A Pro-Development Argument in the Great Housing Debate

Noah Smith takes a position in the debates surrounding supply and demand in the housing market of desirable urban areas. His position: the cure for costly housing is more costly housing.

Acknowledging that the standard argument of supply vs. demand is complicated by the concept of induced demand, Smith still endeavors to defeat the chosen belief of "progressives." As he describes it: that market-rate housing raises rents and that only government can set an affordable price for housing.

Faced with two competing theories -- the basic Econ 101 theory of supply and demand versus the theory of induced demand -- we have to turn to the evidence. It’s well known [pdf] that urban land has been getting more expensive, but how would denser development change the picture?

Smith calls on studies by Lawrence Katz and Kenneth Rosen from 1987 and Edward Glaeser, Joseph Gyourko, and Raven Saks from 2005 to bolster the pro-supply and demand argument. Smith also calls on more recent research by Eric Fischer, who collected more than 30 years of data on San Francisco rents for a recent study. "He modeled them as a function of supply -- based on the number of available housing units -- and demand, measured by total employment and average wages," explains Smith. "His model fit the historical curve quite nicely."