Housing Policy Economics Don’t Add Up

Economist Michael Barnes explains what the latest California Department of Finance Demographics Unit (DOF) Report reveals about actual population trends, including the decline in the number of persons per household. As well as the importance of measuring progress with DOF net housing production figures versus “building permits issued”.

Using Economics 101, Barnes illustrates that in housing, “… the supply curve is a function of the demand curve. And of the firm’s marginal cost curve.” Using fundamental economic analyses, the article lays out why focusing on the supply-side has not solved the housing problem, and the reasons why many of the developer incentives do not work given they simply don’t fit actual development economics.

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An economist explains what the latest data shows—and doesn't show—about the affordable housing crisis in California.
“The new state housing numbers, the Yimbys, and a bit of Econ 101.”By Michael Barnes 48 Hills, June 2, 2025

SAFRR Endnote: Given the full range of cost and risk factors developers weigh before committing to build, SAFRR is deeply concerned about incentives to increase density. The 2025 LA fires, backed by emerging science, illustrated the ways that increased density intensifies structure-to-structure firestorms.

Approving dense development in fire-prone areas, especially when combined with efforts to streamline (i.e. sidestep) public health and safety standards, will ultimately prove to be a zero-sum game with regards to housing.