Ronan Lyons on supply scepticism
The Week in Housing 27/03/2026
Today I am very pleased to share a guest post written by Ronan Lyons. Ronan wrote this piece in response to my post from a couple of months back which set out the arguments of what I called ‘the supply sceptics’. The post was a summary of Jaime Palomera’s arguments in his recent book El Secuestro de La Vivienda (not available in English I’m afraid). Below Ronan responds to some of Palomera’s key arguments (as summarised in my post). I hope you’ll agree the below really helps to clarify the terms of the debate and where some of the key points of contention are in contemporary housing policy debates. Huge thanks to Ronan for sharing this.
On the inelasticity of supply
Palomera’s first two arguments, as outlined here, are: (1) that the supply of land is finite and thus - as a consequence - housing supply is inherently inelastic; and (2) that housing is immobile and thus new housing in one area cannot meet demand in another.
On the first, there is simply no connection between the two parts of the argument. We do not live in two-dimensional space, we live in three-dimensional space. Land is 2D, homes are 3D.
It is possible to measure the responsiveness of supply, across cities/countries/markets and over time, and I’m not aware of any estimate of zero (which would mean that an increase in demand, by raising prices, had zero effect on new supply built.) Nor am I aware, incidentally, of any estimate of infinitely elastic supply, i.e. where housing supply responds immediately and fully to any shift in demand. Rather, supply can vary from very responsive to very unresponsive, including within the same market (such as Dublin) over time. Thus there must be a range of factors – including policy, social institutions and norms, and economic systems – that determine elasticity.
Put another way, the argument of the so-called “supply guys” is that, precisely because the responsiveness of supply is a human/policy choice and not predetermined, it should be an explicit policy goal to maximize it: supply (of all forms, market and non-market) should be as responsive as possible to new demand.
For what it’s worth, I fully agree on the Georgist position that (in a world without planning permissions) almost all the value of any given site comes from things not done by the landowner themselves, but rather by the rest of society, e.g. through agglomeration or public transport or simple natural endowments. (In a world with discretionary planning permissions, unfortunately, there is significant value that can be created by the owner of a site in converting it from undevelopable land, as is, to land on which homes are allowed to be built.)
On the substitutability of land and location
On the second point, that housing in one area cannot meet demand in another, this would only be true if you made the extreme assumption that all locations are ‘monopolies’, i.e. with no substitutability across areas. Across countries, that is probably not a bad first-pass assumption (I can see substitutability being very low between, say, Glasgow and Porto). Within countries, this is less obviously the case, especially in geographically smaller countries like Ireland. Just think of how Laois and Wexford have emerged as locations to house people working in/close to Dublin over the last two decades.
And within cities, this is likely to be an even less appropriate assumption. Ironically, the empirical evidence least in favour of the pro-supply side is precisely down to very high substitutability across locations: the lack of strong effects of new rental supply in a couple of studies is arguably down to very high substitutability across districts within a city. In lay terms, you can add 1,000 new rental homes in Harold’s Cross and it won’t lead to a sharp fall in Harold’s Cross rents compared to, say, Rathmines rents because the two areas are, from a demand perspective, so interchangeable (as are many others) and thus the relevant market is the city, not the area. And in the context of a rental deficit of perhaps 75,000 rental homes in Dublin and rising at a rate likely many multiples of 1,000 per year, one thousand new homes is simply insufficient to move the needle.
Note, here, that this is entirely consistent with the pro-supply thesis (enough supply would make housing more affordable) and entirely inconsistent with the supply-sceptic view that it is housing immobility that drives a non-result.
On the nature of housing demand
Palomera’s argument that housing demand ‘simply reflects population growth and household formation’ is a bit of a strawman. The Housing Commission, for example, was clear on the distinction between housing requirement, which was calculated from underlying demographics (natural increase, net migration and household size, as well as obsolescence) and housing demand. Demand (specifically quantity demanded) is an outcome of market conditions. Put another way, the easiest possible way to reduce quantity demanded of housing is to increase the price. And that is what Ireland has effectively done (at least for renters) over the last decade.
The flip-side of the same coin is that, like any other market, all the other elements of regular ‘demand function’ apply here: the higher incomes are, the more people will spend on housing. Indeed, there is some evidence that housing might be a luxury good: not only does the amount spent on housing increase with incomes, but the share of income spent on it also rises as income goes up.
I do have a suspicion that at least some of this might be due to the extremely tax-preferential terms owner-occupiers enjoy housing, compared to tenants/landlords. In that sense, I would partially agree with Palomera about the unhealthy concentration of capital in housing. But the ‘paradox’ of both homelessness and underoccupied dwellings can hardly be blamed on financialization when it is the tax system that incentivizes this. As best I understand it, to someone of a financial persuasion, there is nothing ‘perfectly rational’ about misallocation and under-utilization of resources, so it seems odd that this outcome would be associated with financialization.
