Twin Cities housing isn’t expensive because developers and landlords are ‘greedy’

Yesterday, I explained why rent controls are poor public policy. They attempt to treat the symptom of the problem – high prices – and do nothing to solve the underlying problem itself – an excess of demand relative to supply. At worst, they lead to even greater demand and even less supply, exacerbating the very problem they are intended to solve. This is why the Swedish economist Assar Lindbeck said that “In many cases rent control appears to be the most efficient technique presently known to destroy a city—except for bombing.”

No, it isn’t ‘greed’

If high prices are the result of an excess of demand relative to supply, then the popular idea that they are the result of ‘greed’ is wrong. But it is even more obviously wrong than that.

In May, MPR News reported that

A newly released report from the Family Housing Fund says the cost of housing in the seven-county Twin Cities region is higher than cities like Austin, Texas; Nashville, Tenn.; and St. Louis. The report also says the region is on a trajectory to becoming as expensive as Denver or Seattle.

Are property developers and landlords in the Twin Cities more ‘greedy’ than those in Austin, Nashville, or St. Louis? Are they getting ‘greedier’ over time, so that their levels of ‘greed’ are closing in on those of developers and landlords in Denver and Seattle?

This is obviously preposterous. So, indeed, is the argument that prices are determined by ‘greed’ and not underlying forces of supply and demand.

Why do people swallow such an obviously deficient explanation?

‘Supply’ and ‘demand’ are impersonal forces. It can be hard to visualize them. By contrast, the greedy landlord or property developer springs easily to the imagination.

There is also a human tendency to believe that observed phenomena – in this case high housing prices – must be the result of some ‘intelligent design’, to borrow a phrase. If something has happened it must be because someone, somewhere, wanted it to happen. Thus, increases in wealth inequality in recent decades are, we hear, the result of the deliberate actions of some to increase wealth inequality. This is more appealing to most people than the real explanation, which includes factors like globalization and expansive monetary policy.

In truth, the world is more ‘chaotic’ than that. The majority of the consequences of any action are unintended. Actions might be taken by individuals with this or that aim. The more distant consequence, totally unintended, is higher housing prices.

So, if we want to see more affordable housing we have to look at the factors driving demand and supply. Simplistic explanations such as ‘greed’ only encourage counter productive policies like rent control.
