Demand is Not Limitless

Over at Strong Towns, there’s a post offering a few thoughts on housing, including applying “induced demand” to housing. Induced demand has become something of a scriptural truth in urbanist thinking, making the leap from its origin as an explanation of what happens when you widen freeways to a more widely applied principle.

Way back in the days when I had time to blog more regularly, I suggested latent demand would be a better term for what happens when traffic lanes on a newly widened freeway get jammed up. To briefly recap, “induced demand” suggests that the very act of building a freeway lane (or house) creates the people that use it (or live in it), like applying an electric current to a coil induces a magnetic field. This is not really what happens with transportation or housing; the people and their desire to travel (or live somewhere) already exists.

Since building freeway lanes and houses does not create people, demand is not limitless. Even in the case of heavily congested freeways like the 405, widening the freeway unleashes some latent demand but it also diverts demand from competing facilities. This is in a case where we literally give away capacity for free.

For housing, which you have to pay for, we should expect demand to be more limited than freeway capacity. While there’s clearly a lot of latent demand to live in Los Angeles, both in terms of people who want to move here from other regions and existing households that would split up into multiple households, it’s also clearly not limitless. There are only so many people in the United States, and about 1 in 32 of them already live in Los Angeles County; my guess is it’s unlikely that even 1 in 25 want to live here. There is some level of housing supply that would satisfy the demand to live here at a reasonable price, just like there are cities in America that don’t have terrible traffic congestion.

Meanwhile, calling demand “induced” leads you to some strange conclusions. For example, the Strong Towns post says that the more housing is added, the greater the city becomes, and so demand for housing continues to rise. Logically, that would mean that to make Los Angeles more affordable, we should go out and start demolishing existing housing – but I doubt anyone really thinks that would work. People that are currently housed don’t disappear if you demolish their housing, just like building housing doesn’t create new people.

This also ignores that, like America’s many lightly used rural freeways, the United States has cities that have high vacancy rates and low housing costs. These places have a lot of housing, but having a lot of housing is not a guarantee that you will have people who want to live in it.

Now, none of this is to deny that amenity effects are real. New development in one neighborhood can increase that neighborhood’s level of amenities relative to other places in the region, making it more attractive to prospective residents. That can lead to displacement. But the solution to that is new development all across the region, so that new amenities are not all concentrated in one place.

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4 thoughts on “Demand is Not Limitless

  1. Rob

    Thank you – your original post making this distinction (between “induced” and “latent” demand) was very enlightening for me. It’s a simple, elegant correction of a shallow argument that I think is doing many of us shared mobility proponents a disservice.

    Fingers crossed that it doesn’t start gaining traction in the housing world as well. That’s exactly what we don’t need: another group that uses some head-scratching logic to oppose housing expansion. Especially one as coherent and thoughtful as Strong Towns.

    Reply
  2. devin

    “Now, none of this is to deny that amenity effects are real.” So are agglomeration effects! At the margin in LA it’s not clear whether the net externalities are positive (higher productivity, better amenities, etc) or negative (congestion). But, in smaller cities or towns seems likelier that they’re just positive.

    Reply

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