To be honest, I suspect Palomera and I are largely in agreement about the ills here. He and I disagree, it would seem, on what those are symptoms of, or what the remedies should be.
On financialization
On the link between credit and supply, this was the original motivation for my doctoral thesis on the Irish housing market bubble-crash. My working hypothesis going in was that, while in general new supply lowers prices, in the context of a bubble, it just allows more people to take part and ultimately ‘get burned’. I came out the other side of four years’ research with a different view. As a student of John Muellbauer’s, I am absolutely in agreement that what an economist would term ‘outward shifts in the supply of mortgage credit’ (looser lending to normal people) will increase housing prices – and that active financial/macro-prudential regulation in the late 1990s and early 2000s could have prevented these temporary and damaging increases in prices.
But just because it is an accurate description of what happened in the 1990s/2000s does not mean that it also neatly encapsulates the long deterioration in housing affordability in many cities in the 2010s/2020s. In fact, precisely the slow and steady nature of this run-up should give those who believe it’s just the same old story a reason to pause and reflect. Bubbles and crashes are fast (even if they have long consequences) and concentrated in sale prices/capital values, not in rents. (Just look at what happened rents in the early 2000s in Ireland, as a result of new supply: they fell even as prices surged ahead due to more generous lending.)
The 2010s/2020s affordability challenge is at least as concentrated in rental prices as it is in the sales/owner-occupied segment. That means we have to look somewhere else. The resurgence of institutional rental housing is a response to underlying conditions in the housing system, not the cause of it. (That doesn’t mean policymakers should ignore it, incidentally, but it does mean that “banning” it, as some have proposed, is very unlikely to make things better.)
Paradigm shifts
The supply-sceptics have, a few ideas on how to ’shift the paradigm’ in terms of housing policy. Ironically, as best I can tell, most pro-supply advocates would agree with most of the suggested reforms, precisely because they would increase the responsiveness of supply – something that Palomera seems to rule out. This includes: higher property taxes (including on vacant units and especially on land), expanding non-market/subsidized housing, and better financial regulation. Most YIMBYs are, from what I can see, also neo-Georgists/pro-land value tax and thus, while using different language, would sign up to something that the supply-sceptics call ‘decommodifying land’. As has been argued in this newsletter before, there is more ground in common than some may suspect (and I think that suspicion is held more deeply on the ‘supply sceptic’ side.)
But I do think that there is a key difference here, at least in underlying spirit. The post summarising Palomera’s ideas states: “the dynamics of the current housing system ... consists of turning every house into a financial asset”. A simplistic reading of this would be that investors (and thus landlord-tenant pairs) are bad for housing, and therefore implicitly home-ownership is a better way. However, I would not at all be surprised if the median ‘pro-supply’ person agreed with the statement that much of the blame for the current housing woes can be laid at the door of extravagantly pro-ownership policies, from extraordinarily generous tax treatment of owning the home you live in, to effectively granting vetoes to local homeowners on whether new homes should get built.
If we want to dismantle the dominant position enjoyed by the owners of land and real estate, so that we can have a healthier housing system, that means dismantling the privileges enjoyed by homeowners first and foremost. Without very careful calibration, that is likely to be unpopular with voters.
Empirical Evidence
For the pro-supply side these issues are mostly empirical questions, rather than theoretical ones. A few years ago, in Twitter’s better days, I asked openly/honestly on the platform if anyone knew of *any* rigorous paper that had shown new supply did NOT have a negative impact on prices. The only response that came close was from Emer O’Siochru, who sent me Fingleton et al’s ’Housing affordability: Is new local supply the key?’
However (and I apologise that I never responded to Emer on this!), this paper doesn’t really show that. It builds a dynamic spatial panel for English districts with commuting, where prices are the outcome of interest. It runs counterfactual simulations of hypothetical supply increases to predict (not measure) price-to-wage responses. By construction in their model, adding dwellings raises local employment (and incomes), pushing demand up and dampening the extent to which prices fall from the new supply.
This is an important effect to consider: by building new supply, the local economy may change. Nobody gets their ‘supply increased and everything else was equal’. But it is highly improbable that a second-order effect could dominate a first-order one. And even in the Fingleton et al exercise, supply does lower prices in the “treated” area: a 5% supply shock in London, netting out induced demand, leads to prices falling by up to £10,000, with smaller spillovers outside London.
Together with two coauthors, I have started work on a paper that examines the impact of new rental supply in Dublin 2018-2024 on the city’s housing system. Hence, a lot of these issues are quite salient at the moment, although we are some time away from having any results. In economics, we try to publish slowly and carefully so I would hope that, this time next year, we’ll have a working paper.
