Blogging Bayport Alameda

November 30, 2022

Unhealthy skepticism

Filed under: Alameda — Lauren Do @ 6:00 am

My husband and #2 son love to joke about how long articles are from the Atlantic and, sometimes, they’re not wrong. But one thing the Atlantic did very, very right was hire Jerusalem Demasto write on housing related issues. Her most recent piece which came out days before Thanksgiving is yet another great piece, this one is particularly relevant to Alameda because, well, housing DOES break our collective brains.

Highlights:

The most basic fact about the housing crisis is the supply shortage. Yet many people deny this reality. Before I get to the veritable library of studies, our personal experiences compel us to recognize that housing scarcity is all around us. The most dire signs of a shortage are when even rich people struggle to find homes. 

Once you accept the existence of a housing shortage, the obvious policy response is to build a bunch of homes. Research looking at San FranciscoNew YorkBoston, and 52,000 residents across 12 U.S. metropolitan areas have all found that new housing brings down prices. This research makes intuitive sense: If new housing is built, most of the people who move in first vacate other units. Those units then become available to newcomers, and so on. Solving a supply problem is of course harder than making the number of homes equal the number of people—different people want different sorts of homes—but the fundamental point is that we need more homes near good jobs and schools, and that give people access to the communities and amenities that make life more enjoyable.

Despite the avalanche of agreement from experts, the general public still doubts cause and effect. A new study from a trio of professors at the University of California (Clayton Nall, Chris Elmendorf, and Stan Oklobdzija) reveals that shortage denialism is not the only missing “shared fact” plaguing housing discourse. The researchers ran two nationwide surveys of urban and suburban residents and found that 30 to 40 percent of Americans believe, “contrary to basic economic theory and robust empirical evidence,” that if a lot of new housing were built in their region, then rents and home prices would rise. This posture is referred to as “supply skepticism.”

I love the fact that it’s so puzzling when people insist on saying that “adding supply will only raise housing prices” was so painful that a group of professors did a whole study to understand this phenomenon.

More:

Shortage denialism, which I have observed in my own reporting, and supply skepticism, which these researchers revealed through their survey data, are related phenomena. Not only are they false, but they are false in the same direction. They push against the actual solution to the housing crisis: building enough homes. After all, if there is no shortage or if building new homes doesn’t reduce rents, then no one has to tackle NIMBYism, no one has to work to bring down housing-construction costs, and no one needs to build millions of new homes in America’s cities and suburbs. In fact, this magical thinking goes, we can fix our housing crisis without changing much of anything at all.

One odd thing about supply skepticism is that it’s seemingly limited to housing. The UC researchers also asked about cars, grain, plumbers, and increased trade in general. Significantly fewer respondents expressed supply skepticism about those categories than housing. For example, 85 percent of respondents said a snag in the supply chain for cars would cause the price of used cars to increase; well under half of respondents were able to apply this same logic to the housing market.

Why is housing different? Perhaps because the supply argument seems to defy lived experience. People look around their community and sense that a lot has changed. They see new homes and developments cropping up, even as prices keep rising. This eyewitness account results in people thinking that these new developments either do nothing to alleviate rising prices—or worse, actually cause prices to increase.

As with all things, identifying the root of the problem, shortage denialism and supply skepticism, should help us move past this eventually. Until then we have to have the government, in Alameda’s case the state government because locally we’ve made it nigh impossible to build any housing affordably, step in and legislate doing the right thing because we’ve failed to do it for decades and now our children and those least able to afford housing are paying the price.

6 Comments »

  1. Consider the current state of Biden’s economy. Bank of America chief: 2 more years of pain in housing market until Fed starts to taper interest rates instead of raising them.

    Every 1% rise in the interest rate requires a 10% rise in income. Which means (young) people who used to qualify for a loan no longer do, and developers are forced to build luxury units.

    Today the Fed will raise interest rates again.

    Comment by Study Economics — November 30, 2022 @ 7:30 am

    • A 1% rise in rates will increase the debt service on a mortgage about 10%, but that doesn’t necessarily require a 10% increase in income. The two are separate things.

      And if that 1% rate rise knocks prices down 10%, as it appears to be doing now, debt service remains about the same, assuming a new loan, which you seem to be.

      And the Federal Reserve is NOT raising rates today. Where the hell did you get that idea?

      Comment by dave — November 30, 2022 @ 9:39 am

      • You’re both right. Today the Fed at a press conference “signaled” they are going to raise interest rates by at least half a point and that will happen in about a week. He also said “we still have a long way to go”to reduce inflation. Of course, if there is a rail strike, the Chinese roll tanks in to crush lockdown demonstrators or Ukraine fighting explodes all bets are off.

        Comment by Common Sense — November 30, 2022 @ 12:59 pm

  2. “Biden’s economy”
    [proceeds to cite only Federal Reserve actions]

    Comment by Study Civics — November 30, 2022 @ 8:57 am

  3. I’m old enough to remember when our first mortgage interest rate in 2000 was around 8% but the lack of home building and supply issues still hadn’t caught up with home prices yet. But assholes these days think that sub 5% rates are normal.

    https://fred.stlouisfed.org/series/MORTGAGE30US

    Comment by Lauren Do — November 30, 2022 @ 9:41 am

    • They were at 18% when I bought my first house in 1981

      Comment by Edward Hirshberg — December 1, 2022 @ 6:12 am


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