What does Jerry Brown know that Mayor Cooper has yet to learn?

Nashville Mayor John Cooper signed a bill to require developers to build affordable housing.  This makes housing more costly, reducing supply, so Cooper also includes incentives to increase supply, trying to give back with one hand what he is taking away with the other.  This is exactly what the Stanford Law Review [see below] called a " 'kludgy' set of policies that can actually prevent new development and end up increasing housing prices."  

Cooper is repeating--rather than learning from--the mistakes of the past.

• Affordable housing mandates reduce the supply of affordable housing
• These kinds of zoning restrictions are popular because they drive the price of existing housing above replacement cost, benefiting Nashville's homeowners. But they come at the expense of renters and new residents. As the Financial Times put it:
  

  They are the ransom that renters and recent buyers must pay to existing homeowners – whose homes the rules protect – for use of an artificially limited stock of housing. So severe have those restrictions become that the value of the ransom runs into the trillions. 

• Nice summary of the affordable housing crisis from Stanford Law Review
• [the cause of the affordable housing crisis] is uncontroversial among urban economists but not broadly understood by low-income families, advocates for low-income families, housing activists, and their allies in academia, policy, and government—in short, the housing advocacy community. In the face of higher housing costs, the housing advocacy community tends to argue for a “kludgy” set of policies that can actually prevent new development and end up increasing housing prices

• This good idea comes from California
• Even Jerry Brown gave up on affordable housing mandates because they have done nothing to increase supply, so he axed California’s approximately 400 redevelopment agencies (RDAs).

To alleviate the crisis, reduce the barriers to expanding housing supply, like local zoning, regardless of what kind of housing it is.  New supply will bring down all prices.  But as the Financial Times notes above, this would be politically unpopular, as homeowners benefit from strict zoning that limits new supply because it raises their housing prices.  

Nice summary of the affordable housing crisis

in the Stanford Law Review:

[the cause of the affordable housing crisis] is uncontroversial among urban economists but not broadly understood by low-income families, advocates for low-income families, housing activists, and their allies in academia, policy, and government—in short, the housing advocacy community. In the face of higher housing costs, the housing advocacy community tends to argue for a “kludgy” set of policies that can actually prevent new development and end up increasing housing prices— campaigns to impose building moratoria, for example, or downzonings, community benefits agreements and other exactions, lengthy approvals procedures that disadvantage developers relative to NIMBYs, various forms of rent control, and a focus on affordable housing to the exclusion of other types of development. …. 

In the suburbs, the politics of exclusionary policies are hopeless: the cartellike interests of suburban “homevoters” are well-served by current exclusionary policies, state and federal courts for the most part won’t intervene, and there is very little interest among state legislators to impose regional or state-wide solutions.11 The picture is less bleak in exclusionary cities: renters, who would directly benefit from lower housing prices, are a majority in many of these cities, and advocates for affordable housing already form a politically influential bloc—but they use their power to ends that are often counterproductive.12 While there are other serious obstacles to expanding housing supply, the housing advocacy community could and should become an important part of the fight against urban land use regimes that systematically privilege a city’s wealthiest and most powerful residents. … 

A city’s ability to remain affordable depends most crucially on its ability to expand housing supply in the face of increased demand. Among the people who care most about high housing costs there is a lack of understanding of the main causes and the policy approaches that can address them. The central message of this Article is that the housing advocacy community—from the shoeleather organizer to the academic theoretician—needs to abandon its reflexively anti-development sentiments and embrace an agenda that accepts and advocates for increased housing development of all types as a way to blunt rising housing costs in the country’s most expensive markets.

HT: Campbell

What Nashville can Learn from NYC: Affordable Housing mandates reduce the supply of affordable housing

The Nashville City Council is considering requiring that a certain percentage of units in new residential developments be priced as affordable. The mandates would apply to multi-unit developments bigger than five units.

While this may sound good, lets think clearly about its effects: mandates reduce the profitability of new development.  This will lead to less new development, or developers will substitute towards smaller developments, not subject to the mandate.  In the former case, fewer new developments would be built; in the latter, lower-density development would take place.  Either way, this represents a decrease in supply.  A decrease in supply would increase price, exacerbating the very problem--expensive housing--that it was designed to ameliorate.   (And don't forget that density is green.)

