It's a demand-side policy to what is a supply-side problem. If the demand is already there, and you induce more demand by providing subsidies, prices will go up. If you want to reduce prices you must either increase supply (building housing) or decrease demand (remove someone, hopefully speculators, from the market).
However, given housing has become a defacto investment asset for Americans and Canadians, I don't see this issue ever being resolved without a political revolution or an economic depression.
What does that even mean? In Canada the issue is that most places have 10 houses for 20 buyers to it ends up being a game of who can pay more as it should be.
Restricting price increases just means buyers are restricted on something else, it does not magically create 10 new houses to meet demand.
We should not be rent-controlling assets, instead you need to take actions that match the number of houses to the number of buyers. You can do that by:
1. Incentivizing builders to build
2. Reducing immigration (at least in Canada)
3. Changing zoning laws to build more densely
1. is not appealing because in Canada there is a strong sentiment against growing the urban sprawl.
2. is not something the government wants to do
3. is what they've been doing for the last 10 years but turns out people don't want an apartment, they want a detached house with a yard and they are willing to put more money on it to meet their expections.
Price control is not any kind of solution to the Canadian housing problem. It would create private listings and all sorts of parallel systems so that people who can pay more can still pay more.
> The price for housing has gone up substantially in the last 20 years
This is the result of supply and demand. How does demand for housing increase? Falling mortgage, downpayment assistance programs, government guaranteed loans. That increases demand.
And housing is also larger than 20 years ago.
> We wouldn't tolerate the price of food going up by the same percentage.
This is just silly. It is not something you "tolerate" it's something you cause.
Food prices also rise when demand increases.
The public has 100% control over demand as they are the ones bidding up the house prices! Now they do not have 100% control over supply. But house prices have not risen because of a decline in supply.
> It’s a demand issue, so the solution has become price increases
That’s more of a capitalist solution than a real solution. Instead of building additional housing we just move the access from millions via price increases.
We can resolve it by creating more supply, we already do by way of copious amounts of cheap plastic home goods that flood the purchasing landscape.
> I blame monetary policy for too-low interest rates, which drive up housing prices. I also blame over-restrictive zoning and other restrictions on building that cause houses to be more expensive.
medium-term monetary policy hardly has anything to do with it. Rather, the paradigm of single-family zoning makes it pretty hard to build dense communities en-mass, so the shortage of supply has lead to ever-increasing home prices.
> All policies that attempt to address housing costs that don't increase supply are treating a symptom and not the underlying cause.
So are the ones that do increase supply, so long as they are not doing it in a way which deliberately undercuts the fact that there are positive feedback loops at work (and cutting those positive feedback loops means reducing quality of life and economic opportunity in ways no one wants.)
Among the thing that drives demand for housing is available work (demand for labor). Increasing housing supply so more of that demand is met increases demand for local services, and thereby available work, increasing demand for housing. That's not the only positive feedback loop involved, but it's one of them.
>I mean, yes? Housing prices have continued to shoot up in many western cities despite large increases in housing supply.
Well yes, because we have decades of undersupply to correct! Of course a small step in the right direction doesn't magically fix everything. We need to build WAAAAYYY more, like to a vast overabundance, which capitalism unaided can never do because a builder will never start building a hundred rooms if that makes the market go down because that would ruin their profits elsewhere.
I would be surprised if, after there is enough supply, there is an "induced demand" effect for housing. Humans take like 20 years to go from born to needing a house, and most people don't choose to have children when they otherwise wouldn't because of cheap housing.
> Who do you think is more likely to be the responsible for such an increase in price?
They of course are contributing factors and if you want to regulate that, fine, go ahead. But they absolutely are not driving prices higher. Investors have tons of alternatives to invest in if prices are too high. People don’t have alternative forms of shelter, so they will tend to pay whatever the price is. And society facilitates and exacerbates this through well meaning efforts like “affordable housing” policies that artificially reduce interest rates and drive demand higher.
The bigger issue is that housing and property should never have become a de facto investment class. You should not earn inflation adjusted returns for owning a house. But of course, most wealth in the world is due to housing. And the next generations just increasingly get screwed over.
>I'm afraid you're wrong: there are many, MANY supply and demand denialists around, who think it doesn't apply to housing.
Are they really in denial though, I mean many want the housing prices to go up because it means their housing ( asset ) increases as well. So there is clearly a conflict of interest.
> Sure, but we’ve already done this several times in our major cities, and it hasn’t killed demand.
Not over an afternoon. Housing prices haven’t grown in a vacuum, massive increases in productivity and population over time feed back into peoples ability to pay for things. Beachfront vacation homes have also become vastly more expensive for related reasons, but that obviously gets less press than peoples primary residences.
Most things are priced based on what it costs to create them, other stuff is based on how much people can afford. Urban housing has entered the second category and it’s going to take a lot more than minor interest rate changes to reverse this trend.
> spend direct stimulus on things our society actually needs (on this topic, housing).
When governments put money into a thing, that thing will have insanely high prices. Why would sellers lower prices when they know that Uncle Sam will pay any price? Didn't you notice that high housing prices are a big part of the problem we already have? And you suggest a solution that will make it worse?
