Public Notice: More Unintended Consequences

If you build it ...

Public Notice: More Unintended Consequences

Thanks to reader Jim Henshaw for pointing out an obvious analogy, regarding my column last week, that helps illustrate the the way classic supply and demand is distorted in the modern housing market. Henshaw cites the example (see "Feedback") of traffic congestion, where it seems the most obvious thing in the world that if you just build more freeway lanes, you'll relieve the congestion. But as traffic engineers and planners have known for decades (Anthony Downs, 1962), that's not the case. In what's known as "induced travel," an easing of congestion brings on an increase in vehicle miles traveled, in almost exact proportion, within a very short period of time. So the wait time on the freeway returns to about the same level – but with more cars using feeder roads, overall travel times may actually be worse. Not what you'd expect, right?

Now consider the housing market: Supply and demand would seem to dictate that, whatever demand may be doing, anything you can do to increase supply must work to bring prices down. And that's true, economists have found, but only within fairly narrow economic segments. Economists have known since the 1980s that the housing market is segmented and "better understood as a set of interrelated submarkets that can move somewhat independently than as a single market," as Rick Jacobus wrote recently in Shelterforce, a publication of the National Housing Institute. "And because of this difference, housing is not generally covered in undergraduate economics courses. Housing is advanced economics."

A seminal study in that field, The Maze of Urban Housing Markets, described five such segments, ranging from the most expensive 20% of housing options to the least expensive 20%, and found that while supply/demand equations worked within each segment, they had little effect on the other segments: Adding a lot of new luxury housing would lower those prices and have some effect on the next submarket down, but almost none below that, such that "the addition of new luxury housing made relatively little difference to the rent for low-cost housing units." Now, match that with the fact that "market rate" new housing in Austin is pretty much defined as being affordable for families making 120% of median income and up – that is, the top 40% of earners. Nothing's really being built for less than that except government-­subsidized affordable housing. So the bottom line, counterintuitively: No amount of new, market rate construction is going to change the price curve for the bottom 50% of earners. (Such a building boom does raise construction and land costs, though, and that effect is felt equally in all market segments.)

In that light, Austin's common practice of prioritizing overall "capacity" over the preservation of existing affordability seems especially shortsighted. There are lots of reasons to justify tearing down, say, 10 older, currently affordable housing units in order to make way for 100 new "market rate" ones. But affordability is most certainly not one of them. Those 10 missing units, coming directly out of the inventory of what most people mean when they talk about affordable housing options, will have a direct impact on everyday affordability. The 100 new units may keep prices from rising so fast in the top end of the market – though that demand seems to keep growing as well – but trickle down to the lower 50%? Again, not so much.

Meanwhile, everybody's still waiting for the release of the Land Devel­op­ment Code rewrite, draft 2. Council got a sneak peek at the maps on Friday and a briefing on text changes at a committee meeting Monday, but there's as yet no word on when either will be released. Still, Coun­cil's scheduled to start voting in 10 days.

Aquatic Hiring Days start today, Thu., Jan. 30, 4-8pm at the PARD Aquatic Office, 2818 San Gabriel St. The Parks Dept. is looking for lifeguards, swim instructors and coaches, and pool cashiers for the summer; see for full info.

And of course, a shout-out to this weekend's Big Game: Saturday's 13th annual Puppy Bowl, 11am-2pm at the Austin Humane Society, 124 W. Anderson Ln., and continuing 2-5pm at Yard Bar, 6700 Burnet. Go to to register to attend or compete.

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supply and demand, land development code, LDC revision, Rick Jacobus

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