Why housing costs so much and what can be done about it (with Alex Armlovich)
Alex Armlovich, Housing Program Officer at Coefficient Giving, discusses the housing crisis, its trillions of dollars in economic costs, and why it's especially bad in Anglosphere countries. He explains how local restrictions and NIMBYism drive unaffordability and outlines effective policy solutions.
Deep Dive Analysis
15 Topic Outline
Introduction to the Housing Crisis Scale
Global and US Housing Unaffordability Trends
Understanding Marginal Cost and Housing Scarcity
NIMBY vs. YIMBY Movement Explained
Rationality of NIMBY Homeowners and Misunderstandings
Renters' Role in NIMBYism and Expressive Voting
Supply and Demand Dynamics in Housing Markets
Limited Impact of Demand-Side Interventions
Ineffective Policies: Banning Institutional Investors
The Positive Impact of Luxury Housing and Vacancy Chains
Homelessness as a Housing Problem
Deeper Causes of High Housing Prices: Regulations
Why Rent Control is Not an Effective Solution
Effective Solutions: Policy Changes and Mindset Shifts
Final Advice: Embrace Housing Abundance
10 Key Concepts
NIMBY
NIMBY, or 'Not In My Backyard,' refers to opposition to new development, often housing, in one's immediate area due to perceived negative impacts like noise, traffic, or blocked views. When many neighborhoods adopt this stance, it collectively leads to widespread housing shortages.
YIMBY
YIMBY, or 'Yes In My Backyard,' is a modern pro-housing movement that advocates for increasing housing supply, particularly by raising decision-making to higher government levels. This approach aims to internalize the broader societal and economic benefits of growth, which local communities often overlook.
Home Voter Hypothesis
This economic theory suggests that homeowners act as value-maximizers and, as the median voters in many suburbs, influence local land use regulations. Their goal is often to protect or increase their property values by restricting new development.
Expressive Voting
Expressive voting describes how people vote not necessarily for their direct economic self-interest, but to express their values or what they believe is morally good for their community. This can lead to support for policies that are economically suboptimal but align with a voter's moral universe.
Spatial Equilibrium
Spatial equilibrium is an economic concept where, from the perspective of a marginal migrant, the 'all things considered' price (including wages, amenities, and housing costs) is constantly equilibrating across different locations. People move until they are indifferent between staying in one place or moving to another.
Arbitrage (Housing)
In housing, arbitrage refers to the practice of institutional investors buying homes to rent them out, exploiting price differences between the ownership and rental markets. This often occurs when credit access for homeownership is restricted, creating profitable opportunities to convert owned units into rental units.
Vacancy Chains
Vacancy chains describe the process where new luxury housing, by attracting higher-income residents, frees up their previous homes for slightly lower-income residents. This creates a chain of moves that ultimately makes cheaper housing available at the bottom of the market, benefiting a wide range of incomes.
Zoning
Zoning refers to local government regulations that control the bulk, height, floor area, and number of units allowed on a piece of land. These regulations are a primary cause of restricted housing supply and can significantly limit development potential.
Permitting and Procedures
This refers to the administrative and legal processes, including environmental reviews, required to obtain building permits after zoning approval. These procedures can add significant time, complexity, and cost to construction projects, delaying or preventing new housing.
Building Code
Building codes are regulations governing life safety and construction standards. While essential, they have historically been used to discriminate against multifamily housing and can add unnecessary costs or restrict certain building types, such as mandating two stairwells where one is sufficient by international standards.
12 Questions Answered
Housing is the largest single consumer category, making up about a third of consumer spending. Academic estimates suggest it causes trillions of dollars in economic damage to the United States alone.
It's particularly severe in Anglosphere countries (U.K., Australia, Canada, New Zealand) but is increasingly a problem in other places like Paris and Berlin, especially where growth is restricted and demand is high.
NIMBYs (Not In My Backyard) oppose development due to concerns about local costs like construction noise, traffic, and potential impact on property values. They often do not internalize the broader regional benefits of growth.
While some actions might seem self-interested, evidence suggests a mix of economic misunderstandings (e.g., about land value uplift from upzoning) and non-economic goals like preserving community character or socioeconomic separation drive their opposition.
