Wednesday, November 12, 2014

When Increasing Housing Supply Won’t Lower Rent

The rents are too damn low, thus constraining new housing construction at Pacific Standard magazine.

Theme: Globalization and gentrification.

Subject Article: "Low rents in rural Minnesota stymie new housing."

Other Links: 1. "Does Population Change Drive Demand for Housing?"
2. "5 takes on the rural housing problem in Minnesota."
3. "The Rent Gap."

Postscript: As I hope this post demonstrates, real estate markets are a lot more complicated than the usual platitudes about unleashing supply as a solution to housing affordability problems. Even within so-called rural markets, there is substantial heterogeneity. For example:

Rural counties with a large proportion of "creative-class" workers have tended to recover more quickly from the recession. But "amenity-rich" areas near national parks and other natural areas aren’t doing nearly as well, even though they boomed in the 1990s. ...

... “For the amenity creative class counties, the added human capital endowment provided by workers engaged in skilled, creative activities does not appear to have hastened job growth in recovery,” Wojan writes.

So what’s going on with the amenity-rich counties?

Creative-class counties that don’t have big natural amenities may have performed better because they tend to be located closer to metro areas and may be part of metro “commuting sheds,” the study says. Counties that are rich in natural amenities, on the other hand, tend to be located farther from metro areas – think of Park County, Wyoming (with Yellowstone National Park) or Flathead County, Montana (Glacier National Park).

Another factor is that creative-class counties that were not amenity rich also were more likely to be college or university towns, which can provide some insulation from economic cycles, the study said.

I've highlighted the part of the passage that resonates with my blog post about the rural housing shortage. Small towns and the like that can tap into global jobs (tradable and divergent industries) can afford the rents necessary for new housing construction. Small towns and the like with a jobs base of manufacturing (tradable but convergent industries) cannot. For people toiling in nontradable jobs or tradable convergent jobs, the ideological thrust of deregulating housing construction won't solve the rent is too damn high problem.

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