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Culture War Roundup for the week of November 11, 2024

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There are constant calls to build more affordable housing, but instead all that seems to get built are luxury apartments that don't alleviate housing shortages, regularly outraging the /r/Eugene subreddit.

Is this what you believe, or just what the subreddit believes? Because building housing of any kind (including luxury housing) absolutely does mitigate housing shortages and reduce prices.

When cities build luxury housing, the wealthiest people move into those houses, while moving out of their existing, less luxury housing. That housing in turn gets occupied by the next rung on the income ladder, and this continues right now to the bottom. House prices and rents drop for everyone.

"You are only adding larger sized shells to the aquarium. How does this help the medium sized and small sized hermit crabs?"

Seems to be many people's actual thoughts regarding housing.

This is true in general though migration can throw a wrench in this logic. If building more housing induces more migration, especially migration of a specific type of person, logically this would counteract any downward pressure on prices.

Yes, but the same thing is true of anything you do to make a city better. It will make people move there and push up rents such that only property owners benefit. The benefit to renters is diffused across the entire country.

I don't really believe your claim from first principles, aside from the fact that building any housing at all moves the needle slightly towards making you a place more aligned with building overall.

I don't have any data to argue against you with though, so take that for what it's worth.

I don't have any data to argue against you with, though

Several studies that argue against your viewpoint are cited in "Folk Economics and the Persistence of Political Opposition to New Housing".

Activists and local officials who oppose new market-rate housing projects in expensive cities often insist that such projects benefit only the rich and “Wall Street”1, notwithstanding compelling empirical evidence that new construction in expensive places opens up housing and dampens prices in more affordable segments of the regional market2,3,4,5,6. The anti-development elites may have chosen their rhetoric to appeal to beliefs that were already widely held. Several previous studies document a tendency toward “folk economic” thinking in the mass public: markets and politics alike are seen as venues in which groups jostle for advantage and try to cheat one another rather than trade or collaborate for mutual advantage7,8,9. It is not yet known whether the mass public actually believes that a substantial increase in housing supply would fail to make housing more affordable. But, if such beliefs were prevalent, they might well undermine support for pro-housing policies.

1Been, Vicki, Ingrid Gould Ellen, and Katherine O’Regan. 2019. “Supply Skepticism: Housing Supply and Affordability”. Housing Policy Debate 29(1):25–40.

2Rosenthal, Stuart S. 2014. “Are Private Markets and Filtering a Viable Source of Low-Income Housing? Estimates From a 'Repeat Income' Model”. American Economic Review 104(2):687–706. [paywalled; non-paywalled preliminary version]

3Glaeser, Edward, and Joseph Gyourko. 2018. “The Economic Implications of Housing Supply”. Journal of Economic Perspectives 32(1):3–30.

4Mast, Evan. 2021. “The Effect of New Market-Rate Housing Construction on the Low-Income Housing Market”. Journal of Urban Economics p. 103383.

5Bratu, Cristina, Oskari Harjunen, and Tuukka Saarimaa. 2021. “City-Wide Effects of New Housing Supply: Evidence from Moving Chains”. VATT Institute for Economic Research Working Papers.

6Hansena, James, and Alicia Rambaldib. 2022. “How Do Homes Transfer Across the Income Distribution? The Role of Supply Constraints”.

7Cosmides, Leda, and John Tooby. 1992. “Cognitive Adaptations for Social Exchange”. The Adapted Mind: Evolutionary Psychology and the Generation of Culture 163:163–228.

8Rubin, Paul H. 2003. “Folk Economics”. Southern Economic Journal 70(1):157–171.

9Boyer, Pascal, and Michael Bang Petersen. 2018. “Folk-Economic Beliefs: An Evolutionary Cognitive Model”. Behavioral and Brain Sciences 41.

Which first principles would they be?

Because it seems pretty self-evident that housing is fungible. If I can't live in a grade A apartment because there aren't any available, I'll live in a grade B one rather than sleep on the streets. If grade A apartments become available, I'll leave my grade B one, which will then go on the market. The more apartments that come on the market, the less buyers will need to pay because there will be the same number of buyers chasing more properties, and sellers will be forced to lower their prices.

'Luxury' housing is just the word we use to describe the most expensive houses, it's not a characteristic of the houses that makes them qualitatively different.

The only way for me to believe that building luxury homes doesn't reduce prices would be for me to believe that either:

  1. Increasing supply while keeping demand static doesn't reduce prices
  2. Different types of housing aren't fungible

'Luxury' housing is just the word we use to describe the most expensive houses, it's not a characteristic of the houses that makes them qualitatively different.

It's even worse than that: it's a pretty meaningless marketing adjective that makes you feel better about paying a lot for something. Everyone slaps on the label except those at the cheapest, er "Value!" end of the market looking for price-conscious customers, and the polar opposite of brands that are well-known to the point where using the label is déclassé. And this doesn't just apply to housing.

Agreed. In my city, all housing that's not directly inside a high-crime neighborhood is marketed as “luxury”. I cannot find non-“luxury”-advertised housing, except in high-crime neighborhoods. Preliminary checks on other cities show the same thing.

Ah, the luxury of living in an area with the demographics of several decades ago.

That luxury has been reserved for the rich ever since the Civil Rights Act of 1964. See "When Did Healthy Communities Become Illegal?" by Charles Tuttle.

Except that you have the same issue that makes adding more lanes a bad idea. Which is that people who ordinarily would not be looking to Eugene OR as a potential place to live suddenly do because housing is more available there. If there are 50 apartments and you’re looking between several areas, you might pick Eugene, even if without the extra housing you’d probably say F it and move to some nearby town or suburb or exurb instead.

All this means is the benefit is spread around to other people. The people who move benefit and the property owners benefit.

The steelman for the NIMBY argument is that the demand for dense housing in the US is so high that building more density will always stimulate demand.

By building more big apartment buildings downtown, Eugene will become a more desirable place to live for wealthy people who will move there and drive up prices.

On a national level more housing will lead to lower prices but on a local level it might not.

That just means most of the benefit goes to the local property owners. It's still a net benefit to the community, which could be redistributed if necessary.

Yeah, in aggregate it's a good thing which is why it should be allowed to happen for the most part. But there are losers and the money likely won't be allocated to them in a meaningful way. Kinda like free trade that way.

The overall point stands that building new luxury housing in a community doesn't necessarily reduce the prices for housing in that community.

Moving isn't easy though and it's actually hard for people to figure out that things are better in a different place. Comparisons are hard and people have ties to their current communities. So it probably does help people in that community. It would take a long time for things to reach equilibrium again.

I believe the counter to the steelman is that 'stimulated demand' is just known elsewhere as 'demand,' which is to say the exact thing you'd expect to see from a supply and demand curve interaction when you increase supply.

In a contained system yes, but in this case you're inducing demand from outside the system.

With roughly 100k people, Eugene can't build enough to satisfy all people in the US who want to live in a dense environment. For the same reason, they can't solve their homeless problem by building shelters.

If those people are able to buy houses in Eugene, they are within the system. It's still just demand.

Now, it may be a demand curve that needs to be adjusted by different legislation- such as restricting property purchases by non-residents or some such- but that's different from a claim that the demand is stimulated.