Paul Krugman—the Nobel Prize winning economist Paul Krugman—recently wrote an article spotlighting how local zoning laws that hamper building enough homes to meet demand directly cause housing costs to skyrocket in growing cities. Of course, you don’t need a Nobel-prize in economics to understand that when demand goes up faster than supply, prices will go up, and when supply goes up faster than demand; prices eventually go down. Colleges teach that concept in Econ 101.

Matt Bailey

Matt Bailey

Heck, Chapel Hill-Carrboro City Schools teach supply and demand in second grade social studies.

Curiously, some people right here in our own community say that supply and demand has nothing at all to do with the cost of housing and assert that they know more about housing markets than the Nobel prize-winning economist.

On the surface, the examples they cite sound compelling.

First, they’ll point out a new apartment building that only offers “luxury” apartments.  (Aren’t all apartments touted as “luxury” apartments? Have you ever seen billboards advertising “economy” apartments?)

What they’re not pointing out, however, is the old apartment complex down the road that’s now offering two months free rent when they used to have a waiting list. That old complex was planning on installing granite countertops, slapping on fresh paint, and raising rents substantially. With the new competition from those “luxury” apartments, however, they decided it’s wiser to lower their rent prices instead.

Next, they’ll talk how a new subdivision or condominium didn’t make prices any lower, so increasing supply must not work. They ignore, however, that a few dozen new homes is a drop in the bucket when thousands are moving to your metro area. Supply may have grown, but not nearly as much as demand.

If that doesn’t convince you to abandon Econ 101, they’ll point out how hipsters move in to an older in-town neighborhood, open up coffee shops and foodie havens, and make the neighborhood a lot more appealing to people who can pay higher rents, pushing out long-time poorer residents who can no longer afford the rent. On an individual neighborhood level, this phenomenon is a legitimate social challenge, especially as more and more people rediscover city living and the demand for long ignored neighborhoods grows. You’ll see such gentrification first hand in the Old West Durham neighborhood near Ninth Street.

Scope out beyond isolated individual neighborhoods, however, and it still costs well over $200-thousand less on average to buy a home in Durham than it costs in Chapel Hill, in large part because Durham simply approves more new homes than does Chapel Hill.

Ask any realtor. They’ll tell you supply and demand is exactly how the housing market works.

Listen to Matt Bailey’s commentary here.

Personally, I don’t understand why some folks in Chapel Hill are so vehemently opposed to new homes for new neighbors. Maybe they’re long-time homeowners that like the idea of restricting the supply of new homes so they can make more money when they sell their homes. Maybe it’s more important to them that they never have to see a building they don’t like as they drive around town than it is to be a place more people can afford. Maybe they just don’t like the idea of Chapel Hill being any bigger than it is.

There’s nothing inherently wrong with any of these beliefs.  However, don’t kid yourself into actually believing that decades of artificially limiting the supply of new homes during a time of increasing demand to live here hasn’t directly caused Chapel Hill’s home prices and apartment rents to soar.

If we really do care about living in an affordable, inclusive community, let’s start having a real conversation about how can best increase Chapel Hill’s housing supply.

That means discussing tough topics, such as whether we’d prefer to change zoning ordinances so we can make better use of the land we already have, which some folks will deride as density, or if we want to eliminate our rural buffer so we can use more land for new homes, which other folks will disapprovingly call sprawl.

Either way, let’s stop the Supply and Demand Denialism.

After all, it doesn’t take a Nobel Prize to notice that decades of the Chapel Hill Town Council artificially restricting our housing supply sure didn’t make living in Chapel Hill any cheaper.

 

— Matt Bailey