Michael Wiebe

Supply skeptics at a picnic:

OP screenshot:
michaelwiebe.com/blog/2025/08...

Partial equilibrium two-sector model of land:
michaelwiebe.com/blog/2025/07...

So the model recovers our basic intuition: having more inputs makes the output cheaper.

The land value residual approach doesn't capture this, because it's an accounting formula, not a supply and demand model of price determination.

7/7

In the supply equation for land, 'a' is the supply shifter. If we expand the urban growth boundary to allow more developable land, we increase the supply of land.

If you do the math, you'll see that this increases the quantity and reduces the price of both of land and homes.

6/

Because of the 1:1 house-to-parcel relationship, developers' demand for land (Q_L^D) is equal to their supply of housing (Q_H^S).

We can solve for the equilibrium by equating supply and demand: Q_L^S = Q_L^D = Q_H^S = Q_H^D.

This gives values for Q*, P_L*, and P_H*.

5/

Supply and demand equations:

Supply of land: Q_L^S = a + b*P_L
Demand for land = supply of houses: Q_L^D = Q_H^S = c + d(P_H-P_L)
Demand for houses: Q_H^D = y - z*P_H

4/

Consider a simple model:
- developers produce an output good (houses, at price P_H) using land as an input
- landowners offer more parcels at higher land prices P_L
- one house requires one parcel of land

3/

The residual formula says (for a single parcel): land value = housing price - construction costs - taxes - profit.

How does it make sense to talk about "increasing the supply of land"? The formula says only housing prices matter.

But accounting is not economics.

2/

If you think of land value as a residual of housing prices, you're blinded to how increasing the supply of land can reduce home prices.

But housing and land prices are jointly determined in general equilibrium. Intuitively, more inputs reduces the price of the output.

1/

Yup, left and right are right- and left-NIMBYs.

Cambridge 2019 nexus study:
www.cambridgema.gov/-/media/File...

But this is a dark road. By this logic, they could reduce housing need simply by deporting poor people to another city. And if this becomes the legal standard, impact fees will be used to price out the poor, creating a perpetual housing crisis.

7/7

Now, the city could argue that it cares only about residents. If the worker lived elsewhere in the No Build scenario, then their housing need is someone else's problem, and Need(No Build) actually is 0.

6/

The nexus studies are designed to find a negative impact, because they assume Need(No Build)=0, so ΔNeed = Need(Build) − 0 = Need(Build) >0.

They ignore the worker's housing need in the counterfactual.

5/

Hence, they cannot calculate the causal effect on housing need (ΔNeed), and cannot claim that development *creates* new housing need.

And since development creates jobs and boosts wages, it actually makes the worker better off. The impact is positive!

4/

But the nexus study only calculates Need(Build): the worker's affordable housing need when the development goes ahead.

They never look at the worker's housing situation in the counterfactual scenario where the development doesn't happen.

3/

New development has a negative impact on a worker's housing affordability if their housing need is higher when the development is built compared to when it is not built:
ΔNeed = Need(Build) − Need(No Build).

2/

'Nexus' studies claim that development brings in poor workers who need affordable housing, which is a negative impact to be mitigated.

This is fundamentally flawed: the studies do not measure a worker's housing need in the No Build counterfactual, so cannot prove a causal effect.

1/

The problem is that incumbent homeowners foist the cost of infrastructure maintenance onto new development. The price signal is skewed by politics.

This is actually an interesting research question: when apartments are allowed, do they bring in richer or poorer residents?

Which price signals?

On "growth should pay for growth": homeowners are all too happy to accept higher property values (created by growth in population, jobs, and public infrastructure), but refuse to pay for the costs that make growth possible. Is that fair?

Tipping point?

Isn't that the author's job?

Automated checking?

Why "only"? That's a big deal!

How are you defining upzoning/rezoning?

Spot the fallacy:
"Expanding the urban growth boundary won't reduce housing prices, because the upzoned agricultural land just becomes more valuable, wiping out any cost savings."

Might have been a different Pete Fry.

Pop quiz: why does upzoning shift the supply curve for housing? Eg. rezoning agricultural land to residential.

The supply function tells us: for a given price, what quantity of homes will developers produce? Shifting the curve means this quantity is higher at every price.