The Federal Reserve Bank of San Francisco is not a radical leftist institution, and its research economists are not Nimbys, or socialists, or anything other than classically trained academics who look at data.
So it’s interesting that two Federal Reserve researchers have just published a paper that adds to the clear evidence that “constraints” on the supply of private-market housing have little to do with the lack of affordability in cities like San Francisco.
That comes on the heels of another new report, from Georgetown Law School’s Center on Poverty and Inequality, which says in essence the same thing.
Both are part of the emerging academic research and media reports questioning the impacts of the so-called Abundance agenda.
The Federal Reserve paper, which you can read here, directly contradicts the entire premise of housing legislation pushed by state Sen. Scott Wiener, Gov. Gavin Newsom, and Mayor Daniel Lurie.
Allowing market-rate developers to make more profit from building taller, denser housing in San Francisco will not provide “family housing” for anyone except rich families, the report concludes:
We find that average income growth relates strongly to house price growth and that house prices generally keep pace with average income. However, there is almost no connection between average income growth and growth in housing supply. Instead, housing supply growth has a strong positive relationship with population growth. In fact, almost all metro areas saw housing units grow faster than their population—even in expensive residential markets like Los Angeles or San Francisco.
The message is pretty clear: Economic inequality has a lot more to do with the affordability crisis than “constraints” on development.
If the report is right, all the state bills that seek to punish San Francisco for not eliminating “constraints,” and the mayor’s Rich Family Housing Plan, will do very little to create a more affordable city.
On the other hand, raising taxes on the rich, and thus reducing average disposable income for the top ten percent, might work very well.
A billionaire tax, for example, which Newsom and Lurie oppose, might have more of an impact on housing affordability than all these laws that eliminate local control and mandate more density and no public input on new development.
The Georgetown Law report reached similar conclusions. The study looked at six urban areas where new housing construction has exceeded national averages— Atlanta, Dallas, Houston, Phoenix, Seattle, and Washington, D.C.
From the report:
In all six High-Growth Metros, recent construction was concentrated among a narrower range of housing types compared to older housing stock. Construction of large multifamily buildings increased, with smaller units making up a larger share of the apartments. On the ownership side, the size of new single-family homes continued to be larger, potentially limiting the availability of smaller, lower-cost homes. These trends illustrate a gap in new supply, where lower-income households—especially families with children—are likely left with fewer housing options that meet their needs.
Also:
As these higher-growth metropolitan areas added new supply, lower-income households without a rental subsidy faced larger rent increases than higher-income households in 5 of the 6 High-Growth Metros. …. Some housing experts argue that as areas add new market-rate supply, housing units will “filter down,” becoming more affordable to lower-income households over time. However, some evidence shows that this process has stalled or reversed.
So as more luxury housing hit the market in those high-growth cities, rents for existing housing also went up.
The Georgetown report suggests, not surprisingly, that government at every level needs to spend more money on housing subsidies and affordable housing.
The mainstream media have almost entirely ignored these new reports, because they challenges one of the fundamental biases that underly almost all media, and increasingly political, discussion on housing: Private markets, if unleashed and unregulated, will solve this and so many other problems.
This has been gospel for both Democrats and Republicans since the 1980s—and it has been a catastrophic failure. Economic conditions for most people in the lower 90 percent are far, far worse than then were in the post-War era, when marginal taxes on high incomes reached 90 percent, businesses (including housing finance) were highly regulated, and almost half the workers in the country were union members.
Sometimes, I wake up and I can’t believe we are still arguing about this today.