Housing markets are also subject to what is known as "filtering," apartment rents tend to go down as the apartment building ages.  So today's expensive housing is tomorrow's affordable housing.  This implies that a reduction in the supply of expensive housing today, will reduce the supply of affordable housing tomorrow.

These kinds of zoning restrictions are popular because they drive the price of existing housing above replacement cost, benefiting Nashville's homeowners. But they come at the expense of renters and new residents. As the Financial Times put it:

They are the ransom that renters and recent buyers must pay to existing homeowners – whose homes the rules protect – for use of an artificially limited stock of housing. So severe have those restrictions become that the value of the ransom runs into the trillions. 

Wealth of this kind is far more destructive than the alleged sins of the top 1 per cent. It is wealth created not by improving our living standards but by making them worse; by building too few houses in London and San Francisco, not too many. It is not earned by skill or effort. It is taken directly from the pockets of some – the young, especially those who were born poor – and transferred to others via political regulations on building. This is not wealth, this is plunder. 

The effects of affordable housing are similar to price gouging laws that in Mississippi prevented generators from reaching the Gulf Coast after Katrina. Similarly, affordable housing mandates will prevent new housing from reaching Nashville.  The market wants to help, so let it.

OK, if mandates won't do it, how do we increase the supply of affordable housing in Nashville?  Here I think Nashville could learn something from New York.  In New York, the affordable mandates are triggered only by a relaxation of zoning.  For example, a developer buys up a block of houses and asks the planning commission to re-zone it for a multi-unit apartment complex.  In exchange for the zoning change, the developer agrees to set aside some of the units for lower income tenants.

The crucial difference is that in NY, affordable mandates are triggered only by development that increases supply.  In contrast, the proposed change in Nashville would reduce supply.

[REPOST from 2015] 

Marin residents say they care about affordable housing but don't act like it

Housing prices are prohibitively expensive because we enact strict zoning that prevents other people from building more of it. These restrictions on new supply drive up the price of housing. No where is this more evident than in Tiburon, just north of San Francisco, with its own temperate micro climate and beautiful views of all three bridges across the Bay. When owners tried to develop a property to create 43 single family homes, the project was stalled for decades by lawsuits filed by neighbors.  Recently the county purchased the property under the pretext that it would "preserve open space."

Jenny Silva of Sausalito, a volunteer pro-housing watchdog who's been monitoring the creation of housing elements in Marin, said ... "there’s a housing crisis, not an open-space crisis." She noted that 31% of respondents to the county’s 2023 Community Survey said housing should be the No. 1 priority, ... Silva called it “frustrating” that Marin’s latest budget then dedicated more than twice as much to open-space expenditures than to its affordable-housing trust: $11.23 million versus $5 million.

BOTTOM LINE:  Marin residents say they care about housing but don't act like it. Instead, they have "revealed a preference" for open space which increases their own property values. But they are not the only ones (see previous blog posts on housing).  

YIMBY's retake the moral high ground

• NY Times: 

NIMBY stands for “Not in my backyard,” an acronym that proliferated in the early 1980s to describe neighbors who fight nearby development, especially anything involving apartments. ... NIMBYs who used to be viewed as, at best, defenders of their community, and at worst just practical, are now painted as housing hoarders whose efforts have increased racial segregation, deepened wealth inequality and are robbing the next generation of the American dream.

• June 5, 2022 State Court of Appeal allows Tiburon Development (p.108):

CEQA [California Environmental Quality Act] was meant to serve noble purposes, but it can be manipulated to be a formidable tool of obstruction, particularly against proposed projects that will increase housing density. A CEQA lawsuit “provide[s] a uniquely powerful legal tool to block, delay, or leverage economic and other agendas,” and “is now the tool of choice for resisting change that would accommodate more people in existing communities.” 

...However, when private opposition is joined with official hostility, CEQA becomes an even more fearsome weapon. When the project proponent faces sustained private opposition, plus the combined animus of two levels of local government, the temptation to throw in the towel must be overwhelming. Something is very wrong with this picture. 

• More Battles Lost and Won:

 California’s chronic housing shortage shows no signs of abating with construction scarcely half of the 180,000 new units the state says are needed each year to close the demand/supply deficit. 

