Home sales fell for most of last year as mortgage rates increased, pulling national home price benchmarks from their pandemic peaks. Nonetheless, the Case-Schiller National Home Price Index is still up 40% from where it was three years ago.

In a recent interview, the new mayor of Los Angeles claimed that constructing new housing causes home prices in the surrounding neighborhood to increase. A recent survey indicated more than a third of Americans agree. This conviction is especially prominent among those who decry gentrification.

Unfortunately, reams of economic research demonstrated convincingly that this idea is wrong. New construction, all other factors being neutral, applies downward pressure on the price of housing.

Psychological distortions also seem to afflict our perception of housing supply. In 2022 the inventory of housing available for sale and for rent was the lowest in decades, on a per capita basis. And yet, when asked to identify the primary cause of rising housing costs, people blame a rogue’s gallery of villains instead of a shortage of housing.

Some blame institutional buyers - private equity firms, hedge funds and Zillow – for outbidding traditional buyers with cash offers. Others blame foreign speculators or Air-BnB for taking homes out of the owner-occupied market. These narratives may be emotionally compelling, and politically useful, but that doesn’t make them accurate.

Despite its political complexities, housing is still subject to the logic of supply and demand. Interest rates influence prices because they are highly correlated with both consumer mortgage demand and the financing costs borne by homebuilders. The amount of available housing also exerts a powerful influence on pricing for rentals and purchases.

Most examples of real estate scapegoating simply don’t add up. In 2021, for example, institutional investors purchased just 3% of all homes sold – far too small a proportion to have contributed materially to price inflation. Supply and demand have a much greater influence on the cost of housing than the proliferation of short-term rentals or institutional real estate pools.

America is experiencing an acute housing shortage. The roots of that crisis reach back 15 years to the Great Recession. In 2008, after years of lax underwriting and securitization that were explicitly encouraged by congress and federal housing regulators, real estate collapsed nationwide and almost took the financial system with it.

The bailout that followed (TARP) looks quaint by Covid-era standards (TARP cost less than 30% of the pandemic bailouts, and TARP grants were repaid), but it provided a lifeline to systemically vital businesses while speculative bubbles were exorcized.

As a result of those dumpster fires, home prices fell for six straight years from 2006 to 2012. More importantly, the number of new homes under construction plummeted, and the 2010s became the worst decade on record for home building per capita.

It is ironic to note that housing shortages and housing affordability problems are centered most acutely in large coastal cities. In other words, blue territory, where political sensitivity to homelessness is also most acute. Despite a bias toward activist government, liberal America has until recently largely refused to change the trajectory of housing affordability by confronting the protectionist single family zoning and reflexive NIMBYism that stymie high-density infill development.

That hypocrisy has finally begun to crumble, as more states and cities have recently clawed back the choke hold of single-family zoning. Many have also embraced rezoning to permit ADU construction, although making this work requires an affordable, streamlined regulatory framework.

Like much of America, some mountain communities are also struggling to address the housing crisis. That is tragic. Our collective inability to build new housing contributes to an astonishing variety of social problems.

The same is true of commercial development. Frustrating as it may be for those who harbor anti-capitalist sentiments, or want to wage war on automobile culture, commercial development is highly correlated with economic opportunity. Healthy ecosystems thrive on diversity yet depend on a few keystone species to animate the food chain. Healthy economies are the same, ultimately dependent on keystone infrastructure for transportation and energy.

Mountain dwellers that eschew the Faustian bargain of destination ski towns like Vail, tourism dependency akin to Estes Park or the gaming revenue that Black Hawk / Central City enjoy must still accommodate retail and service businesses that are part of any truly vibrant community. Failure to do so will consign the mountains to retirement communities, or second home enclaves for the wealthy.

In some cases, housing seems to be hostage to a philosophical war waged by anti-development absolutists and developers with unrealistic aspirations. Arguably, recent debates about annexation protocols for Nederland and the cage match over zoning changes in the Central Business District are symptoms of this broader conflict.

Dave Hallock recently pointed out in these pages that Nederland has, by sunsetting an existing Intergovernmental Agreement with Boulder County, opted to separate potential annexations from a legacy Comprehensive Plan which favored infill development over expansion. His plea for comprehensive planning is sound, as is the acknowledgement that transparent debate should govern any fundamental move away from favoring growth via increased density.

However, acknowledging the ecological, wildfire and traffic concerns surrounding annexation also requires that we acknowledge that infill development is hard. It forces existing stakeholders to accept changes in height, density and infrastructure that consistently trigger NIMBY opposition.

Harder still are the subsidized housing developments for which Atashnaa Medicineshield Werner has been a vocal advocate in this forum. Subsidized senior housing is a crucial component of the safety net every compassionate community should have. It is also painstakingly time consuming and difficult to build. Virtually every project is a public / private partnership that requires a village to execute. Comprehensive planning can help “midwife” these projects by integrating affordability ratios into zoning standards for multi-family housing and mixed-use designations.

Finally, we should also acknowledge the intractability of some zealots who fantasize about a static community that retains its “soul” by rejecting all development. Economic logic suggests this is a puerile fantasy. Blackballing development does not translate into affordable housing.

It is frankly easier to develop new housing via expansion, and many towns have been seduced into sprawl by annexation’s lure of a larger property tax base. History also suggests that earnest attempts at high-density infill require endorsing teardowns and streamlining regulation so that fewer stakeholders have veto capacity over projects that comply with zoning.

Development, though divisive, is essential to the health of human societies. Small communities particularly need development to thrive. It creates local economic opportunities and - in the case of new housing – can help constrain inflationary forces.