Events & news
My book is now available in the US and in Ebook format. The Government have just published their new Student Accommodation strategy. From media reports it looks like it involves Universities providing free land to developers and Government funding utilities. Seems like a pretty sweet deal for the developer. This looks to be a really interesting workshop for people interested in activist research methodologies, especially in an urban context. It will also feature Neil Gray talking about his forthcoming book that develops an Italian autonomist approach to urban political economy.
What I’m reading
A really interesting conversation on the Reboot Republic podcast with the ESRI’s Keire Murphy, looking at immigration and also housing issues. This podcast with Mark Fitzgerald (of Sherry Fitzgerald’s) on ‘big picture’ solutions to the housing crisis is well worth a listen (it relates to this piece he wrote in the Irish Times). It’s an interesting insight into the ‘abundance’ perspective which seems to be growing in influence. A very interesting article in the Dublin Inquirer last week about the new rent rules. CIF’s new construction cost survey is out; this will be something to watch as the effects of the Iran war filter through.
Hello Ronan, hello Michael,
Thank you both for taking the time to write and share this essay—it’s a valuable contribution to an important discussion.
Ronan, I hope you won’t mind me writing again, and I do so with genuine respect for your work. I would be grateful if you could be more specific in how you support some of your claims. You note that “for the pro-supply side these issues are mostly empirical questions, rather than theoretical ones,” yet the examples provided seem less grounded in empirical evidence than that framing would suggest. At the same time, some existing empirical findings that appear to challenge your position are not addressed.
You also mention having asked on Twitter whether “anyone knew of *any* rigorous paper that had shown new supply did NOT have a negative impact on prices.” Given your expertise and access to academic resources, I was a little surprised this question was posed in that way, as there does appear to be a body of relevant literature that could be consulted directly.
For example, Manuel B. Aalbers, Associate Professor of Human Geography at KU Leuven, has published several rigorous works that question the assumption that increased housing supply necessarily lowers prices. In The Financialization of Housing: A Political Economy Approach (Routledge, 2016), he examines this relationship in detail and presents empirical findings that complicate the conventional view. As he writes:
“...we can see that there is no relation between the expansion of the number of housing units per 1,000 inhabitants and house prices. Indeed, the only constant trend is that the biggest house price increases are recorded in years when the housing stock increased the most. The empirical evidence invalidates the economic truism that oversupply must lead to declining prices and that rising prices are a result of undersupply.”
I should say, I am not an academic, and I appreciate that my own writing—such as Substack pieces—may not meet the same standards of rigor. Still, in looking at housing data for Portugal for a series I wrote called Exclusive Lisbon, I found patterns that seem relevant to this discussion. From 1990 to 2013, there appears to be no consistent correlation between housing construction volumes and prices. There was a spike in construction in the early 2000s that did not correspond to any decreases in housing prices. From 2015 to 2023, both housing completions and prices increased simultaneously. OECD data likewise indicate that between 2011 and 2021—a period of particularly strong price growth—the total number of dwellings, as well as dwellings per 1,000 inhabitants, both rose in Portugal.
With that in mind, I would be very interested if you could point to *any* rigorous studies that establish clear causal link between the construction of new housing and a reduction in prices. I ask this in good faith, and with a genuine desire to better understand the empirical foundations of the argument.
Many thanks again for engaging in this discussion.
Ronan's argument that he put out a call on Twitter for "empirical rigorous paper that had shown new supply did NOT have a negative impact on prices" lacks genuine engagement with the issue. It is of course true that almost all of the studies that examine the price effects of housing supply come from microeconomics framing which generally seek to demonstrate that more supply always reduces prices (albeit, marginally). So, you will find lots of papers on that subject. Recently, there have been some papers which challenge that analysis (Louei et al. 2025).
However, nobody on the political economy "supply sceptic" side argues that more supply - in principle - does not reduce prices. Therefore, nobody writes papers on the topic! Rather they argue that this is precisely why that does not happen - because in a financialised housing markets, housing is both a commodity and an asset. As Palomera himself wrote in his Guardian piece "Under the mantra of “build, build, build”, it hopes supply *alone* will solve the crisis, easing land-use rules and fast tracking permits, claiming that red tape is to blame. Yet this approach has a track record of failure in Spain and beyond" (emphasis added)
The ‘supply sceptic’ label it is not helpful and often used to dismiss contrary perspectives as "anti scientific". Equally, the label "supply guys" oversimplifies the mainstream supply-side perspective. Scholars such as Aalbers, Ryan-Collins, Murray, Tranjan, Pettifor and Palomera et al. are 'supply critical' and argue that increasing housing supply is a necessary but insufficient response to the 'housing crisis', because affordability is shaped not only by supply but also by financialisation, investor demand and inequality. Therefore the quality (tenure) and quantity of supply matter. As Kerie Murphy of the ESRI correctly diagnoses in her recent article in the Irish Independent: "This gets to a crucial problem: the private sector has no incentive to increase supply enough to drop rents".