One nitpick: I agree that it's unlikely 1,000 additional units being issued permits from 2020 to 2023 would reduce housing costs by 16% to 34%, but it's not that surprising if home price *growth* slowed by that amount, as you suggested nearer the beginning:
> According to the study, in the five years after implementation, home prices grew 16% to 34% less than they would have without the reform, and rents grew 17.5% to 34% less.
Your piece is good. My own view is that cities need an "all of the above" approach to housing. By all means, clear the bureaucratic and regulatory brush to streamline permitting. By all means, remove zoning restrictions against density. By all means, use antitrust in cases of collusive or oligopolistic behavior (e.g., RealPage's algorithmic pricing offerings to landlords). But also, let's not loose sight of the need for basic policies that encourage economic growth. I can't comment on Minneapolis city policies in particular but I would point out a possible linkage between lower housing demand and the fact the Minneapolis economy has underperformed: Minnesota's real GDP growth averaged 0.9% annually from 2019-2022, which was roughly half the rate of the U.S. economy. The region also saw a decrease in business incorporations in the first quarter of 2015. Credit: Gemini. My point being that growth should drive housing demand, which, if the housing policies (see above) are right, should drive construction and supply, and ultimately, we hope, affordability.
I wonder to what extent the failure in Minneapolis is due to the financial problems Chuck Marohn described in his last book. IE of course the developers built a ton of those dreaded 5-over-1’s, because that’s what can get financed. Just like how the suburban sprawl machine is still on zombie mode cranking out exurbs in farmland, the 5-over-1 machine is going to continue on its own zombie mode until we can stand up a genuine missing-middle ecosystem.
Thank you for pulling out the different selective data; but I don't understand why so many people are so set on taking down Mamdani's attempt at solve the housing crisis in NYC, just because it doesn't follow the supply-demand church, which has preached this is the only way to do it for years without ever getting close to solving the issue, actually only making it worse. It's no surprise since supply-demand relies on a large number of people not being able to fit into the market, that's your supply, your surplus, from which you wanna extract wealth. So I don't see supply-demand ever solving the problem, because it's solving for the biggest profit, not for most people housed.
And it made me think of an episode of the Nate Hagens podcast (for context, he has a master's degree in finance with honors from the University of Chicago), "The Great Simplification." It's a point I've made elsewhere, too, but here goes again as I think it's quite important. The episode I listened to was called, 'The 10 Core Myths Still Taught In Business School'. You can see why it caught my interest. I would recommend that you listen to it, to get another much deeper, argumented position than my common logical sense has given above. It touches on the supply-demand issue in multiple ways, the starting myth, #10, being "what is the value of something" and the MBA answer it's worth what the market price is, which again is true in a narrow money is all we look at sense, but it will lead to the production of only luxury goods, so in our city, no apartments for the poor, the land is worth more as luxury condos.
But the #1 myth is Economic Theories Articulate Laws That Are Immutable and Timeless' As I'm not sure you will actually take the 45min to listen to this podcast, I've transcribed this point for you as I think it's really important, and aligns, (surprisingly well I will say given I hadn't heard this before) with what I've been arguing here, the start is basically what I said. So, I hope you'll read it, even better listen to the podcast, he speaks slow so you can easily do it at x1.5 or even x2. And I'd love to hear your reflections on it if you do.
Here's that #10 myth transcribed:
"In most economic classrooms and at MBA schools, models are presented with the authority of a natural law, like a natural science, chemistry, or biology or physics. Supply and demand, rational actors, efficient markets, growth curves. These aren’t just theories, they’re often treated like gravity. Unchanging, universal, objective. But here’s the thing; economic models are not describing physics. They’re describing human behavior embedded in the specific historic, cultural, and ecological context that is pretty much one time, very, very, special, unique period in human history, because those contexts are very rare and they change. Most of what we call modern economics emerged in the last 150 years, especially the last 50 - 70 years. An eye-blink in human history during [ … ] a period shaped by fossil fuels, colonization, rising populations, and expanding ecological impact. So much of our economic theory was built in this tiny, tiny sliver—a period of abundance and globalization and the Western industrialized consumption model. Cheap energy, accessible resources, expanding markets.
A one time bonanza, but not the best sample size to base economic laws for the future on. Because those conditions are not timeless. They are not repeatable, and they’re certainly not guaranteed going forward. So when economists speak of laws, the infinite growth, rational behavior, perfect substitution, as if they were universal truths, it misses the fact that they’re really more like assumptions baked into a model, often detached from ecological limits and lived human experience.
They are patterns, tendencies, and relationships worth studying, but they’re not laws in the way gravity is a law. They’re context dependent and subject to change, and they should change. The belief that economic models are fixed truths immune to feedback in the real world has led to profound blind spots, especially when these models collide with planetary boundaries, the well-being of people, the depletion of fossil resources and endowments that can’t be replaced once they’re used.
So the MBA map is not the economic territory for humans and the model built during this one time period of abundance when energy was cheap, ecosystems were stable and growth seem limitless are not going to hold up in a world facing ecological constraint, credit overshoot, social fragility and the long tail of natural capital in decline."
Good article with lots to think about.
