Can we overbuild our way to housing affordability?

o Let and For Sale signs protrude from houses in the Selly Oak area of Birmingham

Back in the day, it was crazy cheap to find a summer sublet in my college town.  So many students and landlords were looking for somebody to pay anything to live in units that would otherwise sit vacant while most students were out of town. You could get a really nice place that would normally rent for $400-$600 for about $50 a month.  No lie.   That extreme situation makes me wonder…

Is it possible to increase the amount of affordable housing by building a surplus of market rate housing?

Articles like this one  claim that building market rate housing and using it to fund affordable housing actually makes the situation worse.  They argue that adding more market rate housing worsens the proportion of affordable housing where:

Affordable Proportion = affordable units/all(affordable+unaffordable)units

Are they playing a math game?  What if the number overall housing units increasing could have price lowering effects on the numbers of lower-cost units even if the percentage of nominally “affordable” units goes down.

They claim, also that when you build market rate housing, new residents move to the area, increasing the overall population and the demand for more housing so the price of housing always goes up.  When you build low income housing, they say, local people move in, so there is net gain of residents.  Is this true?  If so, is it universally true, or locally true, or is it a matter of scale?  Is it a matter of supply outstripping growth?

This seems akin to the common argument that building more and bigger roads only increases traffic by inducing demand.  I buy this argument when applied to cars, but I wonder whether it applies to housing.

They argue that if there are more high-end housing units available then more high-end buyers will come from elsewhere and continue to drive up prices.  Does this curve increase indefinitely? Economics argues that there is a price beyond which demand reduces, and that oversupply can reduce prices by outstripping demand.  (See the current big drop in oil prices.)

Is it possible to build enough of all kinds of housing that housing supply outpaces demand enough that sellers outnumber buyers/renters so that at least  the lower end of the housing price range goes down?  How much housing would that take?  Is it just that we aren’t building enough at every price range?

Housing isn’t a commodity market.  One housing unit is very different from another, and they sell at many different prices.  If the housing stock increased by building much more high-price high-quality units than are needed, would the price of older units go up or down (like the iPhone 5 when the 6 comes out)? If there were more high-end units than high-price buyers, could the price of those high-priced units go down as well?

I’ve got no answers today, just a pile of questions.  What do you think?


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