Tag Archives: economics

The Economic Implications of the Housing Supply

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Ed Glaeser and Joe Gyourko posted The Economic Implications of the Housing Supply which is forthcoming in The Journal of Economic Perspectives. In it, they

review the basic economics of housing supply and the functioning of U.S. housing markets to better understand the impacts on home prices, household wealth and the spatial distribution of people across markets. Section II documents the state of housing affordability in the U.S., and begins with three core facts about housing supply. First, when building is unrestricted by regulation or geography, housing supply curves seem relatively flat, meaning that we can approximate reality by referring to a single production cost. Second, both geography and regulation severely restrict the ease of building in some parts of the country. These constraints raise building costs both directly, by increasing time delays and reducing the amount of available land, and indirectly, by ensuring the homes are produced more on a one-by-one basis rather than in bulk. Third, the supply of housing is kinked and vertical downwards because housing is durable. (2, citation omitted)

These are themes that Glaeser and Gyourko have touched on before, but this essay does a service by updating them ten years after the financial crisis.

Glaeser and Gyourko have consistently hit on some important points that can garner attention at the national level , but there has been no real action on them as of yet:

  • where supply is regulated, housing costs more;
  • heavy land use regulation in places like NYC and SF reduces the nation’s overall economic output; and
  • existing homeowners tend to oppose new projects, which is consistent with their financial self-interest.

Glaeser and Gyourko do not give up hope that policymakers can craft solutions that deal with the political economy of housing construction. One first step would be to develop a toolkit of carrots and sticks that can be employed at the national and state level to incentivize local governments to take actions that are in the interest of their broader communities and the nation as a whole.

We know we need more housing in highly productive regions. We just need to figure out how to build it.

Reiss in CSM on Rental Policy

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The Christian Science Monitor quoted me in Census Outlines ‘Poverty Areas’: Which States Hit Hardest? It reads in part,

The number of US residents living in “poverty areas” has jumped significantly since 2000, according to a Census Bureau report released Monday.

According the 2000 Census, less than 1 in 5 people lived in poverty areas. But more recently, 1 in 4 residents have lived in these areas, according to census data collected from 2008 to 2012.

The Census Bureau defines a poverty area as any census tract with a poverty rate of 20 percent of more.

Sociologists and other analysts point to the Great Recession, in particular housing and job challenges, as well as slow and uneven growth since the recession.

“With the advent of the financial crisis and the bursting of the housing bubble, many people lost their homes and thus needed to rent or move in with relatives,” says Cheryl Carleton, an economics professor at Villanova University near Philadelphia. “[I]ndividuals need to move where they can afford to live … which is going to be in areas where public housing is available or housing prices and rental rates are low, which is more likely to be in a ‘poverty area.’ ” Professor Carleton made her comments via e-mail.

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Law professor David Reiss suggests that changes to homeownership policies could help.
“Federal and state housing programs could do more to support a market for well-maintained rental units for low-income households,” e-mails Professor Reiss, who teaches at Brooklyn Law School. “Many low-income households have difficulty maintaining homeownership because of irregular incomes and low wealth.”

Housing Affordability in NYS

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The NYS Comptroller issued a report, Housing Affordability in New York State. The report finds that

The percentage of New York State households with housing costs above the affordability threshold, as defined by the U.S. Department of Housing and Urban Development (HUD), rose for both homeowners and renters from 2000 to 2012, according to U.S. Census Bureau data. As of 2012, more than 3 million households in the State paid housing costs that were at or above the affordability threshold of 30 percent of household income. Within that group, more than 1.5 million households paid half or more of their income in housing costs. Statewide, the estimated percentage of rental households with rents above the affordability level increased from 40.5 percent in 2000 to 50.6 percent in 2012. (1, footnote omitted)

The report suggest that “that many New Yorkers are feeling pressure from a combination of stagnant or declining real income and increasing housing costs. A combination of factors including comparatively slow economic growth over time, a rising real estate tax burden, and limited housing supply in many areas of the State contribute to the increasing challenge New Yorkers face in finding affordable housing.” (2)

A pretty consistent theme on this blog is that limits on housing production necessarily limit housing affordability. While this seems obvious to me (perhaps I hang around too many economists?!?), it certainly is not to other people. Many people with whom I discuss affordable housing policy acknowledge that in theory, limits on the supply of housing should effect the price of housing (they all took Econ 101 when they were in college). But they look around New York City, see new high rises going up while housing prices are going up at the same time. They then doubt that increasing the supply of housing will reduce the cost of housing. All I can say is who are you going to believe — your Econ 101 teacher or your own lyin’ eyes?

But of course that is not a compelling argument. So I tell my interlocutors that it is necessary to take into account the fact that NY is seeing a dramatic increase in demand. This demand comes from the increasing resident population as well as the inflow of the ultra rich who want a (fifth?) part-time home in NYC as well as a safe place to park some capital. This high demand masks a problem that NY has faced for decades — too little new housing construction to support the existing residents, let alone all of the new residents.

The de Blasio Administration has acknowledged the need for increased housing construction as part of its program to increase housing affordability in the five NYC counties. The Comptroller’s report acknowledges that a similar dynamic is occurring throughout New York State. Perhaps Governor Cuomo will identify ways in which the State government can take a leading role in encouraging housing construction in all 62 of New York State’s counties.