What the Microchip Shortage Reveals About Housing

The microchip shortage facing the automotive industry illustrates the significant impact that supply has on the cost of durable goods.

1 minute read

January 26, 2022, 9:00 AM PST

By Diana Ionescu @aworkoffiction

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In his newsletter, Matthew Yglesias analyzes the recent microchip shortage in the automotive market in the context of lessons it can teach those who study the housing market.

Yglesias notes that the curtailed production of new cars during the shortage has led to a rise in prices for used cars and trucks—signaling that a constraint on the supply of new durable goods—like a car or a house—does have a measurable effect on the cost of used items in the same category. Consequently, even the cheapest used cars became difficult to afford as supplies failed to keep up with surging demand. Meanwhile, most experts agree that rising vehicle prices aren't due to vacancies, speculation, or greedy manufacturers—even though those things do exist in both industries. Unlike in the housing market, Yglesias contends that, when it comes to cars, "we are having a pretty reasonable policy debate" about how to prevent future supply chain disruptions like the chip shortage, in part because we have a "living memory" of a well-functioning auto market.

According to Yglesias, the clear-cut evidence from the auto industry should be illustrative to housing advocates who often don't believe that more market rate housing will ease cost pressures on older housing stock.

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