The Problem With Affordable Housing

Perhaps it is a sign of my age, but it increasingly seems to me like it’s always campaign season.  The Republicans, having won the coin toss back in 2024, have elected to defend in 2026 while the Democrats will go on offense.  While it is still months away, the Democrats’ apparent strategy for the next election is to defund ICE (since defunding the police worked so well in 2024) and to blame Trump for a bad economy.

The economy is actually pretty good, but accuracy doesn’t matter in election rhetoric and facts never matter as much as the appearance of things, so Trump is trying to make it look like he is working to make things “more affordable.”  One of the common complaints is that housing is more expensive, particularly entry level homes for first-time buyers, so the President is adopting an oft-heard solution:  forbid large investment entities from buying homes to derive income from rental property.  

Every housing debate eventually arrives at the same emotionally satisfying villain: a financial institution, who’s wearing a dark suit and has a darker soul, (and—if we are being honest—sporting a monocle it does not need).  (Most Americans learned their basic economics from playing Monopoly, which is a substantial improvement since our parents learned theirs from watching Frank Capra movies.)

The theory goes like this: “Big money” is buying homes, turning them into rentals, and therefore driving prices into the stratosphere. So, if we just ban financial institutions (or hedge funds, or private equity, or “people who use spreadsheets”) from purchasing houses, the market will calm down, prices will fall, and a grateful public will frolic through affordable subdivisions like it is 1997 again.

It is a great story with clear heroes, transparent villains, and the kind of moral clarity you only get from a plot that skips the boring parts like math, incentives, and supply and demand.  The problem is that this solution—while political catnip—mostly aims at reducing demand, when the durable, boring, unglamorous lever that actually lowers prices is usually increasing supply.

Let’s unpack that, with only mild sarcasm and minimal property damage.  First, the housing market is not a morality play.  Housing prices are largely a function of something that economists use to ruin parties: supply and demand.

• When demand rises (more people, higher incomes, low interest rates, migration, smaller household sizes), prices go up.
• When supply cannot respond (zoning, permitting delays, labor shortages, infrastructure limits, neighborhood resistance, financing constraints), prices go up more.

Notice something critical: the “can respond” part is doing a lot of work there.  If a city or region has strong demand and a system that makes new housing painfully slow, expensive, or legally impossible to build, prices climb whether the buyer is a schoolteacher, a dentist, or a corporation headquartered in Delaware with a logo that looks like a spreadsheet cell.

So, yes, investors can matter at the margin, especially in certain neighborhoods, during certain periods, or in certain housing types.  But the bigger, long-run story in most high-cost markets (think every city in California) is that we are not building enough homes, relative to the number of people who want to live in those places.

You can chase villains all day.  If the market is short a large number of units, it will behave like a market short a large number of units: it will bid up the existing ones.  And it doesn’t matter who is doing the bidding

What happens if you ban financial institutions?  Let’s say government passes a law tomorrow: “No financial institutions may buy single-family homes.”  The crowd cheers, a bald eagle sheds a tear, and—for two minutes—Bernie Sanders smiles.  Then the market reacts, because markets are like that.

Demand doesn’t vanish; it just reroutes.  If a certain pool of buyers is blocked, the demand will shift into:

• Smaller investors (LLCs, “mom-and-pop” landlords, partnerships, family offices),
• Buyer proxies (entities structured to skirt definitions),
• Out-of-state individuals, or
• Owner-occupants who were already competing.

You have not eliminated the underlying demand for housing as an asset.  You have mainly changed who is allowed to participate, and how they will structure their participation.  If the fundamental problem is “too many people chasing too few homes,” rearranging the list of permitted chasers is not a structural fix.

Some policies reduce rental supply (and raise rents).  If investors buy homes and rent them out, and you clamp down hard, you can end up with fewer rental options—particularly in places where single-family rentals are a meaningful part of the rental stock.  Result: renters compete harder for fewer rentals.  Rents rise. Then what happens?

