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Too little housing, not land speculation, is what’s really driving up rents

2013 October 13
by Alex Steffen


Editor’s Note:  In debates on affordable housing, those who advocate for increasing housing supply as a solution are often criticized for neglecting social justice. But as Alex Steffen writes below, not only is the production of compact housing in urban centers a broad sustainability solution, it is also an essential strategy for addressing social justice in growing cities like Seattle.


Speculation is simply a bet that demand will outstrip supply and thus drive up the price of the investment in question. There *are* situations where speculation sends a signal to others that prices will rise, and so those others also make speculative investments: if those bets are irrational, we call it a bubble. But if those bets are not irrational—if people will pay those prices—that speculation simply shows that there is a massive gap between supply and demand. Speculation cannot itself raise prices artificially in any sustained way if supply is abundant or demand drops. It disturbs me that people discussing housing policy don’t understand these concepts (or at least think they don’t apply to housing). Increasing housing supply quickly is the only actual solution to rising housing costs.

That said, it’s worth noting that the market always serves the least profitable customers last and worst. If we’re concerned about low-income people (and I think we ought to be), then public housing and/or serious incentivization of non-market-rate housing has to be part or the mix… part of a mix, if we’re smart, that includes every possible incentive to develop more high-quality housing at all income levels as quickly as possible.

As I’ve said before, increasing housing supply is the most important structural social justice issue facing most successful cities.


Alex Steffen is one of the world’s leading voices on sustainability, social innovation and planetary futurism. You can follow Alex on Twitter at @AlexSteffen.  This post originally appeared at


Photo of new market rate housing under construction in Seattle’s Capitol Hill neighborhood by Dan Bertolet. If the thousands of new units hitting the market in this neighborhood were not being built, housing demand would not go away, and the result would be more rapidly rising rents, and more renovation of the neighborhood’s older, cheaper housing stock to rent at higher rates.



5 Responses leave one →
  1. Will Douglas permalink
    October 13, 2013

    Supply and demand is a driver of rising rents, and left-wing urbanists need to support more supply. But we cannot address affordability solely through supply. We have to intervene in the market too.

    You argued that there are situations where speculation does drive increases in price, and those are bubbles. Well, we saw in many cities in the ’00s that real estate values soared even as supply was plentiful. Nobody would argue that Phoenix lacked housing supply. It may not have been rational. It may not have lasted. But if it existed for single family homes, it makes sense that a similar phenomenon would exist for apartments.

    One might argue that if we allowed more density and development – less rules, less restrictive zoning – then that would undercut speculation. It would help, but won’t fix it alone. The problem is that in a city like Seattle, there are physical limits on additional supply. That means buildable land will always command a premium. And in fact, underlying real estate values continue to rise in urban centers like Seattle. That makes new supply more expensive, as landowners are speculating that the value of developable urban land will rise.

    If new development has a higher rent than existing stock (often the case owing to land and building costs and other factors described above) and people are willing to pay it, that’s going to lead other landlords to raise rents too in order to capture some of that profit. Which is exactly what’s happening now.

    Finally, there’s the fact that many people are being hit with rent increases of as much as 50%, or hundreds of dollars a month, that they cannot afford. New supply is good but it’s also not something that will help people facing that kind of situation now, and as I’ve argued above, it won’t prevent speculation or stop rents from rising generally.

    So we need more supply, absolutely. But we also need rent control. It’s the only way to ensure that people currently living in the city aren’t priced out.

  2. October 14, 2013

    (Adapted from my arguments elsewhere): Rent control is great if, and only if, we capped price INCREASES–allowing prices to increase is very important–on the ENTIRE market at the lesser/greater (I still haven’t decided) of a fixed percent OR CPI increases every year. It would at least allow a stability not experienced in places like SF. The reason why the market would survive, although may price rents higher initially, is the industry standard underwritten rent growth is 3% annually. But that means that there would be room for new buildings to price rents higher initially and thus provide some incentive to increase supply as time goes on.

  3. Will Douglas permalink
    October 14, 2013

    Capping rents at 3% growth annually (or even 5%) is fine, most renters can handle that especially if we have wage policies like $15/hr that also include an inflation adjustment as does the Washington State minimum wage. And I agree about incentivizing new supply. What you lay out, Ben, sounds like a workable model.

  4. October 14, 2013

    I’m leaning towards the greater of 3% or CPI.

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