Don't Blame the Rich for High Rents

MLewyn's picture

One common explanation for the high housing costs of New York and San Francisco is that the wealthy are pricing everyone else out of the market.  According to this narrative, there are so many obscenely wealthy people in such cities that developers are only building housing for the rich, thus making it impossible for the law of supply and demand to function.

But a recent article on CNBC's web page suggests that although New York does indeed have the highest percentage of millionaires in the United States, the second-place finisher is relatively low-cost Houston.  It therefore appears that a city can have lots of wealth and still have relatively low housing costs, if government makes it reasonably easy for people to build housing.  

This does not mean Houston is a perfect role model: although Houston's regulations don't disfavor all new construction, they still favor sprawl by limiting density and mandating parking.  As a result, Houston's low housing costs are balanced out by high transportation costs. Ideally (from a smart growth perspective) a city would make new housing construction easy without mandating sprawl.

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