Madison has one of the most competitive housing markets in the country.

While perfectly competitive markets are very productive, as there is a large number of buyers and sellers selling identical products, the housing market in Madison may have become too competitive.

As the population rises, affordable housing becomes limited for both students and full-time residents of the Madison area.

According to the Wort News Department, “If you’re earning the state’s $7.25 minimum wage here in Madison, you would have to work 24 hours a day, seven days a week to afford the city’s median rent. And that still wouldn’t quite be enough” (Parks).

Simply put, the citizens of Madison are unable to stay afloat amidst the skyrocketing prices.

The housing crisis in Madison is something that must be addressed. Utilizing economic principles learned in class, the issue of the Madison housing market can be analyzed to better understand its context, and examine pathways for solutions. 

The housing crisis in Madison is a direct result of the disequilibrium in the market, where the increasing demand for housing due to increase in student population is not met by the current supply of affordable housing.

This shortage has caused rents to increase drastically, affecting the students who need to find housing.

The University is trying to address this issue by building new luxury apartments, however, many units remain unaffordable, only creating more of a problem.

Government intervention has been used in other places to try and aid those who are affected by this problem. Despite this, issues like moral hazard and high security deposits further complicate the situation.

Madison’s housing market can only truly be fixed if there is a significant increase in the supply for housing.

This could be done through coordination from policymakers and developers.

Without such, the problem of affordable housing in Madison, and on other college campuses is likely to continue. 

 From a more positive outlook, it would be fascinating to see if the apartments that are currently being constructed will make a difference because they will provide a way to lessen the shortage of housing that is currently happening. 

From a normative analysis perspective, Madison should follow in UCLA’s footsteps with government intervention.

The city of Madison should prioritize University housing that is affordable, and quickly built. Thus, allowing for more housing equity for students and residents that cannot afford paying such high rent. However, it is important to note that in building new units, negative externalities still stand.

The housing market in Madison can be analyzed through the application of the equilibrium model.

The equilibrium model shows the market for a certain good when a market is in equilibrium. 

In this specific case, the market is not in a state of equilibrium, instead it is in disequilibrium.

On the demand side we see the population of Madison, which is consistently on the rise. This is due to the increase of new students in Madison creating an increase in the population and therefore the demand for housing.

This problem has also been furthered by the lack of affordable housing in Madison.

When we flip to look at the supply end of the market, we see that the supply of affordable housing has not kept up with the increase in demand.

Despite how contractors have been trying to keep up by building luxury apartments, the demand is simply increasing too fast.

Because of the lack of housing, rent prices have become unaffordable for many, highlighting the disconnect between supply and demand for housing and the disequilibrium between the two.

Because there is a shortage, prices have continued to rise affecting many students in their search for housing.

The equilibrium model explains to us how the market is experiencing a shortage of housing, where the quantity that is demanded exceeds the quantity that is supplied at certain price levels.

In order to try and fix this problem either the supply must increase, or the demand must decrease.  

The housing market in Madison is not in equilibrium.

While the demand for housing has surged, as the Madison population rose, the supply of affordable housing has plummeted. 

This disequilibrium has led to higher prices, and lower availability in the market as a whole. According to The Daily Cardinal, despite Madison having a rapid expansion of luxury apartments in the past year, these new units are still struggling to find tenants, as the rent prices continue to remain outside of financial limitations (Chang).

This issue is far more than a simple supply and demand equation. From an economic perspective, opportunity cost plays a key role in this crisis. Students and residents of Madison are forced to pay more money on their rent, while foregoing funds for other essential needs.

In terms of marginal cost, the marginal cost of building more apartment units is high, as exemplified in The Daily Cardinal article, due to land scarcity and trouble filling new unaffordable units. And while building more apartments may increase supply, creating a more efficient market equilibrium, it could also lead to negative externalities.

Unwanted noise from construction that may be bothersome to neighbors, and environmental deterioration may de-influence constructors from supplying more units.

Unless the market is corrected, the current state of housing in Madison will continue to rise costs and further amplify the affordability problