Comment by estearum
6 days ago
Would be nice if true, but not really.
The reason construction slowed down so much is that developers fear another 2008. We have just barely gotten back onto a historically normal-ish pace of construction: https://fred.stlouisfed.org/series/HOUST
And this talk of "just build build build," while not wrong per se, overlooks the fact that of course prices will come down, which then discourages construction. The system is self-equilibrating. 2008 reset the equilibrium point very low for 15 years, and now the nature of the costs of construction (labor and land) means it is not advantageous for anyone to build starter homes, and it's hardly advantageous to build homes at all.
Restrictive zoning is a problem and would be a very tidy explanation of all the woes of residential in the US, but there really isn't much evidence for it mattering that much in the grand scheme of things.
The single most important factor in home prices is local income levels. This gets baked into both land prices and labor costs, which then makes it very difficult to profitably build much, and completely unprofitable to build entry level homes.
The K-shaped economy is itself causing housing unaffordability. https://www.nber.org/papers/w33576
That would be nice if true, but not really.
The building industry never really recovered after 2008 because the only surviving companies were extremely cautious. In order to get more builders, there needs to be more places to build, and entry into the industry needs to be easier. It's all permitting, zoning, and discretionary processes stopping housing from being built where it's wanted to be built.
Well I've shared a statistical analysis and raw data series backing my points and directly contradicting yours. On the flip side I guess we have "trust me bro."
To the extent "it's all [any individual cause]", that cause is rising incomes. The second major cause of rising housing prices is cost of inputs (labor, land, material). Zoning definitely plays a role, but again: there's just no evidence that "solving zoning" will actually solve affordability. We should do it anyway because it'll solve all sorts of other problems in our built environment, but there's not good evidence affordability is one of them.
You ar also doing "trust me bro" with a statistical analysis that at most shows that prices rise with wages when supplies are constrained. Which, yes! That's what everyone says! K shaped recoveries happen when there's unequal access to opportunity, and supple constraints in access to the geography of good incomes is exactly the sort of supply constraints. Further, in order to get their weak results they do silly things like transform "supply constraints" into an indicator variable, and on the basis of that single odd regression try to overturn a huge body of literature showing the opposite.
Yet this one strange paper keeps getting cited as if it were God's own truth, the holy grail of economics that changes everything that was known before.
Supply restrictions are not binary, though that's how your paper treats them, and they perform none of the causal analysis that would be needed to extend their analysis to the conclusions you are trying to draw.
Here's a random paper with completely different results that agrees with the rest of the field:
https://www.sciencedirect.com/science/article/pii/S009411902...
I remember the last time the "we can't change zoning" folks passed around a paper like the NBER paper you shared, and it was one about transit-oriented-development in Chicago, where allowing small upzonings close didn't change pricing much. It was contra to the vast majority of the literature, covered only a small geographic area with fully adequate housing supply, yet for a few years nobody could suggest doing the obvious zoning reforms without people claiming that Chicago proved that upzoning doesn't change pricing.
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