Scott Alexander posted this last month, arguing that building more in an area doesn't necessarily decrease local prices because it can cause more people to move in.
I see 3 levels of argument here, based on 1st, 2nd, and 3rd-order effects:
More building means more supply, which by supply-demand curves means prices decrease. (YIMBY is here)
Local demand isn't fixed: prices are determined by an equilibrium between people coming and leaving. Building more changes the character of the area (which probably makes it suit current residents less) but the equilibrium of quality vs cost is unchanged. (Scott is here)
Building more in expensive areas causes people to move which causes jobs to move, which causes more housing to be unused in low-cost areas, which means housing costs don't decrease significantly on a national level either. (I'm here)
Position (3) has long been my view, and I thought I'd write a post explaining it a bit.
The problem in America isn't a lack of aggregate housing, it's houses not being where people want to live. Building more in those areas might seem like an obvious solution, but it wrongly assumes "where people want to live" is constant. If we instead consider that it could change, we need to consider what makes people move from an area with cheap housing to an area where it's expensive.
You can just ask people that, and they'll tell you: jobs. OK, so why are there better jobs in the expensive areas?
If you ask an economist, they'll probably say something about improved economic efficiency from people being closer together. I don't buy it, because it contradicts what I observe directly:
Many people can work as well remotely.
Programmers don't become more productive when they move to Silicon Valley or Seattle or NYC.
Factories in America aren't built in the middle of cities. Boeing doesn't make aircraft in the middle of NYC, that would be stupid.
Yes, people in NYC and Silicon Valley get paid more on average, but I reject the assertion that wages reflect productivity or competence. If wages were high simply because aggregation improved efficiency, then we'd see a stronger correlation between density and wages, but the correlation of wages with housing prices and with wealth is stronger. In my experience and the experience of people I know, the dominant factor is how close you are to money. Wages in NYC are high because there are wealthy investors and corporate executives there.
Why, then, are those rich people in NYC? Because:
It has luxury services. (Amazon/etc made this less important.)
Other rich people are there, which is good for networking.
The nice parts are expensive enough to keep poor people out. (More applicable in expensive suburban areas than in NYC, where exclusion involves more private schools and secure apartments.)
In this model, building more housing in Silicon Valley or NYC just leads to more competition for about the same total income from "good jobs", with that number determined by the amount of money there. That makes things better for rich people buying luxury services in expensive cities, and worse for other people. If you make housing cheap enough for many poor people to move in, the rich people might even leave because of that, decreasing the number of good jobs.
The solution, then, is not to build more in high-demand areas - it's to force demand to be spread out more.
Also, if income is lowered in Tulsa, housing prices must drop, because you have fewer dollars chasing the same amount of housing.
Perhaps your argument is that, with lots of new housing built in NYC, prices drop in NYC and Tulsa, but consumers of housing are not necessarily better off because (for instance) they might be "forced" to move from Tulsa to NYC, making them less happy than they would have been otherwise, despite the lower housing prices in both cities.
But that's a completely different argument.
I may have erected a straw man here. But to that argument I would respond by noting that any kind of change makes some people worse off and some people better off, but market-based change almost always (in theory) results in more positives than negatives. The drop in price of word processors means that Adam may lose his job at the typewriter factory, but economic theory says that in the absence of anything unusual, the change is a benefit to the world as a whole.
This is especially true when changes are an increase in the abundance of a beneficial consumer good, like housing space.
Scott Alexander posted this last month, arguing that building more in an area doesn't necessarily decrease local prices because it can cause more people to move in.
I see 3 levels of argument here, based on 1st, 2nd, and 3rd-order effects:
Position (3) has long been my view, and I thought I'd write a post explaining it a bit.
The problem in America isn't a lack of aggregate housing, it's houses not being where people want to live. Building more in those areas might seem like an obvious solution, but it wrongly assumes "where people want to live" is constant. If we instead consider that it could change, we need to consider what makes people move from an area with cheap housing to an area where it's expensive.
You can just ask people that, and they'll tell you: jobs. OK, so why are there better jobs in the expensive areas?
If you ask an economist, they'll probably say something about improved economic efficiency from people being closer together. I don't buy it, because it contradicts what I observe directly:
Yes, people in NYC and Silicon Valley get paid more on average, but I reject the assertion that wages reflect productivity or competence. If wages were high simply because aggregation improved efficiency, then we'd see a stronger correlation between density and wages, but the correlation of wages with housing prices and with wealth is stronger. In my experience and the experience of people I know, the dominant factor is how close you are to money. Wages in NYC are high because there are wealthy investors and corporate executives there.
Why, then, are those rich people in NYC? Because:
In this model, building more housing in Silicon Valley or NYC just leads to more competition for about the same total income from "good jobs", with that number determined by the amount of money there. That makes things better for rich people buying luxury services in expensive cities, and worse for other people. If you make housing cheap enough for many poor people to move in, the rich people might even leave because of that, decreasing the number of good jobs.
The solution, then, is not to build more in high-demand areas - it's to force demand to be spread out more.