Is Supply and Demand really the end-all, be-all of economics? Don't things like Veblen goods demonstrate that there is some nuance to the topic.

No but when figuring out what informs a price you want to look at supply and demand first. There’s room for other variables, but you normally start there.

EDIT: While I’m inside the edit window, let me throw in another big variable as an example. Costs are another factor that inform a price, and a big one. You could make a case that it deserves higher billing than supply and demand, but if your costs are $X but you can only sell your widget for $X-1, and not $X+>=0, then $X-1 is your price ceiling. Your business is unprofitable and losing money.

I’m trying to be careful with my words but I still seem to be leaving some people with the impression that I think supply and demand is the only variable that informs a price. It’s not, but it’s still incredibly important and often dismissed as a non-factor when discussing San Francisco rental and real estate prices with San Franciscans.

But property supply itself is a constrained effect of politics and the relative power of various social groups, not a unique and independent primary cause.

If landlords can make a killing by constraining supply politically, they will. So the primary cause is the incentive system and the political environment which makes it possible for them to do that.

It's all about how the reward functions are designed. So of course if you reward scarcity and profiteering that's what you get - as a secondary outcome, not a primary cause.

It depends on your definition of "landlord". If by landlord you mean the typical NIMBY homeowner then sure it's true. But in practice landlords can make more money off of building more units vs squeezing out more profit from a smaller amount of units. So if you were a politician and followed the advice of the greediest landlord you would not end up with scarcity. The political environment doesn't listen to the greediest landlord though. It primarily listens to the homeowner type of landlord.

That's not typical of California landlords because of Prop 13. The tax benefits entirely shifts the market towards the benefit of properties that have been in the same hands for a very long time. So building new units will be far less profitable than old buildings, long-held, without any significant renovation. It's very rare to find an existing property on the market that is profitable to rent out at current market prices, because there's a lot of anticipated value gains built in to current prices.

In cities with zoning constraints, developers are the only natural predators of landlords. They are entirely different skillsets, building new units requires managing an extremely difficult political process for permits, raising capital, working with contractors and labor, etc. Being a landlord requires very different analysis and skills.

There may be a few landlords with the capacity to cross over to development too, but it isn't many of them.

Political factors can also inform supply, it doesn’t change the fundamental calculus of supply and demand, merely shapes the supply.

If you have a bunch of left wing groups who are anti-development fighting to keep supply constrained even while complaining the rent is too damn high and the character of the City is changing and yadda yadda yadda, who are you[1], as a landlord, to take the wind out of their sails when you are profiting from their protests?

[1] The general “you”, not you specifically.

This is just wildly incorrect. Landlords are very strongly opposed to left wing groups in SF, based on political funding. Landlords are the number one target of progressive legislation. The most left wing supervisor is literally a tenants rights attorney who ran on protecting rent control and wrote the law banning evictions.

>but it’s still incredibly important and often dismissed as a non-factor when discussing San Francisco rental and real estate prices

I've literally never seen it dismissed as a non factor - not even once.

Land is a rivalrous good but housing isn't. Sprawl is just the most conflict free way of giving everyone what they want but it's not the only way. You can always build more housing on the same piece of land.

Supply and demand is pretty obvious because of the basic physics behind it. If you have a world with 10 houses and 20 people then 10 people will be without a house. It's not very difficult to see the problem and how to respond to it. We first have to establish that we want every human in our country to have shelter. That means what we don't want to happen is the allocation of housing to a subset of the population, be it via the free market, a lottery or an application process where you are vetted by an interviewer according to some criteria. We don't want any of that. So the obvious solution is to just build more housing, regardless of the economics.

Now lets just add a thin layer of economics.

It turns out that the free market has this interesting property that in the case of demand exceeding the supply the cost of housing increases until it becomes profitable to build more housing. It's a self balancing system if you make sure that it's not getting stuck somewhere.

Turns out if you make it really difficult to build more housing then people decide to pack up and leave because that's the only option left. For the sake of the argument 20 people can't live in 10 houses so 10 people will have to go build housing somewhere else.

Now here is the perverse thing. The same people who made it difficult to build more housing also made it so that they get to stay where they are by removing the pressure to leave the location. What we get is 10 people living in housing and 10 people living in misery. You don't need an economic resource allocation mechanism like the free market to cause misery. The misery already exists in the real world and the economics merely summarizes that misery as a price signal.

So why care about supply and demand? Because it's the closest thing to physical reality but what people fail to grasp is that you have to change physical reality to change the economics. No, messing around with prices via rent control or prop 13 does not solve the underlying problem.

Veblen goods are a special case that prove the concept. With a Veblen good the price paid is part of the demand: you want that Rolls Royce or Lamborghini or diamond ring because its expense signifies your social status. The demand curve then slopes upward: at higher price points consumers demand them more. You can still analyze them by supply & demand, but you just have to take into account the upward-sloping demand curve (which is not unlimited, BTW: Veblen goods still reach an equilibrium price point where supply reaches buyer's ability to pay, it's just higher).

More nuance than including high prices as one of the goods for which there's demand?

no but it's the #1 factor, #2 is human irrationality