The “Folk Economics” of NIMBYism

The FWD #186 • 856 words

Why do opponents of new housing believe that it will increase their own housing costs?

The mind of a NIMBY is simultaneously easy to read but hard to understand. All of us could likely write the script for any town hall meeting at this point, but we often remain perplexed on their thought process.

Researchers at the University of California studying political science and law released an interesting study that digs into the minds and beliefs of NIMBYs. Their research points to a stunning way that the general public thinks incorrectly about the housing market.  

In their article, “Folk Economics and the Persistence of Political Opposition to New Housing, the authors determine that “supply-side skepticism” and the folk economics it engenders is unique to the way individuals view the housing market compared to other markets and may contribute significantly to NIMBYism. 

Previous studies have found that NIMBYism is a significant barrier to new housing production. Taking this further, others have surmised that the success of NIMBYism  is due to a power imbalance in communities in terms of who is willing and able to object to new housing developments. Others say that it is difficult for society to do things that are for the common good, but might be perceived as a threat to individual interests. “I’m OK with new housing in my community, but not if it makes my morning commute worse.” 

This new study adds a deeper understanding to the motivations and thinking of NIMBYs. The report concludes: “The findings […] show that housing Supply Skepticism in the mass public is widespread and absolutely real.” 

What is supply skepticism?

Supply skepticism is the disbelief that a significant (researchers use 10%) increase in housing supply in a local market would reduce rents or sales prices. In this study, researchers asked survey respondents if they desired or felt a need for lower housing costs. Naturally, a majority of respondents answered “yes”.

Researchers then asked about supply and demand. Respondents accurately described it as the process where increasing demand for a good or service would increase prices if supply remained constant. Respondents understood this basic economic principle to be true in a wide variety of markets—except when they were asked about the housing market. In that case, a majority did not believe an increase in supply could decrease prices.

But their misunderstanding of markets didn’t stop there! In fact, they didn’t just believe prices would not go down with excess supply, they believed that prices would actually rise. The researchers note: “Using two nationally representative surveys of urban and suburban residents, with embedded experiments, we show that about 30-40% of Americans believe, contrary to basic economic theory and robust empirical evidence, that a large, exogenous increase in their region’s housing stock would cause rents and home prices to rise.” 

Where does supply skepticism come from? 

If our beliefs about supply and demand in housing don’t come from economic theory or practice, where do they come from? Researchers posit that the psychological phenomenon of zero-sum thinking (highlighted by Dr. Tiffany Manuel) may be at play. Zero-sum thinking in the context of housing means that people believe if more housing is built, it would only benefit the new people who live in it and/or the developers who built it. Therefore, it must hurt those already living in the community. In order for someone to benefit, someone else must lose. 

A counter-argument to supply skepticism

So do people really have a blind spot to economic realities when it comes to the housing market? Some researchers disagree with this folk economics telling of why supply-skepticism exists. Perhaps individuals can admit a large increase in supply will affect price, but still also think that when it comes to housing, they haven’t seen it happen.

We should acknowledge that there are different kinds of NIMBYism. As such, there can be valid experiences which lead to skepticism that more housing does not equal lower prices. The supply skepticism argument may obscure that some individuals don’t believe new housing in their neighborhood will reduce housing costs for themselves. Which, from the point of view of one household, is fair. Housing costs on an individual level do tend to rise over time. But most evidence points to new market-rate construction slowing that rise on neighborhood, city, and regional levels.

What can we do about it?

As Dr. Manuel coaches, we must counter this narrative with a “story of us” narrative that highlights how a world with more housing can benefit us all. Debating Keynesian economic theory is not going to go over very well at your next city council meeting. Instead of working to convince people that more housing will not cause housing costs to go up, instead help people understand the numerous different ways new housing benefits them and their community. 

We should help NIMBYs to move away from the zero-sum thinking that underpins their folk economic theories. And of course, we should remember that because more supply does not always equal lower prices for everyone, local housing policy must include a wide array of policy solutions that complement increased supply in order to create affordability.

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