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Dollars and Sense

Director of Advocacy and Public Policy for Maryland REALTORS®

“Economics? It’s supply and demand. That’s it!”

While that line from Saturday Night Live character Father Guido Sarducci was played for laughs, there is quite a bit of truth to the importance of that principle in our economy.

What is the law of supply and demand? It states that the supply of a good or service and the demand for it in the marketplace are linked together, ultimately affecting the price that is charged for those items. When demand exceeds supply, the price tends to go up. Conversely, when supply exceeds demand, the price tends to go down to incentivize consumers to purchase that product or use that service.

In theory, housing is no exception to the rule but with so much unmet demand, in an efficient market producers would rush in to fill the gap. But that hasn’t happened, in large part because of the constraints local governments have placed on new housing.

Also, we are witnessing a rejection of this fundamental concept when it comes to housing production. A significant number of consumers and even state and local elected officials believe that building additional housing units (i.e., adding supply) causes housing prices to increase, not decrease. The thinking is so prevalent that scholars now have a term for it: supply skepticism.

Supply skepticism is particularly vexing when you consider that Americans subscribe to supply and demand for other commodities. In September 2023, the Financial Times outlined study results showing that consumers correctly noted what would happen to prices when supply shortages or overages exist for cars, grain, labor and imported goods. Not only that, but they also chose the correct answer by a nearly two-to-one margin.

However, when asked what impact a 10% increase in housing supply would have on local housing prices, 40% of respondents said housing prices would rise, compared to only one-third who correctly stated they would fall.

Why do we think this is? Researchers have some ideas—but also data to refute those assumptions First, you will hear a number of advocates and policy makers state that housing holds a unique place in the economy. REALTORS® would likely agree. Yet what makes housing unique is that it actually has more constraints on supply than other commodities.

States, counties, and cities have the land area that they have. Short of annexation from other areas (which is net neutral), they are not making more of it. And, unlike other consumer goods, excess housing stock in one area of the country or even within the same state cannot be relocated to areas of undersupply as you could with food or sneakers.

Another common refrain is that you only help housing affordability not with market-rate housing but by building dedicated affordable housing units. Again, the research does not bear this out in practice.

Adding just high-end housing to an area has benefits across the income spectrum. Certainly, only upper-income earners will have that housing available to them. However, that new supply allows them to vacate more moderately priced housing, and in turn, allows moderate earners to vacate housing that is then available for lower-income earners.

This is true for rental rates as well. Contrary to claims that only rent control can stop rising prices, data again points to additional supply as a key component of decreasing rates. Minneapolis, a city which has constructed more multi-family housing than any of its surrounding metro areas, saw rental rates decrease relative to inflation since 2017. Other major cities in the United States and internationally are seeing the same results: Increased supply equals more affordable rents.

As with many of these debates, the answer to anecdote is data. Fortunately for housing advocates, the data backs our claims that the answers to our housing crisis start with building more housing.

Interested in learning more about supply skepticism and housing supply? Click the links below to these three intriguing articles.

Repeat after me: building any new homes reduces housing costs for all

The Housing Crisis Is Breaking People’s Brains – The Atlantic

NIMBYism and Economic Ignorance (

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