Why housing supply affects cost
There’s a debate playing out in Idaho right now, and we hear it in nearly every community we visit. On one side are people who believe supply-side solutions don’t work. In their view, the only way to lower housing costs is to create official, capital-A Affordable housing: projects that leverage federal tax credits, subsidies, and deed restrictions to hold prices below market. Just building more homes, they argue, won’t bring prices down, because developers will simply charge whatever the market will bear. They believe building more housing does not reduce costs, and that developers will just increase profit margins to make more money. On the other side are people who believe an unregulated market can solve this, and that increasing supply decreases costs if we just get the government out of the way. Let’s air this out: we have a lot of Capital-A Affordable housing skeptics in Idaho too. They believe we should just unleash the market and that government should not have a role to play in creating housing that’s artificially deflated in price, either through subsidy, tax exemption, or land.
What we believe and know from the research at Gem State Housing Alliance: Capital-A Affordable housing and market-rate housing aren’t mutually exclusive, they’re complementary. Gem State Housing Alliance was founded to advocate for more housing of all types, market-rate and subsidized, small and large, urban and rural, single-family and multi-family, which will ultimately decrease the cost of housing. We have Affordable and market-rate developers on our Board, and we are proud that we can hold both truths at once. But let’s talk more about it.
While we’ll address our thoughts and research on Capital-A Affordable housing at a later date, in this one we’ll just talk about increasing supply.
Why supply matters
There is a popular metaphor I love: housing is a game of musical chairs. When there aren’t enough chairs, someone gets left standing, and it’s always the person with the fewest resources. Adding chairs doesn’t guarantee everyone a comfortable seat, but refusing to add chairs guarantees someone loses. It's a simple game of supply and demand and less supply creates more competition (this funny/sad video that went viral just goes to show what that looks like). The more homes we have for people to live in, the better everyone fares, especially those with the fewest resources. It’s back to the free market principles we all learned in middle school, folks. Those principles work for housing too, not just apples, potatoes, and lumber.
How do we increase the production of housing? Zoning, regulation, and process are the low-hanging fruit, especially when we can unlock more missing middle housing (small-scale options like duplexes, triplexes, cottage courts, and fourplexes that fit within existing single-family neighborhoods) that’s made unpredictable or too challenging by codes, or deference to anti-growth, supply-skeptical attitudes at the local level. Letting more people and businesses build a duplex, a cottage court, or a home on a smaller lot if they want to has been documented to increase supply and lower costs. Pew Charitable Trusts has documented this pattern across cities that have loosened their codes: More Flexible Zoning Helps Contain Rising Rents, and Minneapolis in particular offers a useful template, as Pew details in Minneapolis Land Use Reforms Offer a Blueprint for Housing Affordability. When we make room for smaller housing types: cottages, duplexes, ADUs, townhomes, starter homes on smaller lots, there isn’t really a downside. These homes are inherently less expensive to build and, therefore, more attainable to buy because they are smaller, and they’ve been effectively illegal or prohibitively difficult to build in most neighborhoods because of antiquated codes or opposition to density.
Austin, Texas is the prime example of what this looks like in practice: the city unlocked its zoning code, and between 2015 and 2024 the city added 120,000 homes, growing its housing stock by 30 percent, more than triple the national pace. The results are striking: Austin’s median rent dropped 19%, even as the city kept growing. Rents fell fastest in older, non-luxury buildings, the ones that house lower-income renters. Supply worked, and it worked most for the people who needed reduced housing costs the most. (Pew Charitable Trusts has a great rundown of the data: Austin’s Surge of New Housing Construction Drove Down Rents.) Whenever we hear from supply skeptics, we often point to Austin, or even Houston, which doesn’t do much in terms of regulation or zoning, and where median home prices are less than $300,000.
Some skeptics have tried to muddy this story, arguing that Austin’s rent bump in 2021, or its recent slowdown in permitting, somehow undercuts the supply narrative. Housing economist Kevin Erdmann has made the case that it doesn’t, in detail: even after Austin’s construction pace cooled off from its peak, the city still permitted roughly 11 new homes per 1,000 residents in 2025, more than any major metro besides Raleigh and nearly triple the national average, and that happened after years of cumulative double-digit rent declines relative to the rest of the country. That’s not what you’d expect if falling rents simply choked off building. Austin built because, unlike almost anywhere else, it made housing legal at scale, and that let it pull in construction capital for feasible projects that most cities in America have zoned away. If you want the deeper academic treatment of why the “supply doesn’t work” argument keeps not holding up, NYU’s Supply Skepticism, Revisited is a thorough rebuttal.
Supply works to reduce costs for all housing as well, not just the new housing coming online. The mechanism is called filtering. Someone moves into a newly built apartment, vacating the one they used to live in that’s 20 years old. A new person moves into that 20-year-old unit, vacating a building that’s 40 years old. That 40-year-old building, not the shiny new one, is what becomes the affordable housing. Every new market-rate home, even a “luxury” one, loosens up the entire chain beneath it. It sounds counterintuitive, but the evidence for it is substantial. The Federal Reserve Bank of Minneapolis lays out the mechanism well in How new apartments create opportunities for all, and the effect shows up in the research on new construction’s spillover into nearby rents, including Do new housing units in your backyard raise your rents? from the Journal of Economic Geography and Local Effects of Large New Apartment Buildings in Low-Income Areas from The Review of Economics and Statistics. One argument skeptics reach for often is displacement, the idea that new construction pushes out existing lower-income residents rather than helping them. The research doesn’t back that up either: a widely cited study on San Francisco, Does Building New Housing Cause Displacement? The Supply and Demand Effects of Construction in San Francisco, found that new construction reduces displacement pressure in the surrounding area rather than increasing it.
In Idaho, there are many examples of cities trying to unlock supply through removing regulations, Post Falls being the prime example as it’s gone through several iterations of significant zoning updates allowing for more smaller home types to get built and unlocking the market. Making plexes and ADUs by right (as Boise did in 2023), reducing dimensional standards and parking requirements (Pocatello is a prime example, reducing its parking requirements in key corridors), defining smaller housing types (as Nampa has done with its cottage homes ordinance), and making the lot split process easier (as Caldwell has done, allowing its Minor Land Division process to be used for up to four lots, when most other cities only allow two) are all things that cities have done, and we know are trying to do more of.
Let’s keep doing it all
Increasing supply generally, and supply of Affordable housing serves different people on different timelines and budgets with different tools. Market-rate supply, especially smaller and more attainable homes, bends the whole curve over time. Capital-A Affordable housing serves the people the market will never reach, right now. Working on one doesn’t betray the other. Housing advocates are a small enough tribe in Idaho as it is, and we can’t Afford (ha!) to spend our energy fighting each other over which solution is the real one. They both are and the two can live together, work hand in hand, and get more Idahoans into homes than either could alone.
Further reading
How new apartments create opportunities for all (Federal Reserve Bank of Minneapolis)
More Flexible Zoning Helps Contain Rising Rents (Pew Charitable Trusts)
Minneapolis Land Use Reforms Offer a Blueprint for Housing Affordability (Pew Charitable Trusts)
Do new housing units in your backyard raise your rents? (Journal of Economic Geography)
Local Effects of Large New Apartment Buildings in Low-Income Areas (The Review of Economics and Statistics)
Austin’s Surge of New Housing Construction Drove Down Rents (Pew Charitable Trusts)