• Renters with resources decide to buy.
• That pushes demand back into the ownership market.
• Prices do not obediently collapse: they reallocate pain.

A policy that makes you feel like you punished the right people can still land the bill on the wrong people.

You will probably make new housing harder to build.  Here is the unromantic truth: a lot of housing gets built because someone can finance it, aggregate it, manage it, and operate it at scale. Some institutional money goes into:

• Build-to-rent communities,
• Large multifamily housing, and
• Infill projects that require patient capital and tolerance for bureaucratic misery (building within a city where infrastructure already exists, on a vacant lot, for example).

If you write broad laws that scare away capital—or make compliance a legal minefield—you can reduce construction activity.  And reducing construction is an odd strategy for lowering prices in a shortage.

This is the key point: Supply is the pressure valve.  Break the valve, and you do not get lower pressure. You get a louder bang.

Demand suppression is the “diet soda” of housing policy.  Demand-reduction policies feel satisfying because they look like action, and they create the impression that prices are high because of a particular group’s behavior.  Every politician loves a quick solution that fits on a bumper sticker and is a little too complicated for the voter to realize that it doesn’t actually work.

But the demand side is an economic hydra:

• You cut off one head (institutions), and another head pops up (smaller investors).
• You restrict another head (investors overall), and demand returns through household formation, migration, interest rates, and income changes.

In high-demand places, demand is not a tap you can casually turn off—it is a fire hose.

Even if you could suppress demand meaningfully, you run into another awkward truth: people need places to live.  Housing demand is not purely optional consumption.  You can defer buying, but you cannot defer shelter forever.  Which is why, over time, the more reliable approach is to make it easier to build enough homes so that competition among buyers and renters cools down naturally.

Supply is the boring answer that actually works.  If you want prices to fall—or at least stop sprinting away from wages—you generally need more of the thing that is expensive.  In housing, that means more units, of more types, in more places, at more price points. 

No politician is ever going to admit that in a campaign speech.  It’s not glamorous and there is no single, obvious villain to defeat.  You boost supply by lowering barriers—those obstacles that are usually in place because of another misguided government policy. 

If you really want to solve the problem of housing, somewhere in the following list are the actions you need to implement.

Legalize more housing where people want to live.  A lot of cities reserve vast areas for only one housing type: detached single-family.  That is a policy choice, not a law of nature.  Allowing more “missing middle” housing—duplexes, triplexes, fourplexes, courtyard apartments—can add supply without needing to build skyscrapers.

Speed up permitting and stop making lengthy construction time overly expensive.  Delays are not just annoying, they are a heavy construction cost, and costs show up in prices.  If it takes two years to get approvals, only certain projects pencil out, and only certain developers can survive the wait.  Streamlining approvals is not a giveaway to developers—it is a way to reduce the waste, risk, and financing costs that are ultimately baked into what buyers and renters pay.

Reduce parking mandates and other silent cost adders.  Mandating excessive amounts of parking can function like a tax on housing (especially in infill areas, where land is expensive).  If you require every unit to bring its own slab of asphalt, do not be shocked when the unit costs more.

Build infrastructure that unlocks buildable land.  Housing capacity is often constrained by water, sewer, roads, schools, and transit.  If you want more homes, you need the pipes and public services to support them.

Encourage accessory dwelling units (ADUs).  These are usually a second smaller home on the same lot, sometimes called a mother-in-law’s house or a casita.  ADUs are not a silver bullet, but they are a real bullet, and those are rare in policy.  They can add incremental supply in established neighborhoods, and they can create gentler options for multigenerational living.

“But investors are buying everything!”  Investors are easy to blame because they are visible, and because “BlackRock” sounds more ominous and easier to blame than “the zoning board meeting that ran until 11:00 p.m.”  But even if investor activity is inflating prices at the margins, the reason it can do so is usually that supply is tight enough that extra competition moves prices quickly.

