Economist Christopher Thornberg evidently wants us to believe that market economics do not apply to individual real estate developers.
Referring to a proposed retail-residential development in West L.A., he states, "Of the residences, more than 10% will have an 'affordable' status, meaning other units will be priced commensurately higher to subsidize them." Does Thornberg believe that a developer can pass on each dollar of additional cost to the consumer?
Developers are limited by what the market will bear. The recession just provided a stark reminder that the market is indifferent to developers' costs.
Unfortunately, this distracts from Thornberg's larger point about the importance of reducing the constraints on housing supply.
It sounds to me as though developers should — privately — decide how many units they wish to build and how big they want their property to be, and then use "anticipatory" psychology by overstating how much they actually want to construct.