One aspect of the debate over housing policies is whether increased housing supply or some type of demand management will mitigate create a more affordable housing market. Davis is one of the centers of this debate, where strict load growth controls has led to lower income households being closed out of the market. But contrary to assertions by those who want direct interventions, the housing market isn’t immune from economics.
One problem is that critics in Davis of relying on market mechanisms work from the false premise that the housing markets across the region were all in equivalent equilibriums in 2010, immediately after the Great Recession. The fact is that the Davis housing market, due to a combination of its restrictive housing policies and education value premium, had not declined as much in price as other communities in the region. The amount of surplus housing stock that was available in 2010 had a wide variation across many cities. So of course the towns which were hit the hardest in 2008 have typically had higher price appreciation since 2008, no matter what their housing policies have been.
Here’s a few studies that support the proposition that housing supply and demand drive prices:
- “Supply Skepticism: Housing Supply and Affordability” addresses critics who claim that increased supply will not mitigate housing prices.
- “The Economic Implications of Housing Supply” in the Journal of Economic Perspectives surveys the principles of the market, some salient empirical results and references a number of studies.
- Essays on Housing Supply and House Price Volatility delves into the fundamentals of housing supply economics and restrictions.
- Studies in Housing Price Dynamics surveys the complexities of the economics in the housing market.
- Supply, Demand and Prices in the US Housing Market analyzes the U.S. housing market after the 2008 Great Recession.
- “2019 State of The Nation’s Housing Report Shows Us Housing Supply Falls Far Short of What Is Needed,” a blog post from Harvard’s Joint Center for Housing Studies, discusses how supply impacts current housing prices.
- And from FreddieMac, “The Major Challenge of Inadequate U.S. Housing Supply” assesses the shortfall in housing supply that has increased prices and reduced affordability.