Development advocates are betting on supply and demand to cure the region’s housing woes. Build more, and prices drop. But what if they do not? This article in the Boston Herald reports that developers built or permitted 24,953 new homes and apartments between 2011 and 2018, but most people still find it hard to afford the cost of living in Boston as rent and home price increases far outstrip growth in wages. Why doesn’t supply and demand work?
Matt—
The demand in Greater Boston continues to rise. Each year for the past several, according to MAPC, our regional planning agency, there were 45,000 more new households looking for housing than housing units added.
Supply is not keeping up with demand. And we call it a housing “market” for a reason.
There’s a big leap to go from the facts listed in the article to ‘the laws of supply & demand don’t apply in the housing market’.
The law of supply and demand doesn’t dictate that there’s a linear relationship between units sold vs price. If 5000 more TV’s are sold this year that doesn’t indicate the prices should drop. It only dictates that if supply does not meet demand, the prices will be bid up.
In the greater Boston area we have a voracious demand due to a booming local economy with lots of well paid job. Yes, there have been lots of new apartments/homes built but not nearly enough to keep up with demand.
Take a look at some areas that have booming expanding economies where housing prices didn’t suddenly sky-rocket. There are lots of periods and cities in the south west that enjoyed big economic expansion with only modest price appreciation. They were all the cities that due to their history and geography were able to expand outward into undeveloped land and build as many houses as the market would appear – i.e. keep supply in balance with demand.
Matt – the number of jobs in the region has increased a rate that is 2.5 times the rate at which new housing has been built. And housing prices continue to rise. So yes, it appears that supply and demand does apply.
No one picked up on they key words in the article – “middle and lower income (families). “ All of this new housing is not helping them as prices continue to climb despite the new inventory.
Supply and demand did not drive prices down in SFO and NYC. Can BOS be different? Or we teetering on the edge of, “the definition of insanity”?
Doing the same thing but expecting a different result?
Of course the laws of supply and demand apply to Newton housing. It’s just that for supply to increase sufficiently to make Newton substantially more affordable to middle and lower income families, the city would need to be physically transformed into something current homeowner’s would find more than completely unacceptable (in terms of density etc.).
Supply and demand are limited based on developer profits. It’s a set of linear equations but there are constraints on the boundaries.
Some of us learned this in high school, but here’s a link
https://youtu.be/8AA_81xI3ik
This is why, for instance, councilor norton pushes for non profit developers over for profit. It’s the Requirement of profit ( and demand can widen that profit of course ) that is part of the lack of affordable housing. Another is wage disparity.
In the above video, substitute affordable housing and market housing instead of gasoline and oil and you have a situation where simplistically you can say that given a certain amount of affordable versus non-affordable housing developer will or will not make a profit. Follow the math, I mean the money
Now imagine a set of equations with dozens and dozens of constraints, consisting of cost of labor, cost of materials, cost of regulations cost of legal fees etc. and you can see what a daunting proposition it would be to build and the desire to maximize the profits because of all these constraints.
It’s way more complicated than selling your hobby work on eBay.
You could make the argument that developer profit is a function of the market as well. Meaning, if you can make more profit from developing in a different community then you’re likely to do so. “The market” in that case, is the competition among communities to attract the development each wants.
The question I’d ask is, does eliminating profit result in more affordable housing?Here in Newton most non-profit development has been at a much smaller scale and produces fewer affordable homes. Northland, as proposed, would be the largest affordable housing development in the city.
Ideas like having a fund that the city can use to help non-profits compete for property against more deep-pocketed for-profit developers make a lot of sense in theory (and we should work to implement the concept, which Emily Norton brought up in her debate). But I worry that such a fund would be controlled by the full city council, which means it would not be nimble enough to respond quickly to requests.
Not everyone seeking new jobs in Boston can both work and
live here. There are limits to new growth.
Some big cities like Toronto where I grew up have been able to
grow at a phenomenal rate since the 1960’s.
Boston is governed under different rules. Due to tradition towns and cities in New England value local self government. This means local residents have direct control over their own development. Thus housing growth and its negative impacts is better regulated.
Toronto has a small centralized power structure which favors
big development and never ending growth of highways and high
speed transit systems.
Boston could never grow at the fast pace of New York, Chicago and Toronto. What we do have here is a very robust economy
stretching from Providence, Worcester, Manchester to Boston.
Let’s spread out the housing and stop the over densification of
the inner suburbs. Costs are not coming down ever.
