#18 - Is The Housing Crisis Our Fault?

Outdated ideas prevent us from achieving our potential

In This Issue

1. Is The Housing Crisis Our Fault?

2. In The News

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Is The Housing Crisis Our Fault?

[This is an abridged version of an essay that I wrote for the latest issue of Urban Progress.]

On July 1, 1846, a 28-year-old Hungarian physician named Ignaz Semmelweis was appointed assistant to the director of one of the obstetrical clinics at Vienna General Hospital. His duties included overseeing clinical operations and recording statistics about patient outcomes.

Semmelweis was struck by a pattern in the mortality rates between women who had given birth in the area of the hospital staffed by doctors and medical students (where nearly one in 10 mothers died) and those who gave birth in the area staffed by midwives (where one in 25 mothers died).

Semmelweis hypothesized that the difference was due to cross-contamination from doctors and medical students, who performed autopsies and then delivered babies without washing their hands in between. The midwives didn’t do any autopsies, so there was less contamination in their ward. In 1847, Semmelweis instituted a strict policy of handwashing with chlorinated lime water. The mortality rate in the doctors and medical students’ clinic dropped to 5% for the remainder of 1847 and fell to 1% in 1848.

Despite clear evidence that handwashing saved lives, Semmelweis faced significant professional backlash. Many of his colleagues were skeptical of his observations. Some were outraged by the suggestion that they might be culpable in the deaths of their patients. Others found it suspicious that Semmelweis couldn’t provide a theoretical basis for his findings; there was, at the time, no scientific explanation for why handwashing would be so effective in reducing mortality. The prevailing theory of disease was that “vapors,” or unclean air, caused illness. In a small step toward developing a modern theory of disease, Semmelweis hypothesized that, instead, “cadaverous particles” were being transmitted on the hands of clinicians.

After writing furious letters attacking the doctors who ignored his findings, Semmelweis was dismissed from his position at Vienna General Hospital. Even then, he continued to face criticism from the medical community. He was ridiculed, ostracized, and eventually committed to a mental institution by his peers in 1865. He died after just 14 days in the asylum.

Only several years after his death, Semmelweis’s ideas gained traction in the medical profession. Louis Pasteur introduced his germ theory of disease, which provided a scientific explanation for Semmelweis’s observations, in the late 1850s; over the next few decades, it became widely accepted.

Today, Semmelweis’s emphasis on data, experimentation, and methodically testing different hypotheses would be called scientific, or perhaps even evidence-based medicine. But in his time it was considered outrageous. Nothing about Semmelweis’s findings changed in the years following his death. What changed was the willingness of his peers and contemporaries to absorb new information and integrate it into their view of the world.

The type of resistance Semmelweis encountered is not confined to medicine. Semmelweis’s story is a parable for practitioners in any profession — including those that create our cities: urban planners, architects, and engineers, both within the civil service and in private practice. Let’s call this group of professionals “city-builders.”

Like any other group of experts with established conventions and prevailing norms and beliefs, we city-builders often make the very same types of intellectual errors that Semmelweis’s peers made in the 19th century.

Professional Paradigms

Professions of all types tend to be dominated, almost by definition, by people with the most accumulated experience in a field. Psychologically, people become increasingly attached to (and confident in) beliefs when they are based on actions that they have repeated over and over. In other words, the most experienced professionals have a compelling reason to hold on very strongly to beliefs about their discipline. These are people whose identities and professional longevity have depended on a particular worldview and way of doing things. Because of that very longevity, they get to define the paradigm, or prevailing conceptual framework, of their time.

Updating one person’s beliefs is hard. Shifting the paradigm of an entire discipline is much harder. The senior obstetricians who most aggressively disagreed with Semmelweis had been providing medical care, with poor hygiene, for their entire careers. Acknowledging the importance of hygiene would mean acknowledging a career of actively (if unknowingly) harming patients. It would have meant admitting their own ignorance and the harm they had caused. This psychological task was necessary for the advancement of the profession but extraordinarily painful for the seasoned practitioners who were confronted with it.

All disciplines face this dynamic from time to time: an inherent push and pull between conservatism and openness, stability and change, knowledge and experimentation.

