The anti-market delusion at the heart of the housing crisis

Breaking news: Housing is a market

Believe it or not, housing does, in fact, follow the normal laws of supply and demand. (Photo by Keystone-France/Gamma-Rapho via Getty Images)

It’s very easy to get a reservation at Olive Garden, which has over 900 locations in the United States. It’s almost impossible to get a reservation at Rao’s in New York City, which is one of only three locations. That’s why a plate of pasta at Olive Garden costs between $15 and $30, whereas at Rao’s the food is much more expensive (and you can’t pay with a credit card).

Imagine if Washington, D.C., passed a law banning the construction of new Mexican restaurants. What would happen to the price of Mexican food? It would go up! What if the city instead made it really expensive to get the permits you need to operate a food truck or passed a law requiring that 20% of all tacos be sold at less than the cost of ingredients and labor? There would be fewer taco trucks, and their prices would go up!

Now, you might be thinking, “Wow, Milan, these are some really dumb and obviously contrived examples; I am a smart person, and I know how Econ 101 works.” And you would be correct: These are dumb policies! And they’re exactly the kind of policies that localities impose on the housing market all over the country.

Thankfully, we have some new research that confirms the obvious — housing is a market that is subject to the laws of supply and demand, and when you let people build more housing, the prices go down.

Increased supply leads to lower prices

You often see arguments that building new housing basically doesn’t work to reduce prices. Usually, the argument is either that new units are “luxury housing” that is too expensive for anyone but the rich or that landlords and developers are colluding to keep prices above competitive levels.

Here’s one example from the Georgetown Center on Poverty and Inequality, which claimed that “Even in areas where the supply of new housing units grew, the share of units serving lower-income renters decreased or stagnated.”

The Georgetown report is pretty sloppy: The authors didn’t even try to do causal inference; they just point out that cities with a lot of new housing units are also the ones where rent is going up.

No shit. Developers choosing to build new units isn’t exogenous to demand shocks! That is, developers don’t build in a vacuum. The very reasons they choose to build new units are directly related to the reasons a place is attractive to new entrants: a new employer moves in, a transit line opens up, crime drops, the schools improve, a location becomes fashionable, and so on. (The Georgetown Center on Poverty and Inequality did not respond to requests for comment.)

The new units are getting built in places where demand is high (such as Atlanta, Dallas, Houston, and Phoenix) because developers are trying to turn a profit. And, obviously, high demand will push up prices.

To figure out whether new housing supply actually reduces housing prices, you need to do some actual econometrics.¹

Thankfully, some better-designed papers have been published on this topic recently.

An Urban Institute report looked at the impact of New York City’s upzoning of seven neighborhoods and Philadelphia’s upzoning of basically the entire city over roughly the last 15 years.

In New York, they used a difference-in-differences framework model² to compare housing on upzoned parcels against similar but not upzoned parcels in the same borough. In plain English, that means that they found places that are otherwise similar, except that one was upzoned and the other was not, and then compared how many units were built in each after the upzoning took effect.

Across New York, they found that the “seven neighborhood-scale upzonings collectively resulted in more than 4,000 additional housing units within four years compared with the number of units on similar parcels that were not upzoned.”³ The authors also noted that more supply growth in the upzoned areas is likely in the future (it takes time to build apartments).

An analysis of Austin’s housing construction boom looked at the impact of a slate of policy changes, including:

• Adding a new mixed-use zoning category

• Upzoning in downtown Austin and near the University of Texas

• Making it easier to build accessory dwelling units (ADUs) by reducing minimum lot sizes and removing the requirements for a second driveway

• Scrapping minimum parking requirements citywide

• Allowing buildings to be taller if they include units rented at below-market prices

• Issuing hundreds of millions of dollars in municipal bonds to pay for affordable housing

The researchers found that Austin added 120,000 units to its housing stock between 2015 and 2024. That’s a 30% increase, which far outstrips the national average of 9%.

Median rent in Austin fell from $1,546 in December 2021 to $1,296 by January 2026, even as the city population increased. Over the same period, the U.S. median rent was essentially unchanged.

Finally, a working paper from the University of Bern looked at register data from Switzerland, which covers “the universe of residents and housing units with detailed information on household income, demographics, and housing characteristics.” The researchers used this data to trace out specific households’ movement between specific housing units over time and show which households replace the original tenants when they move to a new unit.

They found that new housing units primarily attract high-income households but that they also trigger “moving chains,” allowing lower-income households to move into newly vacant units. These vacated units have lower median rents but tend to be larger than the units that poor households are moving from.

That is to say, even if new units are “luxury housing,” they create a trickle-down effect that benefits poorer households. It’s like the hermit crab shell exchange.

Voters don’t think supply and demand apply to housing

The point of these papers is that housing is, in fact, a market that obeys the normal laws of supply and demand.

Unfortunately, voters simply do not believe this.

In “The Folk Economics of Housing,” Christopher S. Elmendorf, Clayton Nall, and Stan Oklobdzija conducted three national surveys and found that “ordinary people simply do not believe that adding more housing to the regional stock would reduce housing prices.”

It’s not that voters don’t understand supply and demand in general. In their surveys, the researchers found that most voters correctly understand how supply chain issues in car production would affect the prices of used cars, how free trade agreements affect consumer prices, how better fertilizers would affect grain prices, and how increasing the supply of plumbers would affect the wages of plumbers who are already in the market.

But when it comes to housing specifically, voters simply don’t believe an increase in housing supply will lower prices — in fact, they believe the opposite.

You see the same thing in this poll from the Searchlight Institute, which was conducted in July 2025 and released in September 2025. When asked about the effect of increasing the number of homes in their community, 44% thought it would raise prices, compared with just 24% who thought it would lower prices and 32% who weren’t sure either way.

In both the Elmendorf et al. research and the Searchlight polling, voters were most likely to blame landlords and private developers for high housing prices — not zoning regulations.

When voters think about new housing in their neighborhood, “they think that groceries will get more expensive, they think that crime will go up,” Charlotte Swasey, the director of analytics at Searchlight, told me.

“I think people also see that new housing gets built and maybe they look up the rents of the new housing, and it’s expensive, and they’re like, ‘prices are going up because this new thing is very expensive,’” Swasey said. Voters aren’t considering that the price of mediocre-quality apartments goes down due to new construction or that new construction and rising rents are both downstream of increased demand to live in a particular area.

Hope springs eternal

That said, while voters may not agree with economists about the logic of upzoning, they do react to the reality of high rents and home prices. In The Argument’s March polling, voters in the West were most likely to believe that buying a house has become financially harder for the average person, while voters in the South were least likely to say the same.

Real housing heads will know that the Sun Belt makes it much easier to build housing than Western states like California, which is one reason why Americans are increasingly moving there.

Your average voter is probably not jumping to read the latest white paper on the effects of upzoning. But they do notice which parts of the country people are moving to and which places have affordable rents.

Recommended reading:

1. Not even particularly complex econometrics. Don’t get me started on how you estimate demand and back out marginal costs. It’s actually very interesting, but I think I’d probably cause at least three people to unsubscribe if I tried to explain instrumental variables in a footnote.

2. Specifically, an event study paired with propensity score matching.

3. It is slightly depressing that upzoning just seven neighborhoods counts as a “big upzoning,” but we live in a fallen world.