Housing Costs More Than a Matter of Supply and Demand

Does new market rate housing increase the average cost of housing, by inducing demand, or does it help stabilize the housing market by offering new supply? The debate continues in San Francisco.

May 13, 2020, 11:00 AM PDT

By Lee Flannery @leecflannery


San Francisco Housing

Pixabay / Pexels

Proponents of increased housing development in the Bay Area argue that lowering housing costs is as simple as building more housing. They say that the principle of supply and demand requires new housing development to drive prices down. On the other hand, a common counterargument contends that in San Francisco, simply building more housing can't lower prices as the demand is too high and there is simply not enough land on which to build. 

Familiar to most San Franciscans is the concept of "induced demand," which holds that the construction of pricey housing attracts wealthy transplants, a process that development opponents argue can upend the historical character of neighborhoods. Despite these concerns, Adam Brinklow points to research suggesting that, "many new housing developments face allegations that building more could drive housing prices higher. Traditional economic thought dictates that these ideas are not only wrong, they’re irrational, like something out of a topsy-turvy Lewis Carroll fable." Put simply, to reduce the market price of housing, cities must build more. 

Brinklow calls for a more nuanced approach that considers neighborhoods and gentrifying effects of projects on a case by case basis to balance the need for lower-cost housing and the preservation of charming San Francisco neighborhoods.

Friday, May 1, 2020 in Curbed San Francisco

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