City-builders are no exception.

North American urban planners, lenders, and real estate professionals were staunch defenders of redlining, racial segregation, and urban renewal at various times, and not that long ago. They didn’t defend these policies out of pure malice — they were widely thought to be “good planning” practices. But it led to the displacement and systemic, generational disadvantage of millions of people. Despite decades of heated political controversy, the well-documented brutality of government segregation, and the rise of the Civil Rights movement, it wasn’t the city-building professions that put an end to these kinds of exclusionary practices. It was the Supreme Courts of the US and Canada.

Planners and other city-builders fell in line only after the laws were changed.

The Orthodoxy of Enough

This seems like a good moment to ask:

What are the mistakes that we city-builders are making today?

There are many outdated ideas that we stubbornly cling to: car-oriented planning and design; an attachment to expensive sustainability tech, when cheaper alternatives exist; inclusionary zoning and other high-cost, low-production housing affordability programs… but there is one idea that seems most pernicious: Supply Skepticism.

Regardless of industry, demographic characteristics, or political beliefs, people today tend to agree on one thing: we face a housing affordability crisis. But among our city-building professions there is still an ongoing debate about whether this is due to a lack of housing supply.

The data appear to be in.

The heavy balance of academic research, which happens to align with basic economic theory, common sense, and real-world experience, suggests that the single biggest driver of high housing prices is a lack of supply. There have been two excellent literature reviews in the last several years that paint the picture clearly.

The first of these, “Supply Skepticism: Housing Supply and Affordability,” was published by the NYU Furman Center in 2018. This paper reviews decades of research on the interaction between supply and affordability and finds unequivocal evidence that supply (specifically supply elasticity, or the ability for supply to change in reaction to demand) is a necessary condition for affordability, in aggregate. An update, which clarifies and reinforces these findings using new research from the last few years, was published in August 2023.

The second, “The Effect of Market-Rate Development on Neighborhood Rents,” published by the UCLA Lewis Center for Regional Policy Studies in 2021, uses more recent, detailed data to clearly demonstrate that this effect plays out not just in the aggregate economy but also at the local level. New market-rate rental housing reduces displacement and slows the rate of market-rent increases in the nearby area, the researchers show. In fact, they find that the price-reducing impact of more supply more than offsets any increased demand (from, say, new neighborhood amenities) at any distance.

There are countless other high-quality studies that provide compelling, detailed evidence. For example, Finland collects population data for every citizen in the country and allowed researchers to study the addresses of individuals over time. Researchers found that for “for each 100 new, centrally located market-rate units, roughly 60 units are created in the bottom half of neighborhood income distribution through vacancies.…Even more remarkable, 29 vacancies are created in neighborhoods in the bottom quintile of the income distribution.”

And yet, despite this accumulated evidence, a great many planning professionals, architects, academics, civil servants, and politicians will ridicule the suggestion that we need to substantially increase supply and speed the pace of construction. Some can be openly hostile to those who suggest it, even within their own disciplines. Many professionals have a deeply ingrained belief that only non-market regulatory measures, such as rent control and inclusionary zoning, or demand-side measures, like immigration controls, monetary policy, and prohibitions on short-term rentals, can address housing affordability. Many are skeptical that scarcity might be a contributing factor, much less a root cause, of our affordability challenges.

Ultimately, I see these views as easily reconciled. The supply skeptics often claim that more supply alone will never solve affordability: markets simply don’t work that way, and there is no incentive for the private sector to house people at the bottom of the income distribution.

I agree.

Semmelweis never would have claimed that handwashing would solve 100% of mortality in his clinic. But he did discover what appeared to be the single largest cause of death: poor hygiene. Similarly, those who advocate for more housing supply rarely, if ever, claim that supply (and supply alone!) will solve housing affordability for everyone. But it’s clear that abundant supply makes the problem of unaffordable housing much more manageable by making it smaller. Building more housing reduces the number of people who need help getting housing, so we can focus our resources on those who are most in need. Like the medical professionals who hesitated to acknowledge culpability for not washing their hands, many city-building professionals are slow to recognize their own role in preventing access to a most basic human need — shelter.

