The Seattle Times headlined its Sunday edition with a story about “soaring rents” in Seattle. If we, as a city, decide that rents are too high, there is a solution: build more housing. But the article entertains the bizarre notion—all too commonly held by policy makers and others—that somehow building more housing increases price. Here’s a quote from the story:

What’s fueling rent increases most is development itself, said Jonathan Grant, the Tenant Union’s executive director. If almost all new units cater to wealthier tenants, he said, increasing supply is no path to getting rents to go down or even level off.

“The reality is that these units are high-cost, and often these were taken out of affordable-housing stock,” Grant said. “That’s why you see this theory of supply and demand being turned on its head.”

Grant’s suggestion is that the reason why rental housing prices are going up is because we’re building too much of it and for the wrong people. But as I have written before, developers don’t set rents, the market does.

Builders don’t buy land, build apartment buildings, then step back on the sidewalk in front of the building rubbing their hands together gleefully at the thought of charging people $2,000 a month for each unit.

Rents are established based on recovering costs for materials, money (in the form of short or long term debt), and operations. Profit, if there is any, comes after all those costs are paid with rent revenues.

Banks and investors simply won’t allow a project to be built with rents that exceed what they believe people can and will pay. They won’t do it. We can dispense with the idea that builders are building for wealthy people, which attracts more wealthy people, which in turn increases prices. Prices go up based on costs and competition. If we want prices lower, then we should want competition between developers, not among renters bidding against each other for a dwindling supply of housing.

If we’re going to make life more affordable in Seattle we need to shift our attention to supply. The burden shouldn’t be on housing advocates to explain why building more housing would help stabilize housing prices, but on NIMBYs and regulators to show how adding costs and process to new development won’t raise the prices.

Housing is probably the only product essential for people to live that has caps and limits on its production. Imagine if the farmers that produce food could only produce a set amount of their products. What would happen to the price of milk, for example, if dairy farmers could only produce 1 million gallons of milk per year, regardless of how many people wanted to buy milk?

Add to this production limit on milk, design review for the cows the famer uses to make milk. Imagine a public process that allowed members of the public worried that there is too much milk to prescribe the size and color of the farmer’s cows. And imagine that the farmer pays for that public process out of her budget. If we regulated the production of milk that way, prices would “soar” just like rents have in Seattle.

Cities are always going to feel more expensive and usually are. But to affect price we should be create more and better housing, even incentivizing the building of that new housing by reducing rules, risks and costs.

What Seattle needs is a housing policy that provides generous financial help for people who truly struggle to find shelter in the city and fewer regulations—for both market rate and non-profit developers—so that all people can have a wide array of housing options and prices to choose from in the city.

Photo of Design Review Cows from MorgueFile