Sightline is the Bomb

Perhaps rather more polite and soft spoken than your typical bomb, but totally the bomb nonetheless. As in this recent Daily Score post about the irrelevance of GDP, with the opening line, “This just cheeses me off.” Or this little gem of a title: Less Driving Means Less Dying.

But the post I want to draw your attention to presently asks the question:

“Given that people with lots of disposable income are choosing to move closer to downtown, is there a good way — or, indeed, any way — to retain decent, affordable housing for middle- and lower-income folks close to downtown jobs?”

And continues:

“It could be that downtown development is a virtuous cycle with a vicious edge: as the city gets wealthier, its amenities get better and better, attracting even more wealth — and making it harder and harder for middle-income folks to find a decent, affordable place to live that doesn’t require a long and fuel-wasting commute.”

But then points out that:

“Then again, this is not the worst sort of problem for a city to have. Consider the alternative. For decades, wealthy folks avoided downtown, and many urban centers became concentrated enclaves of deep poverty. The results — economic segregation of the inner city — fostered far worse social ills than housing affordability presents today.”

In theory, increasing the housing supply should help reduce prices. But as is usually the case, the real world doesn’t behave like an Ayn Rand fable of ideal capitalism. In today’s world there is an effectively infinite pool of wealth available to drive housing demand in cities with perceived value. And this is why I have previously written that “the only effective means we have to ensure that enough affordable housing will be provided in Seattle is government subsidy.”

12 Responses to “Sightline is the Bomb”

  1. Matt the Engineer

    (your link was wrong – try this)

    I often agree with Clark, but strongly disagree here. He has not shown any evidence that increasing supply hasn’t decreased housing costs. I can show you evidence that it does (compare the price per square foot to the homes for sale curve here, for just one piece), and we’re talking about very basic economics here (read my comments in his post).

    I also don’t believe there’s an endless supply of wealth ready to move in to Seattle. If that was the case we wouldn’t see projects stopping construction or turning into apartments, as you’ve pointed out.

    Subsidized housing is certainly an option. But it creates other inequities involved in choosing the right people that deserve our tax money more than all of the others that could benefit (and let’s not pretend that if we can’t even house all of the wealthy that we can make a dent in housing all of the poor).

  2. Matt the Engineer

    (Oh and have you read Ayn Rand? I strongly recommend the Fountainhead. And I find most of the people that use her as an example haven’t read her work.)

    (Also, I need to say I wholeheartedly agree with the title of this post.)

  3. Joshua

    Matt – I’m not sure if you provided the right link. If you did, I’d have to argue with you on your conclusion that increased demand has led to decreased prices. As is often the danger with comparing two trends out of context, I think you’re seeing correlation and not causation here. The cause for a drop in prices is not simply the increased supply. It’s due to both moronically easy access to capital (which inflated prices) and the resulting sub-prime crisis, which has led to our current inability to access capital and general consumer fear.

    Per subsidized housing, I think there are ways of structuring subsidies and other incentives so as to diversify between homeless, low-income, and workforce. That all being said, subsidies aren’t the silver bullet – they are one tool in what should be a broad strategy put forward by the city. I haven’t seen it yet.

  4. Matt the Engineer

    Sure it’s the right link. Take a look at the orange line between Oct 1 to Jan 1 – as housing stock increases, price goes down. Between Jan 1 and Apr 1 housing stock goes down, and prices level off. Apr 1 to now – as housing stock increases, price levels off and goes down.

    Wait – “increased demand has led to decreased prices” – that wasn’t my point at all. Increased supply leads to decreased prices. Demand, despite Dan’s claims, is quite limited. Bump our housing stock up, and we can beat any rising demand and greatly reduce the overall housing costs.

  5. wes

    Matt, I’m so glad you are here. You say everything I want to say, no matter the subject, but due so much more intelligently than my bumbling and often insulting method of argument. Thank you.

  6. Spencer

    It looks like the message is getting lost in the mirth. The problem here is how to we get to low cost housing now? We shouldn’t wait for the market to correct itself. By Matt’s graphs that is painfully too long to wait while we need the housing now. Pendulum swings of supply and demand economics do not seem to be the solutions to creating low-income or workforce housing. We also shouldn’t rely on government funding to bail us out of this problem. Certainly subsidies are helpful but as a country we could use a better mix of capitalism, socialism and philanthropy & good faith for each other’s well being. I’m a bit of an idealist on these issues but it’s pretty clear from where I sit that a lot of people are doing well while many people work hard to just barely get by.

    also in Matt’s graphs I would like to point out the $/sf cost. Anyone have thoughts or insights on what that number means to this discussion? Especially as it relates to profits?

  7. Andrew

    “the bomb”? Yikes is it 1994 again?

  8. Dan Staley

    Bump our housing stock up, and we can beat any rising demand and greatly reduce the overall housing costs.

    I argue this topic quite often over at another blog. This italiczed is incorrect. Well, only partially correct to be generous.

    Housing prices are not purely driven by macro supply and demand.

    Micro factors are at play too – equilibrium for one. In fact, urban economics has arisen to try to get a handle on urban dynamics. (yo, Curtis, pipe in at any time).

    For example, you can graph your equation for assuming the price decrease for increasing supply. But what will happen is that there will be a tipping point where QOL will go down due to lack of amenities/crowding/whatever – and too many houses in an area will decrease prices even more, as no one will be bidding up rents to obtain that housing, and equilibrium rents will fall as the area is no longer as desirable.

  9. Dan Staley

    I should also say that in a place like Seattle with impediments to development – seismic, slope, water, etc., that there are limits to increasing supply – in fact, this blog likes to look at high-rises, which are being used to increase supply. Is this increase – market tanking notwithstanding – driving down SFD prices in, say, Wallingford, Ballard, Queen Anne? If someone can do this study and print it, it would go a long way toward validating whether simple supply increases will reduce prices. Seattle, IMHO, is likely the hardest market in the country (maybe SFO) to state that increasing supply will reduce prices. Too many things in the way.

  10. dan bertolet

    MTE, if you must know, I had my infatuation with Ayn Rand about 20 years ago, read Atlas Shrugged and one or two other shorter ones. But over time her point of view began to seem more and more fable-like.

    Book recommendation back at ya: For the Common Good, by Daly and Cobb. I would suggest checking out their discussion of the “fallacy of misplaced concreteness.” Housing is not a simple commodity like socks.

  11. Joshua

    Matt (and Dano) – Thanks for correcting my statement. I understood your point, just a typo. I’m not sold, though. We had increasing supply and increasing prices for a few years before the charts that you cite. Like I said, I think these two trends have correlation (there is some relationship between them), but you can’t subtract out the effect of the sub prime crisis here. There is decreased demand right now because people are afraid to buy. Temporary oversupply is a result of subprime, as are leveling/dropping prices. We shouldn’t rely on this type of market force to supply us with affordable housing!

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