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Affordable Housing: Geography of Supply and Demand

The geography of housing demand is a lot more nimble than the geography of housing supply.
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University of Hong Kong. (Photo: Baycrest/Wikimedia Commons)

University of Hong Kong. (Photo: Baycrest/Wikimedia Commons)

In response to my post "Illusion of Local: Why Zoning for Greater Density Will Fail to Make Housing More Affordable," land use planner Reuben Duarte retorts with "Why Foreign Money Is Irrelevant to Increasing Density." The controversy concerns scale of demand. Does it matter? Duarte posits that scale is irrelevant to market forces. The market (suddenly imbued with agency) is agnostic about the geography of demand. Yet supply, in the form of greater density, geography is paramount.

I'll start with the geography of real estate supply. One could drive until the household qualifies for a mortgage. The willingness to migrate for affordable housing considerably expands the geography of supply. The result is sprawl. Sprawl bad. The push for greater density is normative, a geographic fetish. Expanding the geography of supply is not OK. Suddenly, the real estate market doesn't look so agnostic. Regardless, sprawl is one way a region can deal with a problem of housing affordability. Migration is a lot nimbler than changes to zoning and casting bedroom eyes at real estate developers.

I would hope that all readers appreciate that geographic scale impacts the supply of housing. The point of greater density is to make a hot residential neighborhood affordable, not an entire metro area. Proponents of greater density promote the geographic distortion of housing supply, not a less regulated real estate market. The dense mixed-use urban utopia of walkability is this generation's suburban idyll.

In deference to Duarte's salvo, I'm assuming no one reading this thinks that geographic scale can impact real estate demand. I have ignored "the simple fact that demand is not limited to a specific type of housing, nor does the market care where demand originates." Touché.

As a geographer, I have to explain why there is a housing shortage. Rural communities and small towns, as we all know, are dying. Yet we have a massive gentrification problem in the region of the Bakken Shale (Northern Great Plains). The ugly side of a commodities boom:

The Tolberts are far from poor. Justin makes more than $200,000 a year as an oil pipeline welder in the Bakken oil field. The family owns a two-story home with an in-ground pool in Tulsa, Oklahoma. They drive a $50,000 four-wheel-drive van.

The Tolberts moved here in 2012 as part of a massive migration of workers chasing their fortunes in the Bakken shale, where a revolution in drilling technology led by fracking has pushed United States oil production to a 24-year high. ...

... In the oil field, truck drivers make more than twice what the $17-an-hour county job pays, Norgaard said. The oil industry is also destroying the county's gravel roads, which were originally built for the earliest cars and small farm equipment. Heavy trucks hauling hundreds of gallons of fracking water have turned the country roads to washboards. When it rains, the gravel washes out and strands school buses.

"I've got plenty of equipment; what I need is manpower," Norgaard said. "I need to get my wages up to where I can compete with the oil patch."

The K-12 Bainville School faces similar challenges. The influx of oil workers has pushed rent for run-down mobile homes to upwards of $2,500 a month. Teachers, whose salaries start at $33,000, can't afford housing. At the same time, student enrollment has more than doubled to 165 since 2009.

Emphasis added. Oh, and how is your small Montana town going to get wages up so your teachers can afford to live within 100 miles of the school? Good luck with that next mill levy when you have to fix the roads from all the trucking traffic. For these Bakken Shale communities, the geography of housing demand has radically changed. The geography of housing demand is a lot more nimble than the geography of housing supply. Ask Seattle.

Consider a metro area, which is functionally defined in terms of commuting for work. The wages within the region act as a cap on the high-end of the real estate market. At a minimum, housing supply is responsive to population change. Less people need less housing. In a hot neighborhood real estate market, population isn't driving rent inflation. A Chinese investor living in Honk Kong doesn't care if the property has good access to employment. A Chinese investor living in Honk Kong cares if other investors are interested in buying a property that might or might not actually house someone.

If you care about living in cities, then you should care about the geographic scale of housing demand.