America’s ongoing housing gap is sparking heated debate among liberals and progressives about solutions. The YIMBY (Yes in My Back Yard, advocates for more housing construction) movement has won some victories, most recently liberalizing zoning to allow denser and more adequate housing, part of New York City’s “City of Yes.” But some progressives still fight adequate housing construction, clinging instead to three myths about why house prices are so high.
The short reason for high prices, of course, is that we aren’t building enough housing. Supply and demand.
But that’s not what some liberal advocates argue. They employ three erroneous arguments against more housing: (1) developers only build “luxury” housing which doesn’t help affordability; (2) big private investors are buying up all the houses, driving prices up; and (3) there actually are plenty of houses being kept off the market in cities and available across the country.
All of these ideas come up regularly in housing debates. And all of them are wrong. Let’s walk through the evidence.
Myth 1: “Luxury” Housing Doesn’t Close The Housing Gap
Progressives often rail against private developers who supposedly only build “luxury” housing for the wealthy, claiming higher-priced supply doesn’t help overall affordability and doesn’t help close the housing gap. A growing body of evidence shows this is wrong.
Housing development, even at the high end, increases overall supply. (And some progressives use “luxury” as equivalent to “market-rate,” so anything that doesn’t require subsidies is suspect.)
Increasing supply allows for “filtering,” where wealthier people occupy the more expensive housing, freeing up older but still adequate housing for lower-income households. Scholars at the Urban Institute tell us “more housing supply is always better than less,” even though “policymakers should try to make newly built housing affordable where possible,” going beyond only the most expensive housing.
The erroneous belief that increasing housing supply doesn’t lower housing prices has been labelled “supply skepticism” by scholars at New York University. Their 2023 paper summarizes a body of “recent rigorous studies” showing increased supply lowers rents and housing costs, increases “filtering” that frees up existing housing, and doesn’t cause significant gentrification.
Myth 2: Big Private Investors Are Causing The Housing Gap
A second progressive myth is that private investors—especially hedge funds and private equity—are buying up all the housing to rent out. This is seen as creating quasi-monopolies allowing big investors to push prices up beyond most people’s resources.
Both political parties, but especially progressive Democrats, have bought into this myth, which misunderstands the data on investor purchases. Yes, investors are buying homes (although the vast majority of housing purchases are still single family owners, not investors). But these housing investors are mostly small “mom-and-pop” local investors—not faceless giant corporations.
Investors are buying a relatively high percentage of homes—14.8% of all purchase in the first quarter of 2024. But they are mostly small local investors. Market data show “62.6% of those investor purchases” were from small investors (defined as those purchasing 10 or fewer homes since 2001). That means less than 6% of all home purchases in this period were made by large investors.
In fact, big investors like it when cities don’t build enough housing. They target places with inadequate housing supply to help ensure their investment returns. Private equity giant Blackstone says “rental housing…remains a major investment” for their real estate investment trust, “underpinned by the structural undersupply of housing.”
So discouraging new housing construction actually can attract big private investors to your community. And some of these big investors are developing new properties, helpful adding to supply.
Myth 3: There Is No Gap—There’s Plenty Of Housing
A third myth is there’s really enough housing supply, so more building isn’t necessary. This myth takes two forms—in cities, landlords are supposedly keeping housing off the market, driving up prices. A second version is that declining cities and regions across the country have affordable housing, and people should just move there.
Keeping housing off the market lacks basic economic logic. Why would investors or profit-seeking landlords and developers keep housing off the market? No rents, no sales, no income—no profit.
Proponents of this myth point to (and often misunderstand) housing vacancy data. In 2022, New York City had a kerfuffle when reporting a big jump in rent-regulated apartments that were not available to rent. Advocates claimed landlords were creating “fake scarcity to raise prices.”
But as people returned to New York after COVID, demand for apartments grew, and the estimated number of unavailable apartments fell sharply. Data for 2023 found a city-wide apartment vacancy rate of 1.4%, a historic low consistent with rapidly climbing rents caused by inadequate supply. And the number of apartment off the market fell sharply.
In 2023, New York’s Independent Budget Office pointed out that because there’s always some turnover in apartments, “at any given point in time, a share of rent stabilized units will be briefly unoccupied but then quickly rented up” and that “most rent stabilized units do not remain vacant year-to-year.” But some advocates wrongly continue claiming that landlords holding apartments off the market for “ransom” is a significant contributor to the housing shortage.
The second view—people can just move to cheaper cities, because the prosperous city is full up—also ignores basic economics. People don’t move to declining cities just to get a cheaper house—they need to live in places with economic opportunity.
Housing costs reflect the strength of a local economy, especially job creation, wages and growth. A city with a declining economy, low wages, and few job opportunities will have less expensive houses, but that won’t solve the problem of inadequate supply and higher housing costs in growing cities.
Of course, other factors also prevent developing enough housing. These include politically independent wealthy suburbs that reject affordable housing while benefitting from being near a city, and excessive procedural and regulatory delays that inhibit development.
But cities have a lot of building power, especially rezoning land for denser development and cutting regulatory delays to speed up construction. Cities can—and should—use that power to build a lot more housing. That will be helped if more progressives abandon their dysfunctional myths about housing, and instead work to increase housing supply, not only affordable housing, but all housing.
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