There is no single reason, but rather a toxic mélange of high costs, regulatory overkill and stubborn resistance from local government officials catering to the not-in-my-backyard sentiments of their constituents. [However, ...] pro-housing pressures may be having some effect:

• SACRAMENTO: Anyone who doubts the negative impact of high costs on housing should take a look at the budget for a 124-unit affordable housing project on the state-owned site of a former National Guard armory. ... The state is donating the land to the non-profit developer, Bridge Housing Corp., without cost and the City of Sacramento is waiving $468,624 in impact fees. But the budget for the project is still $82.4 million, which works out to about $665,000 per unit — enough to buy a very nice house for every projected low-income tenant.
• CONCORD: What would be the San Francisco Bay Area’s largest ever housing development, 13,000 units on the site of the former Concord Naval Weapons Station, is stalling out.
• HUNTINGTON BEACH: Orange County ... finally approved a 48-unit condominium project... Years of court battles with pro-housing groups and pressure from new state laws finally forced the city to throw in its beach towel last month.
• TIBURON: ... the state Court of Appeal last month slapped down Tiburon’s nearly half-century-long efforts to block construction of a few new homes on a hill overlooking the tiny city.  [see decision above] 

For affordable housing, move away from the coasts

This map plots the ratio of an average house to average income:

And as the Brooking article notes, and as I've noted, the lack of affordability in places like California can often be blamed on state and local government measures designed to limit the construction and diversification of housing. Zoning laws and other regulatory barriers to new housing production have decimated housing affordability of housing in many coastal cities.

Cities like San Francisco and Seattle have essentially become playgrounds for the wealthy in which existing homeowners fight tooth and nail any attempt to allow sizable amounts of new housing construction. They do this, they tell us, to preserve "the character of the neighborhood." But what they're really doing is using government regulations to drive up the prices on their own real estate, while driving lower-income people further and further out into the periphery. Oh sure, these Progressive guardians of the local "quality of life" might allow a handful of subsidized housing units to be built. After all, somebody has to make your cappuccino or do your dry cleaning. But the overall effect is to ensure few people can afford to move in.

Who cares more about affordable housing, Democrats or Republicans?

Much has been made of the census data showing that Republican-leaning "red" states grew more than Democratic-leaning "blue" states in the last ten years.   But Ed Glaeser looks closely at the numbers and concludes that it is cheap housing, caused by fewer housing restrictions, that accounts for the changes:

My interpretation of Red State growth is that Republican states have grown more quickly because building is easier in those states, primarily because of housing regulations. Republican states are less prone to restrict construction than places like California and Massachusetts, and as a result, high-quality housing is much cheaper.

There is a strange irony in this: more conservative places do a much better job in providing affordable housing for ordinary Americans than progressive states that are believed to care about affordable housing.

I sent Nashville's Mayor a copy of Chapter 8, "Understanding [housing] Markets."

Here's why:  "Nashville voters ... are especially looking to Metro leaders to address the city's affordable housing problem."    

If the mayor and the council honestly look the cause of the crisis, they will find it is caused by zoning restrictions (see previous post) that limit supply.  With 100 people moving to Nashville each day, the only thing that can adjust is price.  

The standard feel-good response is affordable housing mandates on new construction which raises the cost of new construction and limits supply--exacerbating the very problem it is designed to alleviate.  (See What Nashville can Learn from NYC: Affordable Housing Mandates Reduce the Supply of Affordable Housing.)

...mandates reduce the profitability of new development.  This will lead to less new development, or developers will substitute towards smaller developments, not subject to the mandate.  In the former case, fewer new developments would be built; in the latter, lower-density development would take place.  Either way, this represents a decrease in supply.  A decrease in supply would increase price, exacerbating the very problem--lack of affordable housing--that it was designed to ameliorate.   (And don't forget that density is green.)

Did the government cause the affordable housing crisis?

"Yes," says the Washington Post, for three reasons:

1. Restrictive zoning reduces the profitability and therefore the supply of housing:

The White House’s calls for local policymakers to expand by-right development (where allowable building projects can proceed administratively, without years-long public hearing processes) and accessory dwelling units, to repeal or reduce minimum parking requirements, and to rezone neighborhoods for greater possible density all amount to restoring landowners’ rights to develop property as they and the market see fit. As the tool kit notes, inappropriate parking requirements, in particular, can raise the expected rent in a new development by as much as 50 percent, while depriving towns of socially and commercially productive land.