In a well-supplied market, investors do not have magical price powers.  If they overpay, they lose money.  If rents cannot support the purchase price, the model breaks, and they stop buying.  Tight supply is the condition that turns marginal buyers into major price movers.

So, if you fix supply, you do not have to win a wrestling match against every possible category of buyer.  You just let the market do what markets do when there is enough product: create competition that lowers the price.

If you want a campaign slogan that actually lines up with the economics of the problem, try this: “Build more homes, faster.”

It is not as emotionally satisfying as “ban the villains,” but it has the advantage of being aimed at the lever that actually changes the outcome.  Banning financial institutions is, at best, a narrow tool that might modestly affect specific neighborhoods under specific conditions, and, at worst, a policy that shifts demand around, raises rents, or discourages construction.

Meanwhile, increasing supply is the grown-up move: slow, procedural, unsexy, and far more likely to work.  The housing market does not care how righteous you feel.  It cares how many units exist.  And until we build enough of them, the monocle-wearing villain is going to keep showing up in the script—because we wrote the shortage into the plot ourselves.

Let's Talk Carrots

There is a great story from World War II that tells how the British were able to shoot down German aircraft because of a secret weapon: carrots.

When the Nazis began heavily bombing London in September 1940, the British ordered a blackout at night and began fighting back by sending up fighters to intercept the Nazi bombers before they could reach the English Channel.  “Cat’s Eyes” Cunningham was the first British pilot to shoot down an enemy bomber at night, going on to rack up twenty confirmed kills, all but one of which were downed in the dark.  Naturally, the public wanted to know how.

The Ministry of Information eagerly responded that the reason the RAF pilots were so successful was from the Vitamin A they received from eating carrots.  Almost immediately, the Ministry of Food began using carrots to promote victory gardens to supplement the meager amount of rationed food available.  A bespectacled Dr. Carrot told children it was their patriotic duty to weed those gardens.

During the war years, when sugar was rationed to eight ounces per adult per week, folks got creative, and they got creative fast. Carrot pudding, carrot cake, carrot marmalade, and even carrot flan leaned on plain old root-vegetable sweetness to do the job the sugar bowl couldn’t.  And if that still didn’t scratch the itch, you could always pour yourself a glass of carrolade—a juice made from rutabagas and carrots and proof that when dessert is a morale issue, people will find a way (even if it involves drinking something that sounds like it ought to be used to clean a basement drain).

For the record, carrots won’t turn you into a human lighthouse. The whole “eat carrots and you’ll see in the dark” thing was less Grandma’s folk wisdom and more wartime storytelling: carrots do contain beta-carotene, which your body can use to make vitamin A, and vitamin A is important for normal vision, especially if you’re deficient.  But if you’re already eating like a reasonably functional mammal, adding extra carotene doesn’t bolt on night-vision goggles—it just gives you a respectable carrot crunch and, in super-sufficient quantities, it will bless you with the sort of orange complexion that makes people ask if you’re over doing the spray-on tan.

There is no doubt that carrots are good for you, but Cat’s Eyes Johnson didn’t rely on vegetables to shoot down those planes:  his interceptor had a new secret weapon—radar.  In 1940, the British began putting Airborne Interception (AI) radar into night fighters.  The early radar gave the crews a crude “blip” for a target’s range and rough direction; controllers on the ground would then “talk the fighter in”, using Ground Controlled Interception (GCI) until he was within two or three miles, at which point the onboard radar would guide the pilot close enough to finally see the bomber in the dark and make the attack.  These early radar sets were primitive, fussy, and absolutely game-changing for night defense during the Blitz.

The carefully crafted stories about carrots’ benefits unquestionably fooled British civilians, and the idea that carrots were good for the eyes absolutely became one of those bits of nonsense that everyone knows is true.  But it certainly did not fool the Germans, who were already experimenting with their own radar sets.  After all, the Germans could certainly see those massive radar antennas that were erected along the Cliffs of Dover.  Apocryphal stories of the Germans suddenly feeding their pilots more carrots should be filed in the same open-top cylindrical filing cabinet where we keep Bigfoot sightings and UFO reports.

