This sounds like the long way to say that increases supply lowers prices. It does address common criticisms of this approach, however. I feel like I'm missing something.
Unfortunately yes, because people don't understand basic supply/demand principles. It sounds like common sense/econ 101 (which it is). But the proponents of low-income housing and rent controls don't seem to believe that increasing the supply of market rate housing decreases rents in the long term.
Most proponents of low-income housing I know of would like to vastly increase density and lower the number of SFH but the vast portion of the market and voters does not want that at all since it would lower their home value.
Increasing density generally increases existing home values more than not doing that; the land becomes more valuable (for free!) if more houses can be sold on top of it, and that's almost always worth more than having renters nearby.
The more common reason people vote against it is because they want their neighborhood to be frozen in time at the precise moment they moved there; that's what they originally chose after all. And they don't want to be forced to look at anything with a FAR above 0.4, and even that much is questionable.
Cool, figure out how to pay for trillions of dollars of sprawling infrastructure then. We in the US haven't figured that one out yet and the bills are coming due.
What you're missing is the incredibly vocal activist culture in cities like SF and Seattle, who demand that any new multi-family housing built include below-market-rate units. (These cities also typically extort new developments with expensive "link-up fees" but that's beyond the scope of the supply-and-demand issue).
The obvious fact that these requirements make it harder for developments to pencil out and therefore decrease the amount of new units built will never, ever occur to these activists.
Lots of cities came up with an arrangement to build low-income housing by having developers build low-income housing. My impression is that this wasn't activists driving it but cities finding an easy solution. The activists are now bought into the solution as way to get low-income housing.
This sounds like a good idea because it taxes the ones making money. But the result is that less housing gets built because of the extra costs and it tends to be luxury housing so developer can make money. I also not sure how much a few low-income units increase the diversity of neighborhood.
The solution is probably just tax all developers and use the money to build low-income housing. Or even better, tax everyone. Diversity can be better accomplished by building low-income housing throughout the city. Better to mix low-income housing with cheaper market-rate housing.
Or, these activists are actually saboteurs, using the requirement for below-market-rate units as a form of barrier to prevent actual constructions from happening!
How can it not be obvious that forcing below-market-rate units into a development will force the developers to suffer losses?
Because the author's argument is presenting this discussion in a profoundly dishonest and unrealistic way, and glossing over in a single sentence or two very real phenomena like gentrification (here's some cherrypicked studies most readers will never click on - there you go folks, gentrification isn't real!).
One example being - this isn't a zero sum game and rental markets don't behave like one. If someone builds an expensive condo, yes this increases supply of housing in the area, but in the event that prices increase all over the place due to cartel-like behavior (spoiler - this happens often), renters don't react by shopping around for a landlord that's beating out the price of his neighbors. For one, getting approved even to be a renter is difficult for many, so this level of flexibility/fluidity is unrealistic from the start, and two, people react to rental increases often by cutting costs in other areas or by doubling up the occupancy of the home (e.g., getting a roommate), because the choice of where one decides to pay rent is far from a perfect or efficient market at all.
This issue is far more complicated than "it's supply and demand dummy" and usually this argument is presented by faux YIMBY's who intentionally or not are acting as astroturfs for the developers, who win out big in the end no matter what.
Why shouldn't developers be economically rewarded for supplying housing in an area that demands a large amount of housing?
> renters don't react by shopping around for a landlord that's beating out the price of his neighbors
Renters certainly shop around. What makes you think they don't?
> approved even to be a renter is difficult for many, and two, people react often by cutting costs in other areas or by doubling up the occupancy of the home (e.g., getting a roommate).
Yes, and both of those issues can be solved by increasing the supply of housing. If demand greatly outstrips supply, landlords can be as picky as they want on renters. If theres an excess of supply, they will be a bit looser.
> Renters certainly shop around. What makes you think they don't?
I never said they do not. I said that’s not the typical reaction, because moving is very difficult and has a ton of financial and logistical hurdles for most households. “supply and demand, dummy” arguments around the housing market tend to conveniently wave away these costs in the same manner the author waved away gentrification.
> I never said they do not. I said that’s not the typical reaction
It doesn't take many shoppers to make a huge difference.
> because moving is very difficult
There's always a fair number of people new to the area, not to mention people whose situation has changed significantly and there are a lot of people looking for new housing.
Note that rent-control takes the latter group off the market.
Note that someone taking a "new property" off the market (regardless of reason) is exactly the same as not adding said new property. (Ie, it can't make things worse.)
> It doesn't take many shoppers to make a huge difference.
Ok, sure, but when a single landlord buying the new property to do airbnb destroys this entire silly argument right away, that’s a sign to me the argument is working with a flawed premise.
He wrote a famous post years ago about gentrification prevention called "yuppie fishbowl theory".
Gentrification is caused by blocking infill development that adds new units. That's what causes existing units to get replaced.
> but in the event that prices increase all over the place due to cartel-like behavior (spoiler - this happens often)
That doesn't happen, landlords cannot enforce a cartel and are not motivated to.
Cartels are enforced in housing /by governments/ - they are what zoning laws are intended to do. And they're the only way it can happen because they have legal force. Upzoning an area is defeating a cartel.
Replacing units is what causes units to get replaced. We can look upstream of that to see why landlords choose to replace units (probably the reason you cited), but we shouldn't miss the trees for the forest either.
> If someone builds an expensive condo, yes this increases supply of housing in the area, but in the event that prices increase all over the place due to cartel-like behavior
Umm, no.
Adding a new expensive housing to a market does not increase the demand for existing inexpensive housing.
It can have the effect of reducing the demand for other expensive housing, as in "why should I pay a lot of money for old?"