Latest Posts





Research shows that expanding housing supply reduces the price of housing

I’ve written before that prices are not problems, they are signals of problems. In the case of high housing prices, they are signalling that demand is high relative to supply or, the same thing, supply is low relative to demand. Trying to solve the problem by treating the signal is like trying to slow down your car by fiddling with the speedometer. It will do nothing whatsoever to address the underlying problem. The answer is to expand supply (or restrict demand, but good luck with that).

A new paper by Brian J. Asquith, Evan Mast, and Davin Reed studying “the local effects of new market-rate housing in low-income areas” shows how this might work. They find that:

New buildings decrease nearby rents by 5 to 7 percent relative to locations slightly farther away or developed later, and they increase in-migration from low-income areas. 

Interestingly, they find that:

Results are driven by a large supply effect—we show that new buildings absorb many high income households...Contrary to common concerns, new buildings slow local rent increases rather than initiate or accelerate them.

In other words, these new builds, which may be relatively unaffordable for many, pull in people who can afford them. This stops them bidding up the prices of other housing which, in turn, makes them more affordable. The bottom line is that expanding the supply of housing leads to a reduced price of housing, just as economic theory would suggest.

Rent controls treat the symptom, not the illness. To really get a handle on affordable housing, the only real solution is to expand supply.

John Phelan is an economist at the Center of the American Experiment. 




Upcoming Events

  • Morning in Minnesota: St. Cloud

    Location: St. Cloud

    Sign up HERE! Courtyard by Marriott St. Cloud 404 West Saint Germain Street St. Cloud, MN, 56301 Please join Center of the American Experiment on Tuesday, July 21 for breakfast with Center policy fellow and education expert Catrin Wigfall as she explains K-12 education in the state and its persistent disparities despite decades of increased spending. Following her presentation, Catrin will lead a Q&A session. 7:30 AM Check In and Breakfast 8:00 AM Presentation 9:00 AM Conclude   Catrin Wigfall is a Policy Fellow at Center of the American Experiment. She is also the director of EducatedTeachersMN and EmployeeFreedomMN. Catrin’s…

    Register Now
  • Kristi Noem: The Courage to Reject a Shutdown

    Location: Online

    Sign up HERE! Join us Wednesday, July 8th for an interview with South Dakota Governor Kristi Noem over Zoom. In response to COVID-19, Noem defied the norm of a statewide shutdown and let South Dakotans choose for themselves what safety precautions to take. Tune in to this live online event to hear how Governor Noem preserved her state’s economy while still keeping citizens safe. Wednesday, July 8th at Noon CT Sign up HERE!  

    Register Now
  • Morning in Minnesota: Marshall

    Location: Marshall Golf Club

      Sign up for this event HERE! Please join Center of the American Experiment on Thursday, July 16 at Marshall Golf Club for a breakfast with Center economist, John Phelan, as he discusses Minnesota’s economic future. Following his presentation, John will lead a Q&A session. 7:30 AM Check In and Breakfast 8:00 AM Presentation 9:00 AM Conclude John Phelan is a graduate of Birkbeck College, University of London, where he earned a BSc in Economics, and of the London School of Economics where he earned an MSc. He worked in finance for ten years before becoming a professional economist. He…

    Register Now