I’m hardly the first to point out that many people can earn graduate degrees in economics without actually absorbing or understanding the economic way of thinking. As is often the case, Twitter (the platform I still refuse to call X) has risen to the occasion to provide an example. In this case, the subject is the Irish economist Phillip Pilkington, who graciously provides an example of what happens when you confuse an increase in supply with an increase in quantity supplied.
On this occasion, Pilkington tweeted out:
THE CHART YIMBY KIDS DON’T WANT YOU TO SEE:
House prices and new construction are POSITIVELY correlated. I.e. when there is more supply prices are rising and when there is less they are falling. The OPPOSITE of the YIMBY argument.
I actually wrote an entire post a year ago specifically addressing this elementary error, but I’ll try to briefly summarize the point I made back then.
Supply, roughly, refers to how much capacity there is to make something. Quantity supplied refers to how much sellers will provide at a given price. New construction isn’t an increase in supply, it’s an increase in the quantity supplied. YIMBY’s don’t argue that we need to increase the quantity of housing supplied, the argument is that we need to increase the housing supply. That is, we need to increase the capacity to produce more housing. Partly this could be done by means of new building methods and technologies, like the modular housing methods that are described in this post. But right now, there is a massive amount of low-hanging fruit available to increase the housing supply in the form of deregulation – eliminating minimum lot sizes, repealing bans on multi-unit housing, reforming zoning laws, that sort of thing. Changes like this will increase the capacity to build housing, which is what is meant by an increase in supply.
Without changes in policy to allow the housing supply to increase, the supply curve stays fixed. And if the supply curve is fixed, but demand is increasing, then as the demand curve shifts to the right, the equilibrium price for housing moves up along the upward sloping supply curve. That is, the quantity of housing supplied will increase, but housing prices will also increase as part of the same process.
YIMBYs aren’t arguing in favor of moving up a fixed supply curve – YIMBYs argue for policies that will shift the supply curve. The solution YIMBYs advocate isn’t simply to increase the quantity of housing supplied by building more housing, the solution YIMBYs advocate is to increase the housing supply through deregulation of the housing market. The YIMBY argument stresses that if the supply curve can’t shift right, then new houses will only be built in response to increases in demand driving prices higher and higher – which is what we are in fact seeing.
Pilkington says that increases in housing prices is positively correlated with increases in new homes being built as if he thinks he’s pointing to something that refutes the arguments of YIMBYs, without realizing that in fact what he’s pointing to is exactly what you would expect to see if the YIMBY argument is correct. This isn’t just performing an own goal, this is performing an own goal by doing a bicycle flip kick that scores the winning point for the other team at the championship match, then breaking out into a celebratory coordinated song and dance routine to Gangnam Style while pyrotechnics go off in the background.
As I’ve recently said in another context, this kind of mistake is something that would be easily avoided by anyone who had taken even a single Econ 101 course – and actually retained what they had learned. Sadly, some people can go very much further than Econ 101 and still not retain the basic concepts.