2. Regulatory delays and requirements raise costs to the point where only high-end apartments are profitable (Nashville's problem):

Establishing by-right development and streamlining local permitting processes will allow developers to respond nimbly to market demands and will relieve the “guilty until proven innocent” status of new building development, which depresses construction starts across the country by delaying and inhibiting housing projects. What’s more, adopting leaner codes would remove obstacles to the countless smaller developers and would-be builders who want to invest in strengthening their local communities, but currently can’t afford to navigate the vast regulatory burdens and uncertain futures awaiting anyone who tries to build in America today. Trulia economist Ralph McLaughlin found that these regulatory delays may have an even bigger impact on housing production than zoning restrictions.

3. FHA loans prohibit mixed use, further reducing the profitability and supply of housing:

To this day, FHA standards for loans, which set the market for the entire private banking sector, prohibit any but the most minimal commercial property from being included in residential development. As a groundbreaking report by New York City’s Regional Plan Association found, these standards are “effectively disallowing most buildings with six stories or less.” And depending on the program, a building could have to reach to 17 stories before it is eligible for participation in the normal housing markets. Without the FHA’s blessing, projects are granted the “nonconforming” kiss of death unless their developers can persuade a local bank to write an entirely customized loan for them, one whose risk the bank would have to keep entirely on its own books.

How is Nashville like SF?

Both have restrictive zoning that drives up prices which leads to calls for more affordable housing, which results in further restrictions on supply, or vouchers that increase demand, both of which further drive up prices.

A surprisingly clear report from California noted much the same:

“Many housing programs — vouchers, rent control and inclusionary housing — attempt to make housing more affordable without increasing the overall supply,” the report said. “This approach does very little to address the underlying cause of California’s high housing costs: a housing shortage.”

So, why does this happen?  Reason blames self interested home owners, renters in rent-controlled apartments, and the politicians who kowtow to them at the expense of largely poor people who cannot get subsidies and would-be homeowners:

Homeowners have a strong economic incentive to restrict supply because it supports price appreciation of their own homes. It’s understandable. Many of them have put the bulk of their net worth into their homes and they don’t want to lose that. So they engage in NIMBYism under the name of preservationism or environmentalism, even though denying in-fill development here creates pressures for sprawl elsewhere. They do this through hundreds of politically powerful neighborhood groups throughout San Francisco like the Telegraph Hill Dwellers. 

Then the rent-controlled tenants care far more about eviction protections than increasing supply. That’s because their most vulnerable constituents are paying rents that are so far below market-rate, that only an ungodly amount of construction could possibly help them. Plus, that construction wouldn’t happen fast enough — especially for elderly tenants.

Apartments vs. Single Family

Housing is good for illustrating the market forces of chapter 8 because everyone has housing and, due to construction lags and the durability of housing (30 years), market adjusts slowly to equilibrium.

In the graph above from Calculated Risk, we see single family housing starts increasing (RED), but apartments (BLUE) decreasing.  The market is adjusting to the high prices for single family by building new supply; and to the expected low future prices for apartments due to the big supply of apartments under construction due to come to market this year and next by reducing new supply.

SINGLE FAMILY HOMES (RED LINE): "...The weakness in 2022 and early 2023 was in single family starts. However, single family starts have now picked up, helped by limited existing home inventory."

APARTMENTS (BLUE LINE): "...we should see ongoing weakness in [apts] based on less household formation, falling asking rents, rising vacancies, and tighter lending. ... A near record number of multi-family housing units are currently under construction due to construction delays. This suggests a large number of multi-family housing units will be delivered in 2024."

Who gets "affordable" housing?

When the government fixes prices of affordable housing below market rates, there is excess demand, i.e., more people demand the apartments at the low prices than are available for supply.  So how do the apartments get allocated?

"Insiders" use influence to grab the valuable apartments:

But for years, Brooklyn DA Eric Gonzalez charges, the top three execs of the Luna Park Housing Corp. conspired to “sell” units — accepting five- and even six-figure bribes in exchange for faking documents so that a new tenant could “inherit” an apartment as a supposed relative of the old one.

Prosecutors “believe that this was the norm, not the exception,” Gonzalez reports. The 14,000-strong waiting list was a joke.

Corruption this brazen surely isn’t “the norm” at all Mitchell-Lama projects, but it’s hardly cynical to suspect that insiders are pulling scams all across the city’s vast and varied affordable-housing landscape.

An apartment that by law has a rent well below market rate is a valuable commodity; gatekeepers can cash in big by quietly selling access. Not always for actual money: Political or even family connections can be enough.

Similarly, would-be tenants regularly have to pay someone (a broker, a landlord, some fixer) a hefty fee up front to score a rent-regulated apartment.