5% interest rates will change things for the better, and maybe we can phase out the mortgage interest tax deduction, too.
> I think for a good functioning economy we do want housing prices to generally go up
In nominal terms it's inevitable. In real terms, this should not be the case.
Housing is a commodity. It's the only commodity which has increased in price in real terms over time. This is because we've turned it into a retirement account.
> ... These days most people regard that as horrible and in no way justified.
Sure, but does that mean the family of five that was finally able to afford a home last year after scraping for years should pay for that? They could even be in the same demographic as the original victims of those exclusionary policies.
> Furthermore, if housing is expensive, adding to the supply won't crater the price like the economy going bust does
I'm not so sure, depending on how it's handled. Housing is a free market, and as such it's subject not just to supply and demand, but people's expectations of supply and demand. If I just bought a house and policies were announced that I thought might not just stagnate my house value, but actually reduce it over time, inflation-be-damned, I would be mightily tempted to sell if I had options. Get enough people doing that, and you might have a run-away market drop. The people who mainly benefit from that are those that are poised to take advantage of the situation on short notice (those with money available already and can take advantage of the eventual rebound).
There are obviously ways you could crater the housing market in an area on purpose through policy, so it's not out of the question it could happen accidentally. I'm mainly arguing for people to see both sides and try to prevent that, and soften any blow and be prepared to counter a market that looks to be behaving irrationally.
> In the end, though, you can't have both housing that's affordable, and also treat housing like some kind of investment that's supposed to keep growing and growing in value.
I agree. I just think it's a complex situation that requires nuanced policy and constant attention, and isn't as simple as "build more houses" implies.
> Maybe I'm being overly simplistic, but surely building enough dwellings to exceed the immediate demand would lead to prices dropping?
I thought Toronto was doing a good enough job at building lots of housing, and it still hasn't worked.
The issue is that in order to actually have prices dropping, you need to overbuild by a bit. But prices dropping is an undesirable outcome for real estate developers, who are almost exclusively responsible for building new housing in a city. Naturally they don't want to shoot themselves in the foot, so they will only ever build as much as to satisfy the current demand, but not quite, and try hard not to exceed it.
Even with government-issued social housing, there's no way to solve this: as long as there's any space for developers in a market, their new supply is going to adapt elastically to just underserve current demand.
The only thing that has practically lead to supply-related price drops is an irrational boom followed by a realization that developers have actually (unintentionally!) overbuilt this time. Unfortunately, irrational booms are also accompanied by prior fast price increases and a lot of pain on all sides, so we probably shouldn't advocate for one.
So, I'm not sure what a good solution is to actually provide more supply than needed and have prices dropping, but the free market is not it. Especially as real estate developers get better with forecasting demand.
Maybe demographics will help a bit in 20 years or so.
> Supply-side policies are necessary here in order to bring down materials costs and to continue to build more housing to bring prices down.
In a large number of places, housing prices are not all that dependent on materials costs. (Or rather, other things drive up the price to the point that people spend more on materials because that doesn't have much effect on the overall price.) Instead, they're driven by land use and other policies.
> Housing is not an investment, it should never be treated as an investment.
Housing is a large pile of resources. While it's a durable good for consumers, it's an investment for housing providers, builders, and so on.
More to the point, things that people do for profit are far more likely to happen than things that people do "for the common good" or some other reason. And the desire for profit is what drives prices down.
>putting pressure on the already cripplingly bad housing situation.
No amount of demand suppression will ever fix a supply issue.
“We’re better off not building up housing infrastructure subsidized by short term leases and just trying to suppress any demand that changes the market clearing price”
> Where does the demand-side elasticity come from?
If you make more money available then housing prices go up to consume essentially all of it. But that's how markets with highly inelastic supply behave. Yet we can build arbitrarily many housing units. So why haven't we built more? Urban housing prices have been high for many years. Plenty of time for the market to react. Something must be preventing it.
> If the monthly cost of housing actually started tending towards the amortized cost of construction, the builders would immediately stop just as they did during the last mini-crisis.
Of course they stop when it becomes unprofitable. What would you expect them to do?
The problem is this: Increasing the supply of housing can cause housing prices to fall very quickly. From a social perspective that's what we want, but from a construction company perspective the last thing they want is to pay a lot for land that loses its value while they're holding it.
The way to mitigate that risk is to buy less land and build more housing on it. But if zoning regulations don't allow that then they build nothing. Hence the problem.
> In fact I think what happens when there is more supply is that investors buy more houses to put renters into.
Solve that with more supply. Those people only have finite money. We can keep building inexpensive housing and selling it to them at insane prices for longer than they can keep buying them at insane prices.
The problem is that, once we break them, then we almost certainly overshoot. The price seriously craters, and everyone who bought a house in the last N years takes a huge bath.
It's a demand-side policy to what is a supply-side problem. If the demand is already there, and you induce more demand by providing subsidies, prices will go up. If you want to reduce prices you must either increase supply (building housing) or decrease demand (remove someone, hopefully speculators, from the market).
However, given housing has become a defacto investment asset for Americans and Canadians, I don't see this issue ever being resolved without a political revolution or an economic depression.
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