For me, the most interesting part of the story is asking why the Ministry of Information thought fooling its own citizens was necessary in the first place.  All the Allies and all the Axis countries knew the truth, so why couldn’t the citizens be trusted with the truth? 

There’s yet another carrot story, and it’s a whole lot more fun than wartime marmalade.  If you’ve ever wondered how Bugs Bunny wound up leaning on a carrot like it was a cigarette, and tossing out “What’s up, Doc?” like he’s got an appointment with your optometrist, the trail runs straight through a 1934 movie called, It Happened One Night.

That film was a cultural crowbar.  It didn’t just entertain—it rearranged furniture.  It helped define the screwball-comedy genre, it shocked the Academy by sweeping the five major Oscars, and it generated more “everybody knows” trivia than a barroom on movie night.

The most famous example is Clark Gable undressing and revealing he’s not wearing an undershirt: a moment that’s been credited—sometimes a little too confidently—with sending undershirt sales into a nosedive.  The basic story is widely repeated, but the dramatic “75% drop” figure is closer to legend than to something you can audit with receipts, which is, honestly, the most Hollywood thing imaginable.

Then there’s the bus trip.  The movie put Gable and Claudette Colbert on a Greyhound and later writers have credited the film with giving intercity bus travel a real bump in popularity: romance, comedy, and the open road, all for the price of a ticket and a seatmate who sings?  That’s certainly remotely possible but it’s also patently unprovable.

Now, here’s where the carrots hop back onto the stage. A fast-talking character named Oscar Shapely keeps calling Gable’s character “Doc,” Gable mentions an imaginary tough guy named “Bugs Dooley” to rattle him, and there’s a scene where Gable munches a carrot while talking rapidly—a bit of business that Warner Bros. animators later admitted was the inspiration for Bugs Bunny.

But, just to keep the record straight: the line “What’s up, Doc?” itself wasn’t cribbed from Capra’s script.  It was written for Bugs in 1940 (A Wild Hare), and Tex Avery, the director, later said it was just a common Texas-style greeting—“doc” meaning something like “pal” or “dude.”  So, yes, Bugs borrowed the carrot-chewing swagger from Clark Gable, but the catchphrase came right out of Texas, not from a Hollywood soundstage.

Now, here’s the punchline to this whole Bugs Bunny business: a cartoon rabbit leaning on a carrot like it’s a cigar is basically where half the English-speaking world learned “rabbit nutrition”—and it’s about as reliable as learning automotive repair from Wile E. Coyote.  Real rabbits don’t naturally live on sugary root vegetables and carrots are best treated like dessert—small, occasional, and not the main event.   A steady diet of carrots will actually kill a rabbit.  If you want to feed a rabbit something “carrot-ish” on the regular, the top green part is the better bet: carrot tops are a leafy green that fits the “salad” side of a rabbit diet, while the orange part belongs in the once-in-a-blue moon treat category. 

Any good dietitian will tell you that you are safer taking dietary advice from Popeye than from Bugs.

Okay, that’s enough!  Next week I’ll explain how the S.S. Minnow was a Wheeler Express Cruiser with a top cruising speed of only 12 knots, so Gilligan and the rest of the castaways were never more than 41 miles from Oahu.  Geez, it’s like you can’t believe Hollywood at all

Is That Inflation?

Growing up, I learned that “prices went up” is one of those phrases people use the way they use “The dog ate my homework.”  That’s a catch-all excuse that explains everything and therefore explains nothing.  It’s a little like saying, “History happened.” 

But if you listen to the public conversation long enough, you’ll notice that we jam at least three different ideas into that one phrase:

• A plain old price increase (the thing you buy got more expensive),
• A relative price change (the thing you buy got more expensive compared with other things), and
• Systemic inflation (damn near everything went up).

And because we treat these as interchangeable, we end up arguing past each other like two professors who are debating whether Plato would have liked TikTok.  (He would not.  He’d have published a dialogue about it and then banned it.)

