Noah Smith has a post that advocates policy reforms to encourage more construction of housing.  At one point he makes the following observation:

Housing policy is incredibly tough in America — and in most other rich countries — because housing has to serve two functions at once. It’s both a consumption good and an investment asset. A house is a place to live, but it’s also something that’s supposed to make you wealthier over time, when its price goes up. These two objectives directly conflict — if owner-occupied housing becomes more affordable, that makes most Americans poorer.

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When I say “most Americans”, I’m not exaggerating. The homeownership rate is about two thirds, with only small fluctuations. And for middle-class Americans, most of their wealth is the value of their home

This fact sets up a direct and inevitable conflict between two large classes of American society: homebuyers versus homeowners. If you’re buying a house for the first time or looking to significantly upgrade, you want house prices to be as low as possible. But if you already own a home that you’re happy with, you want the price of that home to be as high as possible, so that you can make the homebuyers pay you a lot of money when you’re finally ready to sell. It’s basically a zero-sum game.

But when it comes to new construction, it is very much a positive sum game.  (To be clear, in this paragraph Smith is discussing a change in the price of existing housing.  So AFAIK there is no disagreement on this point.)

There are two ways to think about questions of economic welfare—money flows and the consumption of goods and services.  In my view, a monetary approach often leads to sloppy thinking. Thus some people complain that building lots of new housing won’t bring down the cost of home ownership.  But who cares?  The point of building lots more housing is not to lower the price (which as Smith rightly points out is a zero sum game), it’s to have more housing.  Thus while building more housing might not bring down the price (although ceteris paribus it usually does), it most certainly will provide more housing.  Countries don’t get rich by having lots of money (Zimbabwe has plenty), they get rich by having lots of stuff.

When you travel around America, you can usually tell how rich an area is by just looking out the window of your car.  But there are a few exceptions.  There are some areas in New York City, San Francisco and West LA that are much richer than they look.  I’ve been told that the neighborhoods are trendy and expensive, but they look kind of run down, with unimpressive structures that don’t look well maintained.  

As many of you know, the cause of this disparity is regulation.  Rent control laws, condo conversion restrictions, onerous permitting process, requirements to use union labor, affordable housing mandates, restrictive zoning rules, and many other regulations cause property owners to allow their buildings to fall into disrepair.

The root cause of all this was satirized by Kurt Vonnegut in Harrison Bergeron.  The pursuit of excellence leads to inequality.  If we allow market forces to create beautiful neighborhoods in these run down areas, then lower income people might be replaced by wealthier residents.  So all of this misguided regulation is enacted in the name of “the poor”.   Keep the area run down and the poor can still afford to live there.

There’s just one problem.  In the long run, it is the poor that suffer the most from the housing shortage.  The rich can usually find ways around misguided government regulations, whereas the poor that don’t luck into a rent controlled unit often end up homeless.     

If a country has 100 million housing units and 110 million households, then as many as 10 million households may end up homeless.  That problem cannot be fixed with rent control, as landlords will prefer to rent to richer tenants that they can be confident will pay the rent on time.  YIMBYs understand that the only durable solution is to create another 10 million housing units.  It doesn’t even matter if the new units are “affordable”, as new construction will tend to depress the price of existing homes, which would be vacated by wealthy people moving into the new McMansions.  Indeed, affordable housing mandates actually make housing less affordable, as they discourage new construction.

So why is housing such an important public policy issue?  Why don’t I write articles about the television manufacturing industry, or the dry cleaning industry?

Housing has two special characteristics.  First, housing expenditures are a very large share of consumption.  Second, it’s a highly inefficient industry, especially in some key coastal areas.  And this inefficiency is mostly due to regulation.  I would add that the other two major economic problems, health care and education, are also industries which absorb a large share of GDP and are heavily distorted by subsidy and regulation.  In all three cases, the media relentlessly focuses on monetary issues, whereas solutions can only come from approaching these industries from an output perspective.  The goal should be changing the total quantity and/or quality of output, and producing each unit of output at a lower opportunity cost.  Monetary solutions like subsidies and price controls merely paper over the deeper problems. 

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