One nitpick: I agree that it's unlikely 1,000 additional units being issued permits from 2020 to 2023 would reduce housing costs by 16% to 34%, but it's not that surprising if home price *growth* slowed by that amount, as you suggested nearer the beginning:
> According to the study, in the five years after implementation, home prices grew 16% to 34% less than they would have without the reform, and rents grew 17.5% to 34% less.
Your piece is good. My own view is that cities need an "all of the above" approach to housing. By all means, clear the bureaucratic and regulatory brush to streamline permitting. By all means, remove zoning restrictions against density. By all means, use antitrust in cases of collusive or oligopolistic behavior (e.g., RealPage's algorithmic pricing offerings to landlords). But also, let's not loose sight of the need for basic policies that encourage economic growth. I can't comment on Minneapolis city policies in particular but I would point out a possible linkage between lower housing demand and the fact the Minneapolis economy has underperformed: Minnesota's real GDP growth averaged 0.9% annually from 2019-2022, which was roughly half the rate of the U.S. economy. The region also saw a decrease in business incorporations in the first quarter of 2015. Credit: Gemini. My point being that growth should drive housing demand, which, if the housing policies (see above) are right, should drive construction and supply, and ultimately, we hope, affordability.
I wonder to what extent the failure in Minneapolis is due to the financial problems Chuck Marohn described in his last book. IE of course the developers built a ton of those dreaded 5-over-1’s, because that’s what can get financed. Just like how the suburban sprawl machine is still on zombie mode cranking out exurbs in farmland, the 5-over-1 machine is going to continue on its own zombie mode until we can stand up a genuine missing-middle ecosystem.
Interesting analysis. I would love to see more examples of cities like New Rochelle who went through the following:
1) reformed their housing policies
2) a burst of housing construction followed soon after
3) housing/rent prices clearly changed their trajectory despite growing population.
Great piece!
Thanks, Hans!
Thank you for pulling out the different selective data; but I don't understand why so many people are so set on taking down Mamdani's attempt at solve the housing crisis in NYC, just because it doesn't follow the supply-demand church, which has preached this is the only way to do it for years without ever getting close to solving the issue, actually only making it worse. It's no surprise since supply-demand relies on a large number of people not being able to fit into the market, that's your supply, your surplus, from which you wanna extract wealth. So I don't see supply-demand ever solving the problem, because it's solving for the biggest profit, not for most people housed.
And it made me think of an episode of the Nate Hagens podcast (for context, he has a master's degree in finance with honors from the University of Chicago), "The Great Simplification." It's a point I've made elsewhere, too, but here goes again as I think it's quite important. The episode I listened to was called, 'The 10 Core Myths Still Taught In Business School'. You can see why it caught my interest. I would recommend that you listen to it, to get another much deeper, argumented position than my common logical sense has given above. It touches on the supply-demand issue in multiple ways, the starting myth, #10, being "what is the value of something" and the MBA answer it's worth what the market price is, which again is true in a narrow money is all we look at sense, but it will lead to the production of only luxury goods, so in our city, no apartments for the poor, the land is worth more as luxury condos.
But the #1 myth is Economic Theories Articulate Laws That Are Immutable and Timeless' As I'm not sure you will actually take the 45min to listen to this podcast, I've transcribed this point for you as I think it's really important, and aligns, (surprisingly well I will say given I hadn't heard this before) with what I've been arguing here, the start is basically what I said. So, I hope you'll read it, even better listen to the podcast, he speaks slow so you can easily do it at x1.5 or even x2. And I'd love to hear your reflections on it if you do.
Here's that #10 myth transcribed:
"In most economic classrooms and at MBA schools, models are presented with the authority of a natural law, like a natural science, chemistry, or biology or physics. Supply and demand, rational actors, efficient markets, growth curves. These aren’t just theories, they’re often treated like gravity. Unchanging, universal, objective. But here’s the thing; economic models are not describing physics. They’re describing human behavior embedded in the specific historic, cultural, and ecological context that is pretty much one time, very, very, special, unique period in human history, because those contexts are very rare and they change. Most of what we call modern economics emerged in the last 150 years, especially the last 50 - 70 years. An eye-blink in human history during [ … ] a period shaped by fossil fuels, colonization, rising populations, and expanding ecological impact. So much of our economic theory was built in this tiny, tiny sliver—a period of abundance and globalization and the Western industrialized consumption model. Cheap energy, accessible resources, expanding markets.
A one time bonanza, but not the best sample size to base economic laws for the future on. Because those conditions are not timeless. They are not repeatable, and they’re certainly not guaranteed going forward. So when economists speak of laws, the infinite growth, rational behavior, perfect substitution, as if they were universal truths, it misses the fact that they’re really more like assumptions baked into a model, often detached from ecological limits and lived human experience.
They are patterns, tendencies, and relationships worth studying, but they’re not laws in the way gravity is a law. They’re context dependent and subject to change, and they should change. The belief that economic models are fixed truths immune to feedback in the real world has led to profound blind spots, especially when these models collide with planetary boundaries, the well-being of people, the depletion of fossil resources and endowments that can’t be replaced once they’re used.
So the MBA map is not the economic territory for humans and the model built during this one time period of abundance when energy was cheap, ecosystems were stable and growth seem limitless are not going to hold up in a world facing ecological constraint, credit overshoot, social fragility and the long tail of natural capital in decline."