For economists, there’s a simple remedy for higher prices—increase supply, in this case by building more housing. It’s a simple idea. (So simple that Saturday Night Live comedian Don Novello’s character of
Father Guido Sarducci, for his “five minute university” said: “Economics? Supply and demand. That’s it.”)
But many people—including some progressive advocates for affordable housing—don’t believe increased supply will help lower rents and house prices. Their opposition has become known as “supply skepticism,” and an
excellent new paper from New York University’s Vicki Been, Ingrid Gould Ellen, and Katherine M. O’Regan explores this issue.
Supply skepticism is well documented. Scholars Clayton Nall, Christopher Elmendorf, and Stan Oblobdzijasurveyed of thousands of people about it. Respondents stated a good deal of skepticism that increased housing supply would lower housing prices, with these beliefs “widespread and absolutely real,” not confined to any particular subset of opinion or demographics.
Their findings are even more puzzling because survey respondents believed in supply and demand in other markets. Unlike with housing, respondents said increased grain supplies would lower prices, and problems with new car supply chains would cause used car prices to rise. The researchers concluded: “do people think about housing in the same way they think about other markets? No.”
NYU’s
Been, Ellen, and O’Regan first wrote about supply skepticism in 2019.
Their new review analyzes the ever-growing body of research showing increasing housing supply slows growth in rents; frees up existing housing for others to rent; and isn’t associated with “significant displacement of lower income households.”
So why don’t people, especially affordable housing advocates, believe in supply and demand, at least when it comes to housing? It isn’t fully clear. Of course, some opponents of building housing are homeowners who simply want their property values to stay high and profit from a lack of competition.
But even advocates of more affordable housing refuse to change zoning to allow more supply. Los Angeles Mayor Karen Bass, very progressive on many issues and elected in part to address homelessness and affordable housing, has ordered streamlined approvals for affordable housing and homeless shelters. But she has exempted neighborhoods with single-family zoning from these provisions.