Yes, even in majority-renter cities, renters can contribute to NIMBYism. This is often due to expressive voting (voting based on perceived community good rather than strict economic self-interest) or misinformation about how new housing affects rents.
Fundamentally, it's a supply and demand problem. Long-term high prices relative to building costs are primarily due to supply restrictions, even though short-term price movements are more influenced by demand.
No, large institutional investors like Blackstone own a negligible percentage of the total housing stock (less than 1%) and primarily engage in arbitrage between the rental and ownership markets. They do not significantly reduce overall housing supply or broadly push up prices.
Yes, building luxury housing creates 'vacancy chains' where higher-income residents move into new units, freeing up their previous, slightly less expensive homes. This chain of moves ultimately makes cheaper housing available at the bottom of the market, benefiting non-billionaires.
There's a strong correlation between high contract rents and homelessness rates. Expensive housing reduces the 'slack' in the market, making it harder for social connections to cushion life shocks that can lead to homelessness, even for those with substance use or mental health issues.
Beyond NIMBYism, the deeper causes include restrictive zoning (controlling bulk, height, and unit limits), cumbersome permitting and approval procedures (like environmental reviews), and outdated building codes (e.g., mandating two stairwells where one is sufficient).
Rent control lowers contract rents but doesn't address underlying physical scarcity, leading to rationing by waitlists or black markets. It can also cause misallocation of units, where people hold onto regulated housing even if they don't fully utilize it.
Effective interventions include improving zoning (e.g., allowing ADUs, minimum lot size reform, residential in commercial districts, transit-oriented development), streamlining permitting, updating building codes, and state-level actions to modify local control and make housing growth fiscally attractive for localities.
8 Actionable Insights
1. Advocate for State-Level Housing Reform
Support state governments in modifying local zoning powers to ensure regional and statewide housing interests are met, as governors and higher-level officials are often more pro-housing. This addresses the collective action problem of local NIMBYism and enables broader growth.
2. Educate on Housing Market Economics
Understand and communicate that building more housing, even luxury, ultimately benefits everyone through “vacancy chains” and that homeowners can gain from upzoning through increased land value options. This counters economic misunderstandings and expressive voting that often block new development.
3. Support Zoning and Permitting Streamlining
Advocate for reforms to restrictive zoning laws (e.g., allowing ADUs, minimum lot size reform, residential in commercial districts, transit-oriented development) and streamlining permitting processes. These direct levers reduce construction costs and timelines, increasing housing supply.
4. Update Building Codes for Efficiency
Push for modernizing outdated building codes, such as allowing single-stair apartment buildings (common globally) and adopting international elevator standards. This can significantly lower building expenses and enable more diverse housing types without compromising safety.
5. Make Housing Growth Fiscally Attractive
Encourage policies that ensure local governments receive adequate funding for public services (transport, education) as housing grows, potentially through per-unit bonusing or tying state/federal assistance to headcount. This prevents local backlash against new development by aligning incentives.
6. Distinguish Poverty from Housing Scarcity
Recognize that high housing costs are a separate problem from poverty; while YIMBYism can lower prices, income supports and work supports are still necessary for those without market incomes to afford housing. This clarifies the distinct roles of housing policy and social welfare.
7. Do Not Ban Institutional Investors
Avoid policies that ban large institutional investors from the housing market, as they own a negligible share of the total stock and primarily arbitrage between rental and ownership markets, not reducing overall housing supply. Such bans are largely ineffective and based on misunderstanding market dynamics.
8. Avoid Rent Control as Primary Solution
Understand that rent control, while potentially redistributive, does not solve underlying physical scarcity and can lead to waitlists, black markets, and misallocation of housing units. Focus on increasing supply instead of price controls to address affordability.
6 Key Quotes
In matters of housing, trust no one who speaks English.
Alex Armlovich
Firms maximize profit. People maximize utility.
Alex Armlovich
Renters and homeowners are pretty similar in their nimbyism.
Alex Armlovich
If you care about 20,000 units, I've got, I've got a plan for you.
Alex Armlovich
You cannot have more houses by banning houses.
Alex Armlovich
You cannot get richer by mandating that you have less stuff.
Alex Armlovich