If you want to understand America’s strange relationship with housing in the 21st century, look at Austin, where no matter what happens to prices, someone’s always claiming that the sky is falling.
In the 2010s, the capital of Texas grew faster than any other major U.S. metro, pulling in movers from around the country. Initially, downtown and suburban areas struggled to build enough apartments and single-family homes to meet the influx of demand, and housing costs bloomed across the region. Since the beginning of the pandemic, even as rent inflation has gone berserk nationwide, no city has experienced anything like Austin’s growth in housing costs. In 2021, rents rose at the most furious annual rate in the city’s history. In 2022, rent growth exceeded every other large city in the country, as Austin’s median rent nearly doubled.
This might sound like the beginning of a familiar and depressing story—one that Americans have gotten used to over the past few decades, especially if they live in a coastal blue state. California and New York, anchored by “superstar” clusters in Silicon Valley, Hollywood, and Wall Street, have pulled in some of the nation’s most creative workers, who have pushed price levels up. But a combination of stifling construction regulations, eternal permitting processes, legal tools to block new development, and NIMBY neighbors restricted the addition of more housing units. Rent and ownership costs rose in America’s richest cities, until families started giving up and moving out. As the economics writer Noah Smith has argued, California and New York are practically driving people out of the state “by refusing to build enough housing."
But Austin—and Texas more generally—has defied the narrative that skyrocketing housing costs are a problem from hell that people just have to accept. In response to rent increases, the Texas capital experimented with the uncommon strategy of actually building enough homes for people to live in. This year, Austin is expected to add more apartment units as a share of its existing inventory than any other city in the country. Again as a share of existing inventory, Austin is adding homes more than twice as fast as the national average and nearly nine times faster than San Francisco, Los Angeles, and San Diego. (You read that right: nine times faster.)
The results are spectacular for renters and buyers. The surge in housing supply, alongside declining inbound domestic migration, has led to falling rents and home prices across the city. Austin rents have come down 7 percent in the past year.
One could celebrate this report as a win for movers. Or, if you’re The Wall Street Journal, you could treat the news as a seriously frightening development.
Surprising no one, basic economics holds for the housing market.
As the article notes this actually does surprise a large number of people. Researchers did a study with thousands of Americans where they found that people generally understood supply and demand for goods like cars or produce.
I can’t help but wonder, did they really use the word ‘exogenous’ in a poll of average Americans?
Well, the relationship between the supply and the price of housing is complicated. I live in NYC, in a building which has over 700 units in it. The building takes up as much land as a single-family home does in a rural area. But of course living in this building is much more expensive than living in that single-family home, despite the fact that the building represents a much larger supply of housing.
I know your example says “exogenous” and I agree that technically increasing supply doesn’t directly lead to increasing prices, but in practice if I see a lot of new housing being built in an area, I would expect that housing prices in that area are going up. (Why build housing somewhere where it won’t be a good investment?)
Well yeah because of the demand. If nyc home prices fell to Columbus Ohio home prices I wouldn’t even bother finding a job to move there.
They had to pick “near a train stop”? Yes, I’d expect prices to rise. I don’t know about rest of the US but here demand for that would increase faster than supply, plus the new buildings would be high end with all the amenities.
This actually has been happening in my town. All the new big apartment/condo blocks around the train station are high end: one advertised by the number of professional baseball players who moved in. It’s great that we’re getting higher density housing in the town center and the train, but it’s also a gentrification. Prices go up. Restaurants get higher end, etc