The laws of supply and demand explain why housing prices are low or high in a given area. In places where prices are rising quickly, the solution seems simple - build new homes to increase supply to meet demand.
Why do some cities do this, but others don’t? The short answer - land use regulations.
Every city has laws about who can build what, where. And those laws can be important for public safety and balanced development. Some areas impose reasonable rules and protections, so it's relatively easy for builders to increase supply. But other areas impose strict and complex rules and fees that make it difficult to increase the housing supply.
Housing development is largely controlled by local governments, and the level of resistance in the community can play a big role in determining a government’s response.
“Not-in-my-backyard” neighborhood groups – or NIMBY’s – often seek to preserve their communities by using their political muscle to oppose new development. These NIMBY’s believe they’re acting in their own best interest, but the strict land use rules they advocate can have unintended negative consequences.
When housing demand outstrips housing supply, local economies struggle. To offset the high salaries needed to match the cost of living, businesses look for cost savings, often by operating with fewer employees or moving operations elsewhere.
Employees in such areas often endure long commutes that take a toll on their professional and personal lives. Younger people and families leave or don’t migrate to these areas because they simply can’t afford them.
These ripple effects ultimately squeeze out the middle class, and create more division and inequality. And the worst part is, these effects are entirely avoidable.
