Trickle down economics has often been caricatured as the claim that by giving money to the rich, the benefits will eventually trickle down to the poor. That theory is probably incorrect, but that’s not what trickle-down proponents actually recommend.
Housing is one area where trickle-down actually works. A recent one Kevin Erdmann Post showed that rents in Austin, Texas have fallen especially sharply at the bottom of the income distribution (red dots), in part due to greatly increased construction of multi-family units:
This is how Erdmann explains the situation:
Filter rules Housing. New private construction is just about the most progressive, equal economic activity that America can undertake under our current circumstances!
The implications of this are doubly positive. In general, the new units are ‘luxury’ units that tend to be high-end.
- The main effect of new high-end houses is to reduce rents on low-end houses.
- And that also means that “oversupply” usually affects rents on old, outdated units. When the average rent in Austin has fallen by 3%, that means that high-end rents are only down by 1%. Falling rents therefore do not have as strong an effect on the viability of new projects as initially extinguishing them.
Austin is a rare exception to America’s general trend of increasing restrictions on housing construction, the so-called “Nimby” movement. The increase in housing construction has allowed Austin to see declining rents despite very rapid population growth. This helps the poor.
Seven years ago, I have argued That we should focus on building so-called “unaffordable housing,” meaning housing that the median income buyer cannot afford. This allows us to gradually upgrade the quality of our housing stock and allows people to move income into units that have been abandoned by those purchasing the newer luxury units.
In Another messageErdmann makes an impassioned plea to stop implementing counterproductive regulations:
As of now, bills have been introduced in several states to block corporate ownership of single-family homes.
Arizona. Connecticut. Indiana. New Hampshire. New York. Oklahoma. Texas. Utah. Virginia. . . .
I am at a loss. It will be a slow-motion train wreck of stunning scale. I’m waiting here for the train, but I’m powerless to stop it.
The typical young family with a credit score of 720, for example, cannot buy a house today. We will not build more apartments as replacements. I recently watched a large apartment building in the Phoenix area get blocked, and one of the big complaints was that if they allowed it, Families would live there. This is all done quite explicitly. In any case, the obstructionists simply imagine that someone, somewhere will be allowed to build something.
The sponsors of these bills feel the same way. If we ban businesses, there is sure to be a mysterious figure on the sidelines who will build the new houses instead.
No! They won’t! The rest is already banned! About a million homes are being built for the portion of Americans who are still allowed to buy. Another 500,000 apartments have been built for tenants. That’s not enough! It’s not nearly enough!
So, where is that family going to live? They are not allowed to buy a house, live in a new apartment and now they may not be able to rent a single-family home.
I consider Kevin to be our most knowledgeable real estate expert. He is similarly pessimistic:
I just can’t believe what we can do to ourselves just out of ignorance.
I knew this day would come. But seeing it happen gutted me. I’ve been looking forward to it and predicting it, but until today, in the back of my mind, there was a little voice saying, “No. Certainly not.” But it’s happening.
Unfortunately, we have entered a new dark age of economics. I fear it may take decades for us to reach our senses.