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Housing Breaks People’s Brains

November 23, 2022

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Supply skepticism and shortage denialism are pushing against the actual solution to the housing crisis: building enough homes.

Anyone who’s been in a dumb recurring fight knows that the entire problem could be cleared up if everyone could just agree on exactly what was said or done. But you can’t, so you end up stuck in a cycle of relitigation. Housing-policy discussions are like that. They descend into crushing bickering because even the basic facts are up for debate.

The most basic fact about the housing crisis is the supply shortage. Yet many people deny this reality. Before I get to the veritable library of studies, our personal experiences compel us to recognize that housing scarcity is all around us. The most dire signs of a shortage are when even rich people struggle to find homes. Viral clips of hundreds of yuppies lining up to tour a single Manhattan apartment or stories of real-estate agents acting as bouncers at open houses to keep things orderly—these vivid examples demonstrate that demand has far outstripped supply.

Once you accept the existence of a housing shortage, the obvious policy response is to build a bunch of homes. Research looking at San Francisco, New York, Boston, and 52,000 residents across 12 U.S. metropolitan areas have all found that new housing brings down prices. This research makes intuitive sense: If new housing is built, most of the people who move in first vacate other units. Those units then become available to newcomers, and so on. Solving a supply problem is of course harder than making the number of homes equal the number of people—different people want different sorts of homes—but the fundamental point is that we need more homes near good jobs and schools, and that give people access to the communities and amenities that make life more enjoyable.

Despite the avalanche of agreement from experts, the general public still doubts cause and effect. A new study from a trio of professors at the University of California (Clayton Nall, Chris Elmendorf, and Stan Oklobdzija) reveals that shortage denialism is not the only missing “shared fact” plaguing housing discourse. The researchers ran two nationwide surveys of urban and suburban residents and found that 30 to 40 percent of Americans believe, “contrary to basic economic theory and robust empirical evidence,” that if a lot of new housing were built in their region, then rents and home prices would rise. This posture is referred to as “supply skepticism.”

Shortage denialism, which I have observed in my own reporting, and supply skepticism, which these researchers revealed through their survey data, are related phenomena. Not only are they false, but they are false in the same direction. They push against the actual solution to the housing crisis: building enough homes. After all, if there is no shortage or if building new homes doesn’t reduce rents, then no one has to tackle NIMBYism, no one has to work to bring down housing-construction costs, and no one needs to build millions of new homes in America’s cities and suburbs. In fact, this magical thinking goes, we can fix our housing crisis without changing much of anything at all.

One odd thing about supply skepticism is that it’s seemingly limited to housing. The UC researchers also asked about cars, grain, plumbers, and increased trade in general. Significantly fewer respondents expressed supply skepticism about those categories than housing. For example, 85 percent of respondents said a snag in the supply chain for cars would cause the price of used cars to increase; well under half of respondents were able to apply this same logic to the housing market.

Why is housing different? Perhaps because the supply argument seems to defy lived experience. People look around their community and sense that a lot has changed. They see new homes and developments cropping up, even as prices keep rising. This eyewitness account results in people thinking that these new developments either do nothing to alleviate rising prices—or worse, actually cause prices to increase.

The UC researchers note that “the mass public tends to personalize and moralize economic phenomena.” Further, they cite a theory that because our brains evolved to engage in cooperative behavior in small groups, people tend to be better at building narratives that revolve around “detecting intentions and effort, and at policing turncoats” than at “systems-level thinking.” This bias could explain why so many Americans believe that inflation is largely the result of price gouging by greedy private companies, rather than sharp increases in demand for goods and services meeting supply shortages for those same goods and services. Or, more germane, why so many Americans believe that private equity is primarily responsible for the housing crisis (despite owning a near-negligible share of America’s housing stock) or that developers are the only ones who will benefit if we reduce barriers to building new housing. Unsympathetic actors like private-equity firms or developers are easy to cast in a simple tale of good versus evil. What’s harder is conceptualizing the web of regulations, norms, and incentives that has led us to a supply issue with no obvious villain. (Harder still is recognizing the complicity of sympathetic actors like homeowners who have stood in the way of much-needed housing.)

Another factor behind shortage denialism and supply skepticism may be motivated reasoning. They both stem from a desire to reject the necessary policy solution. Building millions of homes is disruptive; it means changes to the built environment, acceptance of multifamily residences in more neighborhoods, and construction, lots and lots of construction. Some people are averse to construction at scale because their intuitions about density are binary: Either you have a major metropolis with super-talls stretching above you, or you have a quiet suburban road; there is no in between. Others are averse because they see developers and development as inherently bad, and thus promoting that as a solution to any problem feels wrong.

Whatever the case, the UC researchers found that supply skepticism makes people less likely to support home construction, a finding that could seriously inhibit state and local governments’ attempts to address rising rents and home prices. If the shortage doesn’t exist, then there is no need to build new homes. If supply doesn’t bring down prices, then it’s not a solution to the pain that middle-class and low-income families feel as they struggle to make rent or save for a down payment.

Facts have a way of asserting themselves. When a crisis gets bad enough, motivated reasoning, denial of obvious truths, and contradictions in logic bend and often break under the pressure. Maybe you ignore the fact that your kid isn’t doing his homework when he’s bringing home B’s and C’s, and you defend him to his teachers or other concerned family members because his laziness is not that big of a deal. But when he’s at risk of failing? When he can’t pass the basic literacy requirements to go to the next grade? At some point—for most people—avoiding reality becomes too costly.

For a long time, experts have been warning of the housing-supply crisis. But only in the past few years, as the national median home price has topped $450,000, has the policy landscape shifted. Notably in California (where that number is above $800,000), lawmakers have passed a flurry of housing-production bills. Governors in Montana and Virginia, legislators in Maine and Utah, and policy makers at every level of the federal government are coalescing around the need to build more homes.

Voters often give their elected officials conflicting mandates. More affordable housing! No construction on my commute! Optimizing for those concerns, not executing contradictions to the letter, is the role of elected officials. Magical thinking can flourish in a world where things aren’t that bad. We are able to pretend that cities can be preserved in amber when most people are doing okay. But as a growing number of high-income renters find themselves shut out of homeownership and as the population of the chronically unsheltered soars, reality has begun to set in.

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