"The Federal Reserve Bank of San Francisco is not a radical leftist institution, and its research economists are not Nimbys, or socialists, or anything other than classically trained academics who look at data. So it's interesting that two Federal Reserve researchers have just published a paper that adds to the clear evidence that "constraints" on the supply of private-market housing have little to do with the lack of affordability in cities like San Francisco."
"We find that average income growth relates strongly to house price growth and that house prices generally keep pace with average income. However, there is almost no connection between average income growth and growth in housing supply. Instead, housing supply growth has a strong positive relationship with population growth. In fact, almost all metro areas saw housing units grow faster than their population—even in expensive residential markets like Los Angeles or San Francisco."
Average income growth relates strongly to house price growth, and house prices generally keep pace with average income. Housing supply growth shows almost no connection to average income growth and instead tracks population growth closely. Almost all metro areas experienced housing unit growth faster than population growth, including expensive markets such as Los Angeles and San Francisco. Allowing market-rate developers to build taller, denser housing mainly produces units affordable to higher-income families. Economic inequality therefore plays a larger role in the affordability crisis than development constraints, limiting the effectiveness of density-focused policy fixes.
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