New Construction is Not the Enemy of Affordability

Austin’s rising population and stagnant housing supply have resulted in increased housing prices. Even though there are a lot of condos under construction, few have hit the market. Our pal Wells Dunbar over at the Chronicle has a nice article discussing the complicated answers to the problem of affordable housing. One undiscussed simple answer would be to get people to stop moving to Austin. Despite our commenters efforts, that plan isn't working [ed: isn't working yet - keep trying guys!]. The other undiscussed simple answer would be to increase supply. That is difficult in Austin, where every new development (or replacement of an old development) is met with protest and outrage, and requires repeated appeals to various city bureaucracies.
Why are people opposed to increasing the housing supply? We all bemoan the loss of local flavor, but that is seldom enough to motivate action (other than blog commentary). The hardcore fight against new development consists mainly of two groups with economic incentives: the individuals being displaced (and the people fighting on their behalf) and nearby homeowners.
The individuals being displaced see new development as the enemy of affordability because when an old apartment complex is torn down and replaced with a new complex, the new units are more expensive than the old ones. If you are only looking at one apartment complex (which is understandable if you live there), then affordability is being harmed. However, if the new complex increases the local housing supply, then there will be a lower relative price for other housing in the area. In Austin, we haven’t added enough density to meet the influx of people, so we haven't gotten ahead of the curve enough to push prices down. The supply we have added has kept prices from increasing as much as they otherwise would, but prices have still gone up.
The other opponents to new construction are the owners of the other housing in the area. This is often couched in phrases like “loss of neighborhood character” or “increased traffic,” but there is also an economic motivation. New construction down the street increases the supply for people interested in buying the neighborhood, which results in lower prices. Homeowners profit by restricting local supply, because it increases the price of what they own.
If we aren’t going choose a simple answer, what are the complicated answers? The city is going to spend $300,000 studying the question. Some lawyers from UT came up with a few alternatives: get the government to pay for it through public funding or "private" finance tools, or get the government to force the developers to pay for it through tax tools, zoning/land use ordinances and regulatory tools. These may be good ideas, but they don't reduce actual housing prices - they just shift part of the price to taxpayers or developers. There are only two real ways to reduce housing prices: reduce demand or increase supply.
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