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In this week’s Grumpy Economist Weekly Rant, John Cochrane digs into one of the most persistent challenges across the country: the high cost of housing. Federal and state governments has continually to pump out subsidies, down-payment assistance, and low-interest loans in hopes of making homes more affordable. But with a fixed supply of housing, boosting demand doesn’t create more places to live—it simply drives prices higher. More money chasing the same number of homes doesn’t house more people; it just reshuffles who wins the bidding war.
Cochrane argues that the real solution is straightforward: let people build. Across the US, restrictive zoning, burdensome permitting, construction mandates, and limits on density have strangled the supply of new housing. The rising “abundance movement” recognizes that true affordability comes from expanding supply, not subsidizing demand. Building more homes—of all types—lowers pressure on prices and opens up opportunities for everyone.
Transcript
Hi, I’m John Cochrane, senior fellow here at the Hoover Institution and welcome to The Grumpy Economist Weekly Rant. Today I’m going to rant about supply, demand, and housing.
Housing, as we know, is very expensive. And here in Palo Alto, it’s super-duper expensive with even, horribly rundown houses going for millions of dollars.
Our government, of course, wants to do something about this. California, the government, has been sending people money, checks to new homeowners, people who haven’t owned a house so they can afford to buy a house.
The federal government shovels out subsidies in the form of low interest loans. And Fannie and Freddie, our government owned agencies, buy up all the home mortgages to help give people money to help them buy a house.
Does that work? Does giving people more money to help them buy houses, help them actually buy houses? Here’s what I’ll give you, the economists’ great insight: there’s supply and demand. The same number of houses are around.
So, if I give you money to buy a house, does that mean more people overall can be housed? No, just the same number of houses. Giving people money to buy houses, subsidizing demand when there’s a fixed supply, just sends the prices up even more, doesn’t mean any more people can be housed.
The people who get the money can get the house. The people who didn’t get the money lose the house. But overall, the same number of people live in the same houses. And that’s of course, you also free up the limits on the number of people who can live in a house, but that also is illegal.
What do we need to do? Let them build.
The problem with housing isn’t that people don’t have enough money. The problem with housing is that we have so limited the supply of housing, it’s nearly impossible to build houses. You can’t get the permits. When you do, there’s all sorts of, zoning and construction restrictions on how much house you can build on a given piece of property.
And then there’s all sorts of laws that make houses more expensive. You have to put solar cells on them. You have to put in electric, utilities, and so on and so forth.
The answer to the housing problem is, like so many, get out of the way. Let people build more housing, let them build greater density housing, let them build up where it makes sense. That will solve the housing crisis, not just giving people more money to compete with each other against a fixed supply.
Here, I’m actually quite hopeful. Even in progressive California, there’s a new abundance movement which has figured this out. We need houses, not just affordable housing, in other words, government subsidized housing. We need more houses for everybody. The best way to make affordable housing is to make more housing at market rates for people who can really afford it. Then they move out of the rat trap apartments they’re in right now, and that frees up a new house for somebody else.
Just let them build the housing.
Thanks for listening to my weekly rant. And don’t forget to hit the subscribe button.
John H. Cochrane is the Rose-Marie and Jack Anderson Senior Fellow of the Hoover Institution at Stanford University. An economist specializing in financial economics and macroeconomics, he is the author of The Fiscal Theory of the Price Level. He also authors a popular Substack called The Grumpy Economist.