Housing in Grand Forks

The last several months saw a great deal of public outcry about the housing situation in Grand Forks. This was something of a spaghetti argument: Let’s throw a whole host of issues against the wall and something will stick. Topics included the affordability of housing, the availability of housing, the quality of housing, and so on.

Quite possibly the one I find the most distressing was the call to action on the availability of housing. There were many cries of a housing shortage, which I do not think was supported by the evidence presented. A shortage is a situation where quantity demanded is in excess of quantity supplied at a given price. Even if a shortage did exist, over time, absent regulations or other barriers the shortage would naturally dissipate due to the regular functioning of markets. As I understand the local markets there are few candidates for such an impediment to the market.

I think some were actually arguing a price issue, namely that homes cost too much. They wanted to see an increase in supply of homes to lower the price. Essentially they did not like the equilibrium the housing market achieved. That is a different argument from a market out of equilibrium. They should realize though that a resolution of a shortage is often realized by prices rising to return balance to the quantity demanded and the quantity supplied.

 

Based on the evidence there were calls for intervention, which I was publicly against. The ability of the local government to influence the housing market was and is, at best, marginal. Mortgage rates, a key component of housing demand, are at least in part set in the national marketplace. Materials costs are beyond the influence of local government for the most part as well, at least when it comes to lowering them. Perhaps the best thing to be done, I said, was providing information to the private sector.

Here is the market response.

Total new privately owned housing units authorized

Total new privately owned housing units authorized

Given time and the absence of barriers we see the market working. This still does not definitively prove a shortage existed. The timing of builders and others may just have worked out this way. We certainly do not want to assume post hoc ergo propter hoc.

There is certainly room for other arguments such as the one surrounding the notion of affordable housing. However what this constitutes and how to demonstrate a market barrier that creates the problem would require much more research into the mechanics of the local housing market.  And as a final note, while barriers may exist that prevent markets from functioning smoothly or well, it is not the case that it implies an automatic improvement from government intervention.

2 Comments, RSS

  1. nodaker September 12, 2013 @ 2:10 pm

    “A shortage is a situation where quantity demanded is in excess of quantity supplied at a given price.”

    Meanwhile, in the “real world” of people looking for housing in Grand Forks…

    “Grand Forks resident Aaron Castoreno can sum up the city’s rental market in two words.

    “It sucks,” he said. “Basically, you can’t find anything, or it’s gone right away.”

    The 28-year-old father of two has been searching for a house to rent near his children’s elementary school for about six months. He and his wife, Taylor, gave up trying to buy a home near West Elementary a while ago, he said.”

    http://www.prairiebizmag.com/event/article/id/15757/

    Searching for a house for months. Finding nothing at their price point. If that’s not “a quantity demanded in excess of the quantity supplied at a given price”, then what exactly does your terminology mean?

    There’s a shortage of housing available in this community for people at the lower price points. Sticking your head in the academic sand to try to claim otherwise is silly.

    • David September 12, 2013 @ 2:18 pm

      If there are not enough units prices will rise to clear the market. Ask builders why they are not building houses in the lower price range? Can we incentivize the builders enough to make a change? I doubt it. Also, if the issue is not finding a house in a particular area, that is a restriction that further reduces the probability of successfully finding a home.

Your email address will not be published. Required fields are marked *

*