Anytime the government fixes prices below (or above) what the market price would be, it also creates incentives to circumvent the prices.  What is most damaging, however, is that these bribes are paid by those who want apartments (demand) but the rewards go to people who manage the apartments, not to those who build (supply) them.  As such they reduce supply (as they have done in Nashville), creating "shortages."

BOTTOM LINE:
Next time you hear a politician complain about a "shortages of affordable housing" ask him or her if she thinks there is a "shortage of affordable Rolls Royce automobiles."

More posts on the effects of affordable housing.

What would be the effects of VP Harris' housing plan?

Here is the plan:

•  expand rental assistance for veterans and other low-income renters, 
•  increase housing supply for people experiencing homelessness, 
•  enforce fair housing laws, 
•  hold corporate landlords accountable [for charging high prices?]. 
•  provide up to $25,000 in down payment assistance for first-time homebuyers 
•  First-generation homeowners – those whose parents did not own homes – would receive more generous assistance.

WSJ Analysis:

• The law of supply and demand dictates that an increase in demand without a commensurate increase in supply will result in higher prices.
• As of August, the overall supply of homes for sale was 3.7 months’ worth. For houses in lower price tiers, that number drops to 2.4 months. Sellers’ markets create upward price pressure on home prices, which grows more powerful when demand is further stimulated. Ms. Harris’s policy would do just that, boosting demand by giving buyers more spending money.

My take is that the real barrier to increasing housing supply is not money but rather the restrictive zoning (see Nice Summary of the Affordable Housing Crisis) but, politically, restrictive zoning is very popular.  

The WSJ is right to point out that increasing demand will exacerbate the very problem VP Harris says she wants to address.  She can begin by listening to her economists, if she has any.  

Restrictive zoning causes segregatation in Connecticut

Restrictive zoning--90% of Conneticut allows only (expensive) single-family homes--limits supply, especially of lower priced housing like apartments, and drives up the price.  

From Vox:

According to one measure by researchers at the University of Pennsylvania’s Wharton School, Connecticut has the 15th-most regulated residential building environment. In doing so, it has confined poorer people to small parts of the state and likely discouraged countless more from ever moving to the state.

The results are pernicious:

By artificially restricting the supply of housing through onerous regulations, Connecticut has in effect driven up the cost of living for everyone and priced out lower- and middle-income Americans from living in most of its towns and cities. Simply put: fewer homes and growing demand mean higher prices for everyone.

As part of her “Segregated By Design” series, the Connecticut Mirror’s Jacqui Thomas reported that “more than three dozen towns in the state have blocked construction of any privately developed duplexes and apartments within their borders for the last two decades, often through exclusionary zoning requirements. In 18 of those towns, it’s been at least 28 years.” By creating these metaphorically walled enclaves, in addition to driving up the cost of housing for low-income people, localities have blocked lower-income families from finding housing in a place where their kids could attend good schools.

Other posts on housing

Where has US housing supply grown?

Housing supply increased in low density suburbs ("Sub low"), like Nashville, but not much in in high-density suburbs ("Sub high) or in central cities (CC high or CC low).  Supply is limited in these other three areas by zoning, so price has increased instead.

From Journal of Economic Perspectives:

Low-density suburbs have grown much faster than all other types of neighborhoods, accounting for 78 percent of the growth in housing units in the set of neighborhoods observed in 1980. However, home price growth has been fastest in high-density suburbs and the most prosperous and high-density areas of central cities. Moreover, the rate of new housing construction has been low or falling in all types of locations since 2000, but particularly so in the low-density suburbs and rural areas where most of the recent quantity growth has occurred. Altogether, the US housing stock has been getting older, more crowded, and less affordable in recent years.

Why are 600,000 waiting for apartments in Stockholm?

Good article from Economist on how rent control destroys wealth by preventing housing from moving to higher valued uses:

Rent controls are a textbook example of a well-intentioned policy that does not work. They deter the supply of good-quality rental housing. With rents capped, building new homes becomes less profitable. Even maintaining existing properties is discouraged because landlords see no return for their investment. Renters stay put in crumbling properties because controls often reset when tenants change. Who occupies housing ends up bearing little relation to who can make best use of it (ie, workers well-suited to local job opportunities). The mismatch reduces economy-wide productivity. The longer a tenant stays put, the bigger the disparity between the market rent and his payments, sharpening the incentive not to move.

