I think all William Fischel’s work is brilliant–all of it, in addition to Homevoter, so I am so jealous most of the time– and recent empirical work from very good researchers like Vicki Been help establish the case that YIMBY advocates like to cite: home voters have a vested interest in housing scarcity because it increases the financial returns to owner-occupied housing. (I have some design quibbles with the Been study that maybe I’ll take up next week for anybody who wants to delve deeply into empirical nerdiganism. Just because you have quibbles doesn’t mean the study is wrong, btw.)
Scarcity rents are pretty easy to understand: people need housing, you restrict what they can have in a given location, and the prices stay high. In other words, it’s not just housing units getting manufactured. It’s housing units in specific locations.
Here’s the question: what effect does single-family housing becoming a luxury good have on the ability to garner scarcity rents? My brilliant colleagues Chris Redfearn and Elizabeth Currid-Halkett got me interested in high-status locations.
Units are obviously not all created equal, and markets are segmented. In most locations where scarcity rents are a worry, we are not really building any supply of new, single-family housing. We might be supplying luxury condos at competitive price points, but we’re not really building a lot of new, single-family housing, if any. In that instance, it’s entirely possible that single family housing in specific locations become part of the luxury market so that the addition of new condos may not have much price effect on single-family homes. In other words, in highly desirable locations, there are some buyers who are indifferent between a $750,000 condo and a $750,000 house so that the single-family home does not carry a premium. Those are location-oriented buyers. But since there aren’t going to be any more single-family homes supplied in that location, and there are probably buyers in segments of the market that do, very much, prefer a single-family home in that location over a condo, then it’s likely that supplying condos really does not exert much price effect at all over single family homes in a given location if there is a sufficient amount of demand for single-family housing.
IOW, lots of very expensive condos in Monaco, but do those really impact the returns to the mansions?
Now, if new supply opens up, there is probably some effect if places are seen are “less exclusive” somehow than they were before, and the very real issue that places can become less enjoyable if they are shared across bigger groups of people. (Don’t shoot the messenger, but I haven’t really noticed any super-rich people arguing for higher densities in Montecito.)
I really doubt that single-family homes in places with real amenities or other locational advantages really have much chance of lower value or even significantly dampened returns simply because of increased condo supply. It’s one thing to make sure *nobody else* can live in Santa Monica, but all single-family homeowners there really need to do in order to get their scarcity rents is to stop more single-family housing. And nobody is advocating for more single-family housing. Of course, there are individual problems, such as losing a view, because of building, but that’s different than new supply.