Zelda Bronstein, in her article, Supply Sophistry, is absolutely right in her examination of the many flaws in the supply and demand argument as it relates to housing. It should be noted that supply and demand do not really apply to anything.
The mantra of supply and demand has seeped into all of our economic debates and permeates our housing discussions, even as it increasingly strays from economic justice. This myth is propagated by those who take advantage of rooting it in our assumptions. Nothing has ever been a direct relationship between supply and demand because a host of conditions – slavery, devaluation of labor, tariffs, taxes, global corporate conglomeration – make consumerism an indirect relationship.
Supply-side economics was Ronald Reagan’s simplistic explanation of capitalism, the discredited “trickle down” theory. The idea is that perpetual growth, sponsored and stimulated by tax breaks and subsidies for wealthy individuals and corporations, will inevitably trickle down to the lower classes. As comedian Will Durst said, “Runoff means the rich can pee on us higher and higher.”
According to the Treasury Department’s investigative and research unit, FinCen, the main drivers of house prices are luxury homes, real estate speculation and investment conditioning by financial institutions. conclusions of multi-year studies by Dr. John Rose as well as a 2018 article from the International Monetary Fund, show that housing prices are disconnected from supply and demand for multiple reasons, not the least of which is that it has never applied in first place.
From 2012 to 2019, housing prices in the SF Bay Area increased by 110%. The population decreased by 12%. What has increased is the wealth gap. During that same period, the average earner earned $45,000 a year, while those who received compensation instead of paychecks earned $160,000 a year.
According to Forbes, almost a third of San Francisco residents are multi-millionaires, that is, people who have received more than $2.3 million a year in liquid assets (stocks, investments, trusts, financial instruments that translate into cash) for at least three years. Those who live off paychecks cannot compete with those who can borrow and get a tax deduction for loans against investments. Teachers do not get stock options.
In a block of $1 million houses, when someone comes in and offers $2 million, then all the houses are worth $2 million. When a real estate speculator turns a $1 million single family home into three units, he is not building three $500,000 units, but three $2 million units. It has nothing to do with demand and everything to do with the distribution of wealth.
Even if supply and demand were a real process, focusing on supply intentionally ignores what drives demand: tax subsidies to keep multibillion-dollar companies continually growing. Businesses don’t locate in places that don’t, can’t provide the level of significant financial support that comes from wealthier states like California and Texas with strong additional industries like agriculture, petroleum and manufacturing. When Kansas tried, it went bankrupt.
Tech, finance, and real estate development companies wouldn’t have gone so deep into the heart of San Francisco without the billions of dollars in funding from the Department of Defense, tax breaks for staying in California, billions more in federal funds to keep growing, and tax policies that treat a paycheck with derision, but a dividend with respect.
Good jobs first reports that mega-deals for data centers supported by “state and local subsidies to Google, Apple, Microsoft, Facebook, and Amazon Web Services…cost (taxpayers) $1.9 million per job.” Apple has an ongoing deal with Santa Clara to collect sales taxes that residents say go to public works. Fresno gave Amazon $30 million, a portion of sales tax revenue and control of the city budget.
Now that some non-white people have the economic ability to afford the satisfaction, generational wealth, and financial security of single-family homes, those in power have framed them as the cause of high house prices. Lawmakers funded by real estate and finance companies have zoned and subsidized massive developments that target low- and middle-income homeowner communities in San Francisco, Los Angeles, Atlanta, Miami and Seattle. Politicians have imposed density and land use requirements on residents that place a financial burden on those least able to bear it. These laws also have an exorbitant environmental cost.
It is physically and financially impossible to build forever. A skyscraper does more harm to the climate than a flat house because a single-family house can have a radiant roof, earth and trees, while a tower has more surface area for heat radiation and requires a multitude of systems environmentally harmful media. The loss of cities’ greatest open space, backyards, has changed everything from wind patterns to water retention, to the behavior of birds and bears. San Francisco, once a temperate city, is now the fifth hottest heat island in the United States. Density is damaging and pushing people further and further into rural areas.
The Washington Post reports that 30% of homes are sold to investment companies rather than owners. It’s a very different demand from home ownership to secure a place on the economic ladder.
Housing is both a need, an investment and a commodity. This involves multiple layers of authoring, accessibility, availability, and security. Housing is not simply a universally available product of soap-like quality, but public debate continues to be grounded in a dangerous economic mythology and ignores the immoral underpinnings of public policy.