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How much housing do we need?

I'm an idiot. I got into a Twitter beef about housing and now I feel like I have a point to get off my chest. It's this: there's no such thing as a shortage, full stop. There are only shortages at a particular price. Price, as it always has been, is the great mediator between supply and demand.

So when you say that we have a "housing shortage," all you're really saying is that you think the price of housing is too high. But aside from the past year, neither housing prices nor rents have budged more than slightly over the past couple of decades:

This hasn't stopped anyone from saying we have a housing shortage. Housing experts have been warning about it forever. But if this isn't based on rising prices, what is it based on?

That's the crucial question: how much housing should we have? And who decides? There's no cosmic "right" number for housing stock, only comparisons over time and personal opinions based on anecdotes.

For example, here's a chart showing the level of housing stock in a random selection of cities, both large and small. The current housing stock is shown by the light orange bars:

The "additional housing" bars are based on a simple local anecdote: the belief that Los Angeles County needs to add about 800,000 housing units. If you translate that into a per-capita figure you get a goal of 420 housing units per thousand residents. If you then apply that number to all the other cities in my chart, you get the dark orange bars.

Is that the level we should aim for? Why? Is there a good reason that our biggest, most crowded cities should continue growing into mega-crowded cities? Or should they slow down and let medium-size cities grow into big cities instead?

Whatever your answer, it's an opinion and little more. Some people, mostly young ones, want to move into urban cores and are unhappy that they can't afford it. Their opinion is that we should allow massive growth while somehow stabilizing demand so that prices will come down. Other people, mostly the ones who live in crowded cities already, don't want their streets and their buses and their subways to be even more jammed than they are now. They'd just as soon keep growth low.

But the law of supply and demand won't be denied. If you increase demand, as young people are doing, prices go up. If you increase supply, prices go down. If you increase both supply and demand, prices will . . . do something.

But that's not all. Nobody likes to say this, but the easiest way to increase supply is to let prices rise. Conversely, if you reduce prices, perhaps by mandating affordable housing, supply will go down.

I'm not expressing an opinion on any of this. For all I care, developers could demolish the tennis courts next to my suburban house and replace them with a 50-story high-rise. We'd probably need to widen a few streets, though.

But there's no getting around the basic facts. There is no "right" level of housing. When demand goes up, so do prices. When prices are forced down, supply goes down. Killing off zoning restrictions and letting the market loose will have unpredictable effects. My guess is that prices would stabilize for quite a while, and might then start to decline. Maybe. I don't really know and neither does anyone else.

For the most part—though not entirely—this question is unrelated to other issues like homelessness and affordable housing. By far, the biggest obstacle in the way of fixing homelessness is the fact that no one wants shelters near them. The big problem with affordable housing is figuring out who's going to pay for it. Neither has very much to do with the overall supply of housing stock.

So: what's the right level of housing stock? And who decides? If you can't answer that, you probably shouldn't have much of an opinion on the more complicated stuff.

60 thoughts on “How much housing do we need?

  1. Austin

    "There are only shortages at a particular price."

    The same could be said about a lot of things. For example, there are only shortages of jobs at a particular wage - if we allowed people to be employed at any wage, jobs in every sector would always be plentiful. (I'd certainly hire a dozen or more people to work at 1 cent an hour to do all my household chores.) Of course, we have more goals in our society than "creating an endless supply of jobs at any wage." Most of us want our society to be above subsistence level, which requires minimum wages, even if minimum wages destroy some number of jobs. (I cannot afford to pay anyone minimum wage to do any of my housework.)

    So I really don't see Kevin's point. Yes, houses are plentiful if you totally ignore prices. But, our society doesn't just want "plentiful houses at any price" - we also want "most people in society to be in housing they can afford." Which is why most non-Kevins on our side of the political spectrum see a problem in "houses are plentiful if you disregard prices."

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