Housing prices in many cities are on the rise. This trend has been pushing lower income workers out of housing in many cities, including San Francisco. The backlash has captured national attention and even framed talking points here in Seattle. It’s good that this problem is getting more attention. Allowing people to live in the neighborhood that is best for them is a serious issue that needs to be tackled. Before we can talk about solutions though, we need to understand why people can’t obtain housing or pay too much.

We’ve hammered on this issue a number of times previously and we will continue to write about it. This weekend I saw one graph that caught my attention. Trulia released an examination of the housing costs in Tech Hubs. Here is the cost of housing plotted against the number of construction permits per 1,000 units:



This graph doesn’t show the whole story, but it is very compelling. If the ratio of new units to existing units is lower, the price for housing is higher. If you don’t believe building more housing will reduce costs, I think it’s necessary to ask yourself what would convince you.

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  1. As compelling as it may look, this graph doesn’t tell us very much. And it certainly doesn’t lend itself to the kind of conclusions you seem to be drawing from it. If new construction permits have an effect on prices, you need to build a model, get the data, and run the analysis. My guess is that in large urban settings, new permits do slow the inflationary impact of increasing demand, but I’d really like to know how much and under what conditions that really is true. When you use phrases like “more housing will reduce costs” I think you’re really over-reaching.

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