Must-Read: Nicholas Warino: The Bay Area Housing Crisis Is Caused by and Can Be Solved by Local Government

Must-Read: Nicholas Warino: The Bay Area Housing Crisis Is Caused by and Can Be Solved by Local Government: “Professor Walker… presents some reasonable ideas and even some good policy solutions…

…(rent control, eviction controls, low-income public assistance, etc.) As far as I can tell, he’s on left, so I bet we’d agree on many issues. That said, Professor Walker’s analysis of the housing crisis is not good…. I’ll quote them directly and respond.

But while it’s true that we need to expand the region’s housing supply, building more housing cannot solve the problem as long as demand is out of control, as it is today. There is simply no way housing could have been built quickly enough to avoid the price spike of the current boom.

This is a common argument: building more housing will help, but we nevertheless ‘can’t build our way out of the problem.’ This is wrong in two ways: 1) The only way for demand to be ‘out of control’ is for demand to consistently outpace supply. So it’s logically true that ‘building more housing cannot solve the problem as long as demand is out of control’ because within that sentence is the assertion that demand will always be greater than supply. In other words, this paragraph is true in the same way ‘you cannot fix The Problem as long as The Problem still exists.’ True but meaningless.

2)…. The housing crisis problem is not a binary problem, where it either exists or doesn’t. The problem with out-of-balance supply-and-demand is a continuous pressure on the housing market…. Every single additional unit added to the housing market turns the valve and releases some pressure, leading to lower prices than would be the case if that unit had never been built.

Three basic forces are driving the Bay Area’s housing prices upward: growth, affluence, and inequality. Three other things make matters worse: finance, business cycles, and geography.

Other basic forces…. People, money, consciousness, the Sun, the lack of worldwide plagues, and the Big Bang…. ‘Growth’ and ‘affluence,’ which is to say people earning more money, which is to say ‘demand,’ is a part of the problem. Hence supply-and-demand. And yes, finance contributes to the problem, in the sense ‘finance’ means the flow of money throughout our economy and the Bay Area housing market is part of our economy. Geography? You bet… but luckily we’ve invented ways to build up, not just out…. But both building up and building out require a focus on BUILDING.

All of these operate on the demand side of the equation, and demand is the key to the runaway housing market.

There is always ‘demand’ in an economy, unless everyone is dead. The relevance of demand is how it relates to supply. Even if the total amount of demand for housing in the Bay Area is accelerating, it would not be a problem if the supply of housing was also accelerating…. Reminder: demand in an economy simply means the amount of money in the economy that wants to be spent on a good or service. Generally, one of the primary goals of a society is to increase how much money people have, so they have more money to demand things and pay other people who will have more money to demand other things. And so on. This is how societies–if they ALSO focus on the equally critical goals of equity, justice, and fairness–lift people out of poverty, increase happiness, increase the tax base for new public goods and services, and increase the amount of money that can be used for innovation and progress. When the demand in an economy increases, like you’re seeing in the Bay Area housing market, the healthy response from the market is to increase supply…


Brad DeLong


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