Supply and demand, a simple but brutal concept

09/12/2018

To illustrate the so-called law of supply and demand, let’s imagine I have 10 apples to sell. If 10 buyers are willing to give me $1 per apple, no problem; however, if I have only five buyers, I may have to convince each to take two apples at a lower price. On the other hand, if I have 20 buyers, I can raise the price and still sell all my apples, even though some buyers may not want to pay more than $1 per apple. 

This system has functioned well since time immemorial and works even better in the globalized, mercantilist, technological world of today. We see it everywhere, from apples to the stock market to the sale of capital goods to countries like Argentina, which has just obtained a loan from the International Monetary Fund for $50 billion, to the tariffs that Mr. Trump is imposing on hundreds of products from China and other countries, making those products more expensive and complicating the world market just as he has by reviewing the North American Free Trade Agreement.

Locally, the cost of housing is a permanent cause of social and economic problems for most people. We all need a roof over our heads and we spend the largest percentage of our income to obtain one, whether as buyers or renters. In the Bay Area, the cost of housing has risen to the point where one-third of our household income, the amount that experts say should be devoted to housing, is insufficient for that purpose. In fact, the cost puts housing in the realm of impossible for the majority of citizens.

This problem has grown worse since the 1980s, and with the exception of the bursting of the national and global mortgage bubble of 10 years ago, when many people lost housing and employment and home and rental prices fell, those same prices have steadily risen. In places like West Marin, the crisis is exacerbated by the lack of places to live. This makes it more profitable for a homeowner to create a B&B or otherwise rent to vacationers than to offer it to a tenant who lives and works here. Those lucky owners who perhaps bought their property before the excessive price increases or else inherited it now prefer to sell it for several times its original price. They stand to reap a substantial profit of hundreds of thousands or even millions of dollars. “What a deal—I bought it for 10 and sold it for a 100!” They might exclaim, as if winning the lottery. 

Yet for ordinary people, this is a huge and legalized injustice. In addition to the greed, envy and resentment it generates, the situation leads to enormous inequalities between friends, relatives and neighbors. And there seems to be no solution. Task forces and community meetings come and go, with nonprofit and government agencies seeking to change things or at least curb the trend toward ordinary people losing the ability to buy or rent where they work. There doesn’t seem to be light at the end of the tunnel; even adjusted low prices are too high for most people and easily exceed the standard of a third of family income spent on housing.

One proposed solution has come in the form of Proposition 1 on the upcoming ballot. It will ask voters if California should sell $4 billion worth of bonds to be used for a housing program to help low-income people including the elderly and disabled, veterans and farmworkers (in limited numbers). That amount of money will be insufficient, however, in light of the seemingly unstoppable rise in the cost of housing.

Into this mix of abstract, complex and subjective terms, such as economy, supply and demand and state bond, are thrust the affected: real flesh and blood people who work, sweat, eat, rest and sleep, who take their children to school, who try to have fun, who love and hate. But to do all of this, which seems so basic and simple, we must have one of the most elementary things: housing, a place of our own. If that is too expensive, too scarce and too difficult to obtain, how are we going to live?