One of the glories of the market system - even if here we are talking about across countries - is that different people try different things and thus we get to see the outcome of different actions and policies. The economy is a complex thing, it’s not always obviously possible to work out the final effect from first principles. Actual experimentation is often necessary.
So, an interesting result from the United States. Building more apartments lowers the rent of apartments. Something we can generalise out to building more houses lowers rents:
Rents in August were just 0.28% higher than August 2022, according to real estate tech platform RealPage. Compare that to a year ago, when rents were posting 11% annual growth. With the exception of a very brief drop during the Covid lockdowns, rents have not shown negative annual growth in well over a decade. When they did, it was due to a recession hitting demand.
That is not the case now. Apartment occupancies nationally are at a pretty healthy 94%, which is right along historical norms. High mortgage rates combined with high home prices and tight supply have kept more would-be buyers in the rental market. The issue instead is just a massive amount of apartment supply.
This is not the result of building apartments for poor people, building apartments that are rent controled, affordable or even social. It’s purely the effect of building more apartments:
The number of new units being built is at a 50-year high, with more than 460,000 being completed this year alone. Over a million new units have been built in the past three years. That’s a record, and much of that supply is on the higher end. Renters have more options, so landlords have less pricing power as turnover increases.
While rents nationally haven’t gone negative yet, they have in several local markets. Austin, Texas (-4.9%), Phoenix (-4.9%), Las Vegas (4.7%), Atlanta (-3.7%) and Jacksonville, Florida (-3.4%) are seeing the biggest drops.
Build new apartments at the top end, this increases supply and all rents come down. This is now one of those things which is not arguable - we have experimental evidence. Increasing supply works at moderating prices. Who knew?
This also tells us something about policy here in Britain. We can forget about affordable housing, council, social landlord, Section 106 and so on. All we need do in order to lower rents is build more houses. That’s it, tout court, Le Fin, the end.
So, you know, kill off all those varied constraints on who can build what and where and get on with it. Blow up the Town and Country Planning Act 1947 and successors, proper blow up, Kablooie. When Britain builds more houses Britons want to live in where Britons wish to live then the price of desirable housing in Britain will come down.
That supply and demand chart on pages two and three of every economics book ever works. Howsabout that then children?