Oh No! We Have Too Many Customers!

Amazon and other tech giants have been blamed for “causing the housing shortage” by attracting huge numbers of newcomers with their rapid growth and resulting high-paying jobs. By not somehow arranging for new housing for their new employees, the thinking goes, they have created a big problem.

But hang on: haven’t the newcomers to the area also increased demand for restaurants, grocery stores, dentists, auto mechanics, and the countless other things people need? Is Amazon at fault for not building new restaurants, hospitals, and gas stations as well?

It seems to me that providing enough services to keep up with new customers is the job of the industry involved, whether it’s restaurants, medical services, car repair – or housing. Assuming the industry is able to do its job, of course.

More customers? Great!

Businesses strive to do a great job for their customers in hopes of getting positive referrals to still more customers. “Too many customers” is the kind of “problem” businesses work hard to achieve.

Admittedly, rapid business growth resulting in a sudden increase in customer volume can certainly bring its share of difficulties. Service can suffer; product quality can deteriorate. Shortages develop as demand outstrips available supply. And prices increase – just ask anyone looking for a place to live in a big city like San Francisco or Seattle! But I am getting ahead of myself a bit.

Left unchecked, the “good problem” of rapid growth can lead to the very bad problem of unhappy customers. Our rational business owner – who does not want unhappy customers – will, therefore, not ignore the “problem.”

Even if the owner of the business does ignore the fact that business is being lost due to inability to keep up, you can be sure that his competitors will not. The glaringly obvious response – and we see it all the time, in just about every industry – is to increase capacity. The restaurant owner will knock out a wall and build out the restaurant. The factory owner will add a second or third shift; if that isn’t adequate, they will arrange financing and build additional factory space.

What does this have to do with housing? Specifically, how have Amazon, Google, and other tech giants caused (or worsened) the housing shortage?

I must have missed the news releases about the ninjas Amazon and others sent out to destroy the existing houses. That would do it, wrecking the supply of a very much in-demand commodity like housing!

As it turns out, this wasn’t the case.  The big tech companies, with their rapid increase of high-paying jobs, committed the sin of creating tons of new customers for the housing industry!

No problem, right? We know what to do when you have new demand for your services: you ramp up capacity, as fast as you can. If you don’t do it, your competitors will. If there is enough demand, they will regardless.

We know this works for housing as well as anything else.  Here’s what a recent Wall Street Journal article says, for example, about Tokyo, Japan:

“In the past two decades, home prices in some leading North American and European cities have skyrocketed. In Tokyo, however, they’ve flatlined.

 

So why no affordable-housing crisis in Japan? A big factor, experts say, is the country’s relatively deregulated housing policies, which have allowed housing supply to keep up with demand in the 21st century.”

Adding to the housing stock in places like Seattle, San Francisco, and Los Angeles, however, has been made extremely difficult – and extremely expensive – by the endless regulations, environmental issues, union interference, and other forms of red tape.

But people (well, some people) don’t want too much growth!

It’s not just government creating the roadblocks to new housing. The NIMBY, “not in my back yard” effect, where existing property owners push for restrictions on higher-density housing and other changes that might impact their property values, has been widely recognized as part of the issue for many years.

And in the spirit of “two sides to every story,” I must admit I see their point as well. After saving for years to afford a nice home in a nice quiet neighborhood, it could be devastating to have the character of the neighborhood change dramatically.

So, what is the answer? How do we make everybody happy?

This is where you, the reader, can help with this article. Which of the following would you like to change?

1. People want to have children and raise a family
2. People want to make a decent living for themselves and their families
3. Companies want to be successful by providing goods and services to as many customers as possible
4. Many companies want to locate in big cities such as the big and expensive ones on the west coast.

Good luck changing the first three. This is called progress; it’s been going on (admittedly with fits and starts) for thousands of years. The desire for a better life is baked into our DNA, part of our survival instinct. Are there tradeoffs involved, sometimes difficult and even painful ones?  You know the answer.

If I had to pick from the short list above as a possible way forward, I’d go with tweaks and adjustments to #4. I have long been a fan of telecommuting, working remotely.  As our infrastructure becomes ever more capable – 5G, controversy notwithstanding, is already in place in some cities – full-time remote work will be encouraged.

Some cities are already encouraging this — with cash. Tulsa, Oklahoma, for example, will pay you (if you are one of the lucky ones chosen) $10,000 to relocate to Tulsa, provided you bring your full-time remote work with you.  Here is more information.

But remote work isn’t the entire answer. Whether we like it or not, the way to minimize housing shortages and the associated ridiculous prices is the same as it is for restaurants and other businesses: allow the supply to increase as demand increases.  It isn’t complicated – and it works.

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