Will building more roads and houses merely increase demand?
Social scientists contend providing more roads and houses leads to “induced demand” and fails to alleviate shortages.
The recent presidential election illuminated the problem of confirmation bias, particularly when emotional, political issues are involved. We all want to believe we are rational beings who make decisions based on solid facts and sound reasoning. The truth is that our decisions are often irrational based on faulty reasoning with a self-selected group of facts. One party’s fake news is another party’s gospel Truth.
Take for example the decision to buy a home. Many analytical people convince themselves they want a particular home because the deal makes sense. Perhaps the house is selling below comps, or below rental parity, or it’s in an area with above-average appreciation. While these are all sound financial reasons to buy a house, these reasons seldom drive the actual purchase decision. Usually, the purchase decision is made entirely emotionally, and the financial justifications come later to make the decision feel right.
Once a person makes an emotional decision, the analytical left-brain rationalizations appear to support the emotional move. During this stage of the decision-making process, confirmation bias kicks in and the brain starts searching for evidence to support the decision. Facts are screened carefully. Supporting facts are remembered and recounted. Contrary facts are ignored or dismissed as irrelevant.
Our so-called rational thought and reasoning work to support our emotional decision-making. The is usually done in willful ignorance to the truth about the decision itself. Part of the self-deception is the overriding belief that the decision came about after a careful review of the facts and deliberative reasoning. Unfortunately, that belief is complete and utter bullshit.
Nimbyism is emotional
The reprehensible behavior of nimbys isn’t the result of a carefully reasoned decision based on objective facts. The decision to oppose progress springs from the emotional desire to benefit personally by preserving property values or keeping other people from using local roads and streets.
The fact that new development, particularly housing development, serves the greater good is a rational argument the conflicts with an emotional desire. In such circumstances, the rational argument seldom wins, and the hokey justifications people come up with to justify their behavior becomes laughably absurd.
One of these absurd justifications embraced by nimbys is the concept of “induced demand.” The idea is that by providing new development, rather than supplying and satisfying an existing demand that more demand is actually created. It creates a hopeless situation where the solution becomes the problem.
It’s like arguing that we shouldn’t develop new antibiotics because they just breed resistant superbugs. While a biological arms race perhaps isn’t winnable, to give up trying is to sentence many to suffer needlessly from bacteria we could control.
The induced demand argument is exactly the kind of nonsense a nimby will latch onto because it’s the only argument against the cure directly. Once it’s accepted, the problem can never be fixed because the only potential solution is deemed to make the problem worse. So doing nothing is bad, but doing the right thing is even worse.
It’s a very convenient argument for nimbys because it justifies inaction — an inaction they want because they benefit from it personally.
As a kid, I used to ask my parents why they couldn’t just build more lanes on the freeway. Maybe transform them all into double-decker highways with cars zooming on the upper and lower levels. Except, as it turns out, that wouldn’t work. Because if there’s anything that traffic engineers have discovered in the last few decades it’s that you can’t build your way out of congestion. It’s the roads themselves that cause traffic.
The concept is called induced demand, which is economist-speak for when increasing the supply of something (like roads) makes people want that thing even more. Though some traffic engineers made note of this phenomenon at least as early as the 1960s, it is only in recent years that social scientists have collected enough data to show how this happens pretty much every time we build new roads. These findings imply that the ways we traditionally go about trying to mitigate jams are essentially fruitless.
It’s true that building more roads increases the number of trips people take. But what should we make of that fact?
Nimbys take this as proof that all new development should stop because it merely creates worse problems. It’s a convenient interpretation because it reinforces a belief they already hold. A recent study shows the power of confirmation bias as people with more understanding of science use studies to confirm their pre-existing beliefs.
What nimbys conveniently ignore is the more trips means more commerce and a higher quality of life. When people feel trapped in their homes because they want to avoid gridlock, they don’t go to movies or sporting events, they don’t go shopping or meet with friends, or enjoy any other activity that subjects them to the stress of traffic congestion. This lowers quality of life.
