Imagine that there’s one source of carbohydrates – potatoes – and that everyone needs to eat carbs at least once a day. In this hypothetical scenario, there are three types of potato: kipfler, desiree, and regular. Kipflers are expensive and not that common, whereas regular potatoes are cheap and plentiful. Desirees are somewhere in the middle.
What we’d find is that high-income earners, and/or people who really value quality potatoes, would buy up all the kipflers. Low income earners would be left to the regular potatoes.
What would happen if some kind of bug struck the supply of kipflers, halving it overnight? Well, I’d guess, there would be fewer kipflers for sale, and the price of the remaining kipflers would rise. Some of the high income and/or potato-loving people who would’ve bought the lost kipflers would instead turn to desirees. This increase in demand for desirees would drive up their price; some middle income earners who would’ve bought desirees would instead settle for regular potatoes, which in turn would make them more expensive. Some low income earners would be squeezed out by the process, unable to afford potatoes at the new, higher price. Even though nothing has happened to the supply of cheap or mid-priced potatoes, a reduction in the supply of expensive potatoes has cascaded its way down and harmed the poor.
Now imagine that we reversed the scenario. Through some stroke of agricultural luck, there’s a glut of desirable kipflers on the market. The price of kipflers falls. All of a sudden, desiree-eating middle-income earners who had looked on enviously as the well-to-do devoured kipflers are able to get in on the action. A number of them make the switch from desirees to kipflers, which causes the price of desirees to fall as well. A few low-income earners now find desirees within their reach, and they upgrade from regular potatoes. Even though the supply of desirees and regular potatoes hasn’t changed, they’re suddenly more affordable for everyone.
This all seems pretty straightforward. Why, then, is this logic so hard to comprehend when the good in question is not potatoes, but housing? We all need to live somewhere. If the supply of fancy, expensive apartments is restricted, the people who would’ve lived there don’t just disappear. Some of them instead settle for something a little bit less fancy and expensive. In doing so, they push up the price of these slightly-less-fancy dwellings, and take up spots that slightly-lower income households otherwise would’ve taken. This cascades its way down, so that a reduction in supply at the top end ends up meaning that prices are higher for all sorts of housing, just as with potatoes.
I had a lengthy back-and-forth on Twitter with Catherine Cashmore on this topic. She didn’t seem to accept my argument, instead suggesting that increasing supply at the top-end does nothing to make affordable housing available. I think it’s a fallacy to imagine that the housing market is parcelled off into discrete segments that have nothing to do with one another. It’s all connected, as David Simon would say.
I’ve made this point before, when I was enraged by an Adam Bandt pamphlet that seemed to promise greater restrictions on the construction of new dwellings, while also promising more affordable housing. As I said then, I don’t see how you can reconcile a desire to have:
- consistent population growth;
- affordable housing;
- an urban growth boundary that restricts sprawl; and
- strict restrictions on new development in existing areas.
If you want to say no to developments in your backyard, restricting a rise in density in established areas, then you need to compromise on one of the other points. If you want to have consistent population growth, restrictions on sprawl, and a tight lid on density, then you have to accept that your preferences will result in less affordable housing. If you want to have the NIMBYist restrictions, but keep housing affordable, then you’ll need to either reduce population growth or permit endless sprawl. Pick three of the four dot points above; you can’t have them all.