Notable economics writer Matt Yglesias provides a pithy analysis of the relationship between housing prices and construction in his newsletter published today. Yglesias writes:
I observed on Twitter the other day that there’s a shockingly widespread belief that banning new construction will prevent increases in the price of housing, and that lead to some pushback that was more interesting than I’d anticipated and is worth addressing specifically.
Umbrellas don’t cause rain
But before getting into the specific points, I do think it’s worth focusing on the core fallacy that drives some of this. People look around and see that in neighborhoods where prices are going up, there’s generally highly visible new construction — cranes putting up largish buildings — and think the construction is driving neighborhood change.
This is a bit like thinking that umbrellas cause rain because every time you see everyone carrying them it rains.
Construction — especially of high-rise buildings — is expensive and people are only going to do it in places where demand is high and prices are on the rise. By the same token, brand-new construction commands a price premium so the just-built thing always targets a more upscale market than the average neighborhood resident. Your city’s stock of cheaper housing consists almost exclusively used to be new but aren’t anymore. But the presence of new expensive buildings isn’t making older buildings more expensive. It’s the fact that older buildings are getting more expensive that leads people to build new buildings.
Yglesias then goes on to explain why banning new projects won’t achieve the goal of preserving a neighborhood’s character or preventing gentrification and the rise in housing costs.
As we engage as a community to debate construction proposals in and around Roslindale, we would be well advised to keep this insight in mind.
