Economist Chris Freiman Questions Why Housing Supply Has Not Lowered Prices

Morgantown, WV – Chris Freiman, a business and economics professor at West Virginia University, recently sparked debate on social media by questioning a fundamental capitalist principle in the context of the housing market. Freiman highlighted the apparent paradox where, unlike other markets, increased housing supply has not consistently led to lower prices. His commentary challenges critics of capitalism to explain this deviation from expected economic behavior.

"Capitalists respond to rising prices by increasing supply (which, over time, brings about lower prices). The question anti-capitalists need to ask themselves is why this hasn’t happened in the case of housing," Freiman stated in a recent tweet.

Freiman argues that while the basic economic theory suggests increased supply should drive down costs, external factors and policy decisions often impede this natural market correction in housing. He has previously criticized interventions like rent control, asserting that such measures can be counter-productive. "Rent control disincentivizes the construction of new housing units because it makes that construction less profitable," Freiman explained in a Substack post.

He further elaborated that policy uncertainty, where developers fear future rent caps on new units, can deter investment, thus limiting long-term supply growth. Freiman also highlighted how rent control can misallocate housing, using an analogy of a surgeon and a YouTuber competing for an apartment. He suggests that without price signals, essential workers might struggle to secure housing in desirable locations, hindering overall societal benefit.

The professor advocates for reducing restrictions on construction to genuinely increase housing supply. "Right now, there are just tons and tons of restrictions on where you can build, how you can build… it just makes it very costly to build new housing, and in some cases, it might even be impossible," he told Courthouse News. This perspective aligns with a broader economic view that regulatory hurdles significantly contribute to housing unaffordability.

Freiman's observations resonate within a wider discussion about "supply skepticism," a phenomenon where many, including some affordable housing advocates, doubt that increased housing stock will effectively lower prices. Research cited in Forbes indicates that while people generally believe in supply and demand for other goods, this belief often falters when applied to housing. This skepticism, coupled with factors like financialization and homeowners' reluctance to sell at lower prices, contributes to the complex dynamics preventing a straightforward supply-driven price reduction in the housing sector.