Economists and experts have stressed that boosting housing supply is key to making homes more affordable. However, new research suggests it’s not that simple.
A recent study from UC Irvine PhD student Schuyler Louie and researchers from the San Francisco Fed indicates that while average income growth closely tracks house price increases, it doesn’t relate to how much housing supply is added. Their analysis shows a strong connection between housing supply growth and population increase, not income. Even in expensive cities like Los Angeles and San Francisco, housing units have often grown quicker than the local population.
This challenges the common belief that local regulations—like NIMBYism (Not In My Backyard)—or policies favoring rent control are solely to blame for the housing crisis.
In California, the struggle with high housing costs has led to increased homelessness and a shift of residents to other states. Yet, the researchers pointed out that supply isn’t the main issue. Instead, they focused on demand differences to explain home prices.
They tracked house prices and median incomes from the mid-1970s. Notably, until 2000, these two variables rose in tandem. After that, housing prices skyrocketed beyond income levels. This indicates that rising inequality may drive home costs, as wealthier individuals generate a disproportionate impact on the housing market.
Experts agree that government regulations might not be as effective in combatting housing affordability as once thought. The researchers concluded that the dynamics of housing affordability are more about varying income growth across different economic tiers rather than a simple supply issue.
Furthermore, examining the years 2000 to 2020, the researchers found no link between incomes and housing supply. As people became wealthier, many chose to improve their living conditions through renovations or by moving to nicer areas, rather than purchasing additional homes.
Population growth plays a pivotal role in housing supply. For instance, when new people move to a city, the demand for housing units increases. This can push up both prices and supply.
To tackle the housing affordability crisis, experts suggest focusing on labor market shifts and the unequal distribution of economic growth among income levels. Addressing these underlying issues could lead to more effective solutions for housing challenges.
In summary, understanding the nuances of income growth, population shifts, and housing market dynamics is essential. It’s not just about building more homes; it’s about shaping the economic landscape so that everyone can afford a place to live. For further insight, you can explore more detailed findings in this San Francisco Fed economic letter.
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affordable housing,Home Prices,Housing
