New Studies Explain Why Housing Is So Expensive And Why It Is So Hard To Make It Cheaper

ByAdam A. Millsap. Excerpts:

"the cost-price relationship has weakened over time. This suggests that something besides building costs is having a growing impact on housing prices."

"one such factor could be regulations that prevent additional supply in high-demand areas."

"giving people $100,000 towards the purchase of a house raises prices and worsens affordability when supply is unable to respond to the additional demand the subsidy creates."

"the subsidy increases rents, too, since some wealthier people who are indifferent between renting and buying at the higher price enter the rental market and bid up rents. The result is that most people end up worse off."

"only policies that raise supply (or decrease demand) will make housing more affordable."

"Adding supply to the bottom of the market generates better results than the $100,000 subsidy and makes lower-quality housing more affordable, but the best policy according to the model is adding supply to the top. Adding supply to the more expensive end of the market reduces rents and prices across the entire housing-quality distribution. This may seem counterintuitive, but it makes sense. When more expensive housing is added to the market, wealthier people no longer compete with middle- and lower-income people for lower-quality housing. This decrease in demand for housing in the middle and lower end of the market leads to lower prices."