Politicians argue that more roads will reduce congestion, not because they believe it, but because they must make the argument in order to provide the infrastructure necessary to improve everyone’s quality of life.
As it turns out, we humans love moving around. And if you expand people’s ability to travel, they will do it more, living farther away from where they work and therefore being forced to drive into town. Making driving easier also means that people take more trips in the car than they otherwise would. Finally, businesses that rely on roads will swoop into cities with many of them, bringing trucking and shipments. The problem is that all these things together erode any extra capacity you’ve built into your street network, meaning traffic levels stay pretty much constant.
Each of those extra trips represents an improvement in someone’s quality of life. Whenever someone cancels a trip to avoid a traffic jam, they denied themselves something of value. People generally travel with a purposeful destination where they expect to consume some good or service. The easier we make those trips, the higher someone’s quality of life becomes.
The same arguments of induced demand are made by nimbys opposed to new housing.
DEC 7, 2016, By Noah Smith
I was talking to a friend the other day, a San Francisco anti-eviction activist, and said that allowing more housing construction in the city would be a great way to lower rents. She looked at me in horror, blinked and asked “Market rate?” I nodded. She was speechless.
My experience was far from unusual. To my friend and many others, it has become an article of faith that building market-rate housing raises rents, rather than lowers them. The logic of Econ 101 — that an increase in supply lowers price — is alien to many progressives, both in the Bay Area and around the country. Instead, the theory is that price is something set by the government. If the city government decrees that a new apartment block be affordable, the theory goes, it will be. But since rents for non-rent-controlled apartments are now very high, allowing new market-rate development will simply create more luxury units, whose prices will be out of reach for the average person. The only way to lower the cost of living, according to the progressive canon, is to have the government mandate lower prices.
Imagine an island with 100 jobs and 10 houses. In a free market, the top 10 wage earners would buy the 10 houses, and the prices would reflect the borrowing power of the 10 highest wage earners on the island. Since prices would be very high, an entrepreneurial homebuilder would provide more houses until the lowest wage earner who could afford to finance the construction cost owned a house.
Now imagine that instead of allowing the market to work, the 10 existing homeowners got together and banned all new construction. In order to keep a few low wage earners on the island to service the high wage earners, they mandate that two of the ten houses be set aside for affordable housing. Two of the remaining 92 would-be homeowners would gain a subsidy, and the 90 other people with jobs would sleep on the beach (or a bench or something).
Is the problem solved? According to San Francisco progressives, yes. According to the people who can’t find a home and who must commute to island, no. The problem is still very real.
Actually, the progressive theory isn’t obviously crazy. There is a phenomenon called induced demand that can create precisely this effect. …
The same could be true of housing development. If building more housing in a city causes more people to move there, the increase in demand will cancel out the increase in supply, leaving rents no lower — or possibly even higher — than they were before. …
In response to the housing crisis, San Francisco recently allowed a small increase in market-rate housing. Lo and behold, rents in the city dropped slightly.
So all the evidence points toward development restrictions being a big reason for high rents. Allowing more market-rate housing in large established cities is a good way to bring down the cost of living, not just for high earners, but for the poor and working class as well. Progressives should support higher density, not more restrictions, if they want to help the most economically vulnerable city-dwellers.
Affordable housing subsidies merely soothe the conscious of progressive nimbys. They feel like they address the problem in a way that benefits the less fortunate, but they don’t really solve anything. They maintain the inflated value of their own properties while keeping enough hired help around to clean their toilets.
If more market-rate housing were built, perhaps more people might move into already crowded areas to be near work, but these people move from somewhere. Demand goes down in the places people move out of, and prices moderate. Perhaps it will never be inexpensive to live in San Francisco, but if market-rate housing were built across the region, it would lower prices elsewhere, and everyone would enjoy a better quality of life.