveniently they all have executive summaries attached.)
Oh my god, the data!!! I'm so jealous
Right?!?! I'm really pissed off that I'm being forced to take a bedrest (got hepatitis a somehow) because I am really liking the internship so far and am really hoping they'll take me on full-time
Oh no! I hope you recover quickly!
Excellent column! What I wanted to see, though, was an example of building more houses reducing costs in an entire area. For example, metropolitan areas tend to have lower cost housing in outlying suburbs, but that seems to have little impact on housing prices in the central city where land itself is pricey.
I'm not sure what you're asking, exactly - are you asking if building in the burbs is shown to reduce rents in the core areas?
I’m not trying to be difficult. I’m just wondering about evidence that increasing housing supply has actually reduced costs somewhere. It seems self-evident and I believe in the law of supply and demand. But actually increasing supply in areas that need it is easier said than done. It’s complicated.
I don't think you are being difficult ... but I did offer up that very evidence in my piece. I talked about the somewheres.
Actually increasing supply is hard because of many things, but mostly because of our regulatory framework. There are lots of real-life markets that show how this has played out. I talk about them in this piece and across all my work!