Tuesday, October 4, 2016

Our peculiar housing problem.

I saw this op-ed by a Manhattan city council member. (HT:MY)  The op-ed mentions the recent report from the President Obama's Council of Economic Advisers about the urban housing problem.  The recent reports from the President's staff on housing and occupational licensing really have been unusually lucid and clear-headed.

The Manhattan City Council member, Helen Rosenthal seems to agree that the report is well done.  But, she adds this caveat:
But the White House’s toolkit falls woefully short in that it completely ignores a rapidly growing threat to affordable housing in New York City and across America: short-term rental of residences on platforms like Airbnb.
In his op-ed, Jason Furman succinctly points out that “basic economic theory predicts that when the supply of a good is constrained, its price rises and the quantity available falls.” Airbnb is the prime offender of this basic economic tenet in that it facilitates the widespread removal of housing from the New York City market, constraining supply and driving rent through the roof.
But, we also have the problem that developers only want to build new "market rate" units for the "luxury" market, so when supply increases, it simply draws in more luxury tenants, increasing local rents.

It appears that, from London to Los Angeles, the West's major cities have encountered a strange happenstance.  A v-shaped demand curve that just happens to be centered at the current level of supply.

What defines a "luxury" good?  My stab at a definition would be, "A luxury good is a good that confers high status because of limited supply."  We should probably put a moratorium on the production of new luxury goods until we can figure this mystery out.


  1. Her AirBnb argument is silly. If you got rid of AirBnb, that would simply shift demand to hotels, thus increasing their profits and therefore making future developments more like to be hotel vs residential on the margin.

  2. It is indeed impressive how the thoughtful guidance of local housing boards from NYC to San Francisco have intervened to keep the housing market perched at the lowest price level despite no input from actual markets. Kudos to these courageous, upper-middle class heroes who dare leave the sanctity of their rent-controlled apartments to face down the greedy, capitalist Elon Musk caricatures overrunning our pastoral communities. Do not mourn our immigrant construction workers or frail retirees driven to Texas and Arizona, for they had long showed signs of being Republicans and are only returning to the hellholes whence they came. We must all do our part to protect our 50-foot driveways, ill-frequented art studios, and flattened skylines from this scourge of Tesla Towers and AirBnB terrorism.

  3. Great post. It is sad to think what property zoning is doing. It is the biggest structural impediment going in the US economy.

    BTW, the fight against housing is not only waged in liberal enclaves:


    Good ol' Orange County, CA, GOP country, does not want housing built.

  4. Good comments everyone.

    You're right, Ben. Interesting article. I think I do react differently in some ways, and maybe it's not fair. It's sort of like how Munchausen's by Proxy can be more disturbing than straightforward abuse. If you're going to do harm, it's bad enough, but don't hover over the victim play-acting like you're the generous caregiver.

  5. Kevin: Agreed.

    Property zoning, and the criminalization of push-cart or truck-vending, seem to unite the powers that be, whether libs or cons.

    But some people profess to have virtuous motives.