There’s fairly solid evidence that new (high-end) market-rate housing really does lead to house prices for older units going down over time, even in the country’s most expensive housing markets. In other words suply and demand does work. See https://www.washingtonpost.com/outlook/2018/09/18/why-do-so-many-affordable-housing-advocates-reject-law-supply-demand/ for a summary with a lot of links. No, everyone can’t live here, but there’s lots of room to add more units, which will also increase the stock of “affordable” units over time.
Key quote from the article I just shared:
“Of course rents rise when demand outstrips supply, even when new units are being built — so market-rate housing cannot be the only solution to the affordability crisis in our most expensive cities. But the data shows that rents rise even faster when market-rate housing is not built. New market-rate housing complements policies such as housing subsidies and units reserved for moderate-income households, restraining prices so that subsidies go further.”
“New market-rate housing slows rent increases citywide. But a fancy apartment could simultaneously increase rents in a particular neighborhood by making it seem safer, prettier or otherwise more desirable to wealthy migrants. The rational response to such “amenity effects” is to fight against restrictive zoning in already-expensive neighborhoods, where such effects are minimal. (There is no plausible reason to believe that new housing occupied by wealthy people will raise rents in areas where the existing housing is already occupied by the wealthy.)”
Unless you’ve got a charitable developer willing to rent below costs, because you’ve got construction costs even if the land is worth little, things have a limit price.
To go back to something simple- what you learn at 10 years old playing Monopoly is as true as simple supply and demand: when one person has all the money, the game is over. It’s a natural result of unregulated/untaxed capitalism. You’ve got to raise taxes and provide some income to others or Jeff Bezos wins the game set and match.
Matt, the reason that low to moderate income families still cannot afford housing is that–wait for it–there is an insufficient supply of housing. In the current housing market, where supply is limited, higher income households are paying less than 30% of their annual income for housing because they can afford it. Low to moderate income households are shut out of the market unless they can afford to pay in excess of 50% of their annual income for housing, which of course they cannot.
In short, demand and supply applies. Insufficient supply means low to moderate income households are shit out of luck. Increase the supply of housing to meet demand, problem solved, confidence restored. End of sentence.
Rick, I don’t know where to start with how wrong you are. So let me just say you are playing with Monopoly money, and leave it at that.
Ted H-M, for housing supply to increase enough to make Newton truly more affordable to low to moderate income households, the city would need to be physically transformed into something current homeowner’s would never find acceptable in terms of density etc.
Not getting the “monopoly money” reference.
Last I checked, the streets of Boston, Newton, Brookline, etc. are not littered with homeless professionals and “workforce” people living out of their cars. People do find homes if not in the immediate Boston area.
Was just reading the recent post on V14 about Fuller’s forecasted budget deficit and how one commenter noted from Sunday’s debate that Newton is $800k-$1m underwater in terms of real estate taxes generated vs funds needed to support the educational needs of the kids generated from Avalon.
Going to modify @Jim Epstein’s statement of, “city would need to be transformed into something current homeowner’s would never find acceptable in terms of density, etc.” to “the city cannot afford to subsidize the services (roads, schools, police, fire, etc.) needed to support the density proposed by Developers.”
They’ve tried to outbuild demand in San Francisco, Los Angeles, Chicago, New York and Boston. Yet home prices (especially rentals) continues to rise….while Developers sit back and count all their money (real money, not Monopoly money).
Ted, please start. Do you lawyers remember anything about math from high school? I made a very logical argument why the simplistic concept of supply and demand has cost constraints. And posted a you tube video of how it works. Very basic economics math. Please start to tell me how wrong I am instead of being mr smarty pants know-it-all。
And Ted, I never said supply and demand don’t work at all. I merely point out some of the other constraints on the supply demand curve that make just increasing supply not feasible, and how other factors matter just as much if not more.
“ Likewise, linear programming was heavily used in the early formation of microeconomics and it is currently utilized in company management, such as planning, production, transportation, technology and other issues. Although the modern management issues are ever-changing, most companies would like to maximize profits and minimize costs with limited resources. Therefore, many issues can be characterized as linear programming problems.”
Basic business math folks. But let’s just ignore math cause it’s too hard.
maybe if we increased the number of lawyers, the outrageous hourly fees would come down too.
Massachusetts ranks 4th in “lawyers per capital”. Time to lower billable rates?
https://lawschooltuitionbubble.wordpress.com/original-research-updated/lawyers-per-capita-by-state/