So, let’s untangle this, and do it with enough humor to keep your blood pressure below “breaking news.”

“Prices Went Up”: The Great American Catch-All.  When someone says, “Prices are up,” they might mean one price is up.  Like eggs.  Or gasoline.  Or the kind of coffee beans that now require a co-signer.  That’s a price increase—often caused by something specific: drought, war, shipping snarls, avian flu, or a mysterious shortage of whatever it is my grandson collects.

A price increase is usually local to a product, or a small set of products, and it often has an identifiable, concrete cause.  The price rose because something got scarcer, or demand surged, or a regulator woke up feeling ambitious, or some jackass in California discovered that if you ate a half-ton of it within a single week it caused cancer.   In other words: a price increase is a micro story.  It’s just about that thing.

This is different from inflation, which is the macro story.  Inflation is when the overall purchasing power of money declines, and a broad swath of prices rise—goods, services, and finally and a little later, wages.

So, the first key distinction is:

• Price increase: “This thing costs more.”
• Inflation: “Money buys less across the economy, and it keeps doing that for a while.”

If you want a quick gut-check:  if only a few items are spiking, you’re likely looking at price increases and relative price changes.  If everything is creeping up, and it won’t stop creeping, you might be dealing with systemic inflation.

Relative Prices: The Ratio That Ruins Your Dinner Plans.  Now let’s talk about relative price changes, which are the economic equivalent of your neighbor buying a new pickup: the problem isn’t the truck; it’s what it does to the neighborhood pecking order.

A relative price is the price of one thing compared to other things.  Economists love ratios because ratios don’t care about your feelings.  So, when we say “beef got expensive,” what we often mean in practice is: beef got expensive relative to chicken.  Suddenly chicken starts looking more attractive, and beef starts looking like something you buy only on anniversaries, funerals, and when your brother-in-law is trying to impress someone.

Relative price changes are important because they change behavior.  People substitute:

·      Chicken for beef,

·      Store-brand for name-brand,

·      “Maybe we don’t need a new bigger iPad” for “fine, I’ll just keep squinting.”

This is not “inflation” in the big, systemic sense.  It’s the economy doing what it does: rearranging who buys what, and at what price.  The prices of goods relative to other goods are constantly changing.  It might be disconcerting, but it is normal.

Episodic Price Increases: The Price Spike With a Plot Twist.  Now we add a wrinkle: episodic price increases.  “Episodic” isn’t about whether something is expensive compared to other things.  It’s about the shape over time.  An episodic price increase looks like this:

·      A spike,

·      A surge,

·      A brief moment of panic,

·      Then a leveling off, and sometimes a partial retreat.

Think gasoline after a refinery outage.  Think eggs during an avian flu wave.  Think airfare around the holidays when airlines decide to test the outer limits of human patience.

So: Episodic price increase is a description of timing (“it jumped in a burst”).  Relative price change is a description of comparison (“it rose compared to other prices”).  These can overlap, but they don’t have to.  You can have an episodic spike that changes relative prices, or you can have a broader inflation flare where lots of prices rise together, leaving relative prices mostly unchanged.

Inflation: When the Whole Price Level Decides to Get Ideas.  Now we get to the big evil one: systemic inflation.  Inflation isn’t just “prices are higher.”  It’s persistent, broad-based increases in the general price level.  A classic feature of systemic inflation is that it tends to show up across many categories:

·      Goods,

·      Services,

·      Housing costs,

·      And anything else that makes you ask, “Is that what I used to pay?”

Inflation often involves feedback loops:  Businesses raise prices because costs are rising and they expect others to raise prices, and then, workers ask for higher wages because the cost of living is up, and next, higher wages push up costs for labor-intensive services, till finally, prices rise again restarting the entire cycle.

That’s not a single product’s story…that’s a whole economy’s story.  And here’s the part people forget: inflation is a rate, not a level.  If prices jump once and then stabilize, you can end up with high prices, but with low inflation (it’s expensive, but it’s not getting more expensive every few weeks).

