Friday, February 1, 2019

Housing: Part 342 - Building homes helps

I pulled up these charts today while responding to an e-mail, and they seem worth sharing.

This is Austin, Seattle, and San Francisco.  They each are cities with high demand for population growth and strong income growth.  They really make a nice example of how housing supply works.  When there is high demand for living in a city, it can block growth, like San Francisco, which may actually increase local incomes because of the obstructions to competition in the local labor force, but those higher incomes are generally claimed by higher housing costs.  And, the pressure is especially strong on households with lower incomes, who end up moving away at a high rate.

It can grow tepidly, as Seattle has done, which is enough to minimize the migration, so it stops the worst of the outcomes of blocked housing supply.  But, costs still move up a bit.

Or, it can grow boldly like Austin.  Austin brings in migration and offers strong income growth and the willingness to share it.  Not only are all sorts of Americans moving to Austin, but they get to keep more of their incomes when they get there because housing is more affordable.

There are rumblings of Closed Access policies in Austin, but so far their housing policy has been commendable.  If those who oppose change ever do get the winning hand in Austin, two things are certain:

1) Austin will become more expensive and will offer economic opportunity that is only accessible to richer households.

2) Those who support Closed Access policies will declare that supply and demand is an oversimplified model and building more homes in Austin couldn't possibly cure the cost problem. (It looks like they have already started.)

Follow up post.


  1. Great post. Seems like the cities west of the Rockies ( or in Texas) could grow outwards for a long time. Then something happens. Perhaps the infrastructure gets overwhelmed. Some parts of the city "should" densify but residents do not want to see densification. Commutes become horrible. Housing costs explode. When housing is built it is only built for upper-classes unless the city crowbars in "affordable housing." The optics of permitted development are perfectly terrible, of upper-class people replacing lower-class people in what used to be affordable housing.


    Unfortunately, I think the only solution is to return to the pre-1926 period, before the Supreme Court authorized localities to zone development.

    But even if there were more development in closed-access cities, you still have a problem of overwhelmed infrastructure. And Scott Sumner says Americans are so poor at building infrastructure they shouldn't even try.

    In conclusion, I say that I am glad that I am not in charge

    1. It won't reverse easily, but high costs are partly a result of Closed Access. If market prices are 3 times the cost of replacement, there isn't a natural force that can prevent costs from filling in the gap (even if those costs are just basically queuing costs, which is what you tend to see in the problem cities). It would be better to cover that gap with property taxes, but of course the problem cities generally do the opposite - they usually have low and inequitable property taxes. And, if they did that, not only would it remove the process that leads to higher costs (environmental reviews, endless lawsuits, etc.), but it would provide funding for infrastructure.

  2. A bit of a digression here--- nearly the entire West Coast strikes me now as closed access. Check out San Diego or Santa Barbara, Ventura, Orange County, or Seattle or Portland.

    1. They definitely aren't Austin, but so far, it seems that Seattle and Portland don't have the key signature of the class-based migration. In fact, during the boom, Oregon took on a migration wave like Arizona and Nevada. Now, because of Portland's quirky land use policies, prices were already somewhat elevated, so it looks to me like prices ended up somewhere similar to Phoenix, but they didn't have as far to get there. But the key is, people were moving in, not out, and I think that clearly keeps them out of "Closed Access" territory. But, certainly, the ingredients are there.