Garzón Argues More Housing Construction Drives Up Prices

Garzón: 'Building more housing increases prices'

Building more housing does not lower prices. It increases them. This is the thesis of Economics professor Eduardo Garzón, who supports it with a term borrowed from traffic engineering: Braess's paradox, according to which opening a new lane attracts more drivers and ends up jamming the road instead of relieving it. Translated to real estate, the idea means that each development that comes onto the market does not calm prices, but rather attracts speculative capital that pushes them upwards. The assertion has sparked a debate about supply, demand, land, and migration.

What the housing thesis exactly argues

The argument starts with an analogy. If a new road can worsen traffic by inducing more travel, a new development can increase housing prices by inducing more investment. In this scenario, the additional supply does not remain in the hands of those who need it: it is absorbed by buyers capable of hoarding and sustaining prices. The conclusion is not that there is too much housing, but that the market is captured. And the academic backing of the author, far from settling the controversy, ignites it further.

The classic response: supply and demand

Against this stands the textbook. If you increase the supply of a good, the price tends to fall; if you reduce it, it rises. A participant offers a domestic example: if Spain produced four million tons of tomatoes and suddenly produced half, tomatoes would not cost half as much, but considerably more. Under this logic, saying that more housing increases the product's price is equivalent to turning the market upside down. A participant brings up the counterexample of Texas: in Austin, they claim, construction has been rampant in recent years and prices have fallen. One specific case opposes another, and therein lies the problem.

The Spanish case: the bubble built relentlessly and prices rose

In Spain, recent experience contradicts the textbook. During the real estate bubble, housing was built as if there were no tomorrow, and prices, instead of falling, rose season after season. Those who defend this data add a nuance that is often forgotten: that cycle was not driven by construction, but by credit. With cheap money and no guarantees, demand swelled, and prices trinc the loans, not the cranes. If a lot is being built now, but easy credit is cut off and purchases are limited to large holders, the outcome could be different. This is a hypothesis, not a certainty.

Speculation and hoarding: the competing diagnosis

A good part of the analysis shifts the focus from the number of houses to who owns them. Speculation thrives on hoarding scarce goods, and if you multiply the supply, you ruin their business: this is the most repeated counterargument. However, the mechanism only works if the speculator does not own the land or the capital to buy what is being built. With international funds acquiring entire blocks, new housing can end up in the same hands that already owned the old. Hence the regulatory proposals: limit sales to foreigners or funds, prohibit hoarding, prioritize buyers who do not own a home, and tax those who accumulate.

The migratory factor that conditions demand

Another recurring argument suggests that building more is useless if, at the same time, population arrives needing shelter. It is claimed that the continuous influx of migrants pressures demand and fuels a vicious cycle that never lowers prices. The reply is arithmetic: if those arriving to work in construction build more housing than they occupy, the net available units can remain positive. And a third point neutralizes the previous one factually: migration will occur regardless of whether construction happens or not, so halting construction does not halt demand.

The technical error: Braess is not a market theorem

The sharpest criticism does not delve into politics, but into mathematics. Braess's paradox was formulated for networks and graphs: points connected by links with a certain capacity. Applying it to a supply and demand market requires agents to act independently, which they do not in housing: they go through the planning office, the license, and the administration's schedule. Add the control of developable land and a process that stretches for years. The result is not a paradox, but public intervention.

One question remains unanswered. If in a market with limited land, building is not enough, and if building without touching credit or property rights only inflates the bubble, the adjustment will have to come from where no one wants it to: taxes on accumulators, truly liberated land, or a public housing stock that competes with the private. All three paths have political costs. The most prudent prediction is that none will be applied in time, and that in a couple of years we will still be discussing the same paradox with an extra zero on the average price.