What Can We Do?

City-builders should be focusing all of our time and energy on creating an affordable housing market, with a variety of high-quality structures that people want to live in. A market that is dynamic and flexible enough to quickly respond when the needs of households shift. A market that provides lots of choice.

But, partly because we are attached to outdated views about the economics of housing, we have delivered precisely the opposite: a shortage in the supply of affordable housing options, ever-lengthening review processes, bureaucratized design decisions, higher taxes and fees on development, construction-throttling price controls, and a very narrow range of approved housing types.

First, we city-builders should acknowledge that more supply on its own will never address all of society’s housing needs. We have not eliminated hunger, even as food prices have fallen drastically over the last century. And we will not eliminate homelessness and financial precarity by building more homes. At the same time, we must also acknowledge that most of our housing challenges — high prices, real estate speculation, low-quality housing, huge waitlists for subsidized housing — are symptoms of scarcity, not symptoms of abundance. Producing more food is a precondition for solving hunger; producing more homes is a precondition for solving a housing crisis.

We must acknowledge the empirical reality that housing supply — even luxury housing — improves housing affordability, though it runs counter to our intuitions. We must advocate for privileging housing production over less important considerations, which often slow or prevent growth. It’s legitimate to consider shadow impact, noise, infrastructure capacity, and neighbor feedback when reviewing proposed housing policies, but the bar for rejecting or reducing proposed housing projects should be extraordinarily high. Our city-building professionals should start from a position that housing must be built somewhere, and a big part of their job is to figure out where and how, as expeditiously as possible.

Planners should embrace evidence-based policy-making and work to remove regulatory barriers that constrain productive growth. This means addressing restrictive zoning, reducing the cost and time of development approvals, and increasing the availability of public land for housing development. New sewers can be built, as they are every single day in other cities. New transit can be incrementally added over time. New trees can be planted. But every home left unbuilt because of professional interference is a household that has been denied the opportunity to live in a place where they want to live. This is the redlining of our era.

Architects and engineers should leave the sidelines and take a central position in our debate about growth and prosperity. Too often, my peers complain privately about the difficulty of building and about the destructive nature of many regulations. But they demur in public, leaving advocacy to policy-makers, activists, and industry groups. City-builders are the holders of technical knowledge and must speak up when policy runs against the public interest.

My hope is that our city-building professions will start to recognize when they are behaving like Semmelweis’s detractors — who adhered to tired orthodoxy that no longer fit with reality, and who punished their peers who dared to say otherwise. Supply-skeptical true believers must be publicly challenged and presented with overwhelming evidence. And those city-builders who know better should use the housing crisis as an opportunity to reassert their profession in the public sphere, rather than take a back seat to politicians, developers, and public officials.

The stakes are too high and the cost of failure is too great.

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In The News

Vladimir Lenin once said, “There are decades where nothing happens; and there are weeks where decades happen.” That was January 2025 in a nutshell. History is back, in the Fukuyama sense.

Trump’s election and the immediate flurry of executive orders; the incipient restructuring of the global trade system and of the US bureaucracy, and how these changes will echo across other countries; Trump’s aggressive tariff proposal vis-a-vis Canada/Mexico and the Canadian response; the uncertainty that all of this causes to society, to markets, and to my industry in particular.

My sense is that it is far too early to tell what the impact of these events will be. Many are speculating about the magnitude of changes that we will see in construction and financing costs, in supply chains, in political trends. I’m grateful that more qualified people are helping us understand the range of potential outcomes. Personally, I am terrible at predicting the future. On one hand, it’s important to follow events and educate myself on the potential impact to, say, project economics. On the other hand, it’s even more important to structure my business in ways that insulate me from shocks and allow me to take advantage of trends.

One thing I like to say about real estate businesses: We are like tiny boats on the open ocean. When the skies are sunny we feel in control, but you need to be a true master of your craft to stay afloat through a storm. Ultimately, we only have so much control when up against nature and the market.

Our job as stewards of capital is to protect against the downside, and expose ourselves to the upside. That will be my lens for the coming year.

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That’s a wrap.

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Thank you for reading, and have a great February.