... It is unrealistic to expect politicians to ignore voters’ demands. But the danger is that one abuse of power is replaced by another as renters, just like NIMBY's, campaign for regulations to lock newcomers out of the market. Although today’s residents might benefit from capped rent increases, outsiders, faced with less supply and fewer opportunities, will suffer. Just ask the 636,000 people who were queuing at the end of 2018 for a diminishing stock of rental housing in rent-controlled Stockholm. There, the average waiting-time to find a long-term tenancy is ten years and black-market rentals have begun to thrive. Rent control harms almost everyone eventually because the housing stock deteriorates.

Housing Codes Cause Homelessness - Dallas Edition

A heart-wrenching drama is being played out in West Dallas. The neighborhood is mostly full of 70+ year old homes rented to mostly poor folks. These were built before the neighborhood was even annexed by Dallas. For decades, the structures had been 'grandfathered in' from keeping up with the ever-improving building code. The area had been isolated from the city by the Trinity River until a landmark bridge opened a few years ago. That brought developers and new enforcement of housing codes. The houses are so out of code, that the owner, HMK Ltd., would rather shutter them:

“Not just impractical but it’s impossible. No matter how much money, you cannot throw enough money into these houses and make them compliant.” 

Some of the tenets have been living in these homes for three or four decades and pay a paltry $300-$400 a month in rent. HMK has offered to sell them the houses they currently rent for $65,000, their next best offer. Fine if these poor folks could find the $65,000. The idea originally was that vertical integration by the occupant into ownership would evade the housing codes. But no, the city will require the new owners to bring them up to code.

Previously, the renters and landlord had been content exchanging low rent for poor quality homes. Everyone knew these were poor quality homes and were fine with that. But nanny-state enforcement of the housing code will soon keep this value creating transaction from being consummated.

Housing market has excess supply

For perishable items, like flowers and hotel rooms, price will adjust so that quantity demanded equals quantity supplied.  Excess supply will lead to lower prices which will reduce the number of sellers and increase the number of buyers.  Price will keep falling until the market "clears," when the number of buyers equals the number of sellers.

For a durable good like housing, sellers have the option of holding onto inventory, in the hope that price will increase.  For this reason, markets need not clear instantaneously, as the above graph demonstrates, taken from Calculated Risk.  The blue line is the excess supply, computed as the number of months (above 12) it will take to sell off the houses currently listed for sale.  The last time it climbed that high, housing prices eventually fell.  Th black line denotes the monthly change in housing prices.

Where is the housing demand?

According to some real estate analysts, the housing bubble has lost all of its air because we have worked off the excess housing stock built during the bubble, so builders will start building again to serve new demand.

However, three factors are reducing household formation, the primary driver of household demand:

1. Less immigration due to the post-2006 crackdown.

2. Less immigration due to the severe recession and high unemployment

3. 20-somethings who can’t get jobs are living with their parents.

Bottom line, household formation is about 1/3 of what it was forecast to be (0.3% growth instead of 1% growth). This is important because housing is a durable good with a very slow depreciation rate (about 1%/year). So replacement demand is only 1%, plus new household formation. If households are getting bigger, or immigration is slowing, or both, then demand drops precipitously, and prices fall.

Is the recent 10% house price increase going to stick?

Last year, house prices in my zip code increased by about 10%; and they are forecast to increase another 10% this year.  This "tightness" or "seller's market" is indicated by the small available supply relative to demand, as indicated by the 2.1 months of inventory.  [NOTE:  months of inventory=(# houses for sale)/(selling rate per month)].  

In the scatter plot below, we see that an inventory of 2.1 months (vertical axis) is normally associated with about a 1.5% monthly price increase (horizontal axis).  The increase in housing demand caused by the lockdowns, as working from home increases demand for bigger living spaces, or for owning a bigger home instead of renting a smaller apartment, is probably behind the price appreciation.  And if you can explain a price change with demand and supply it is likely due to "fundamentals," rather than a "bubble," prices not tied to fundamentals.  

If this is a permanent increase in housing demand then the 10% price increase will likely "stick."  But if this is a temporary increase in demand, which reverses when the pandemic and lockdown ends, we may see a drop in price.  

BOTTOM LINE:  housing price changes are explained by demand and supply changes, but adjustment is relatively slow in this market.  

See earlier post about high price-to-rent ratios leading to lower housing price appreciation.