This is why you can hear someone say, “Inflation is down!” and hear someone else shout, “Then why is everything still so expensive?!” and both can be right.  The first person is talking about the rate of price increase.  The second is staring at the new, higher level of prices like it personally insulted their retirement plan.

Tariffs: The Political Version of “Hold My Beer”.   Now to the big question:  If prices increase because of tariffs, is that not inflation?  The most honest answer is, “usually not”, at least not by definition—but a tariff can contribute, depending on how it plays out.  A tariff is a policy that raises the cost of imported goods (and sometimes key inputs), which often raises the prices of:

·      The tariffed imported items,

·      Domestic substitutes because producers can now charge more,

·      And downstream products that use those imports as inputs.

That’s first and foremost a relative price change:  the tariffed goods become more expensive relative to other goods.  It can also be a one-time increase in the overall price level if it hits a meaningful chunk of the consumer basket.  But here’s the key:  a one-time increase in the price level is not automatically a self-sustaining inflation process.  Whether it becomes “systemic inflation” depends on breadth, persistence, and reinforcement.

Tariffs look more like “a price shock” when:

·      The tariff is narrow (a few products)

·      People can substitute away easily

·      Firms absorb some of the cost by lowering margins

·      The central bank doesn’t “accommodate” it by letting overall demand run hot

·      Wages and broad pricing expectations don’t spiral

That scenario gives you:  “These things got pricier.”  Annoying.  Very real.  But not necessarily systemic inflation.

Tariffs can feed inflation when:  They’re broad and large, they hit key inputs across industries, they raise costs for lots of businesses at once, businesses start raising prices more generally “because everybody is,” and workers bargain for higher wages to keep up.  At that point, tariffs can become part of a broader inflation story, not because tariffs are “inflation,” but because they can act like a cost shock that spreads and gets reinforced.

So, the best way to say it is: Tariffs are not “inflation” by definition.  They are a policy-driven cost shock and a relative-price change.  But they can show up in inflation measures, and in some conditions, they can contribute to inflation persistence.

Perhaps an example would help.  If America imported all the widgets needed for manufacturing and every industry used them, a tariff on widgets would be inflationary.  But, if manufacturers could substitute American made flanges for imported widgets, or it spurs domestic production of widgets at a competitive price, this is not inflationary as the cost of production is only temporarily increased.

This is all very confusing, so let’s put that into A Field Guide for Normal People.

If you want to decide what you’re looking at in real life, try this:

Is it broad?  If only a few categories are jumping, it’s likely price increases and relative price changes.  If lots of categories are rising, especially services, inflation is more likely.

Is it persistent?  If it spikes and then settles, think episodic.  If it keeps rolling month after month, think systemic.

Are wages chasing it?  Broad inflation often involves wages rising too (even if they lag).  A narrow price shock often doesn’t.

Can you substitute away?  If you can dodge the pain by switching products, it’s often a relative-price story.  If everything you switch to is also climbing, you’re in inflation territory.

Conclusion: Words Matter, Because Wallets Matter.  So, yes, “prices went up” is true in the same way “water is wet” is true.  But if we want to be precise (and occasionally sane), we should ask:

·      Is this a price increase in a particular market?

·      Is it a relative price change changing what people buy?

·      Is it an episodic spike tied to a specific shock?

·      Or is it systemic inflation, where the general price level rises broadly and persistently?

And if the culprit is tariffs, we can say that tariffs typically create relative price changes and often a one-time bump in some prices, and sometimes in the overall price level.  Whether that becomes systemic inflation depends on whether it spreads, sticks, and gets reinforced by expectations, wage dynamics, and overall demand.

In other words, tariffs are not automatically inflationary—they’re more like the economic equivalent of tossing a wrench into the machine and then acting surprised when the machine makes a new noise.

Which, come to think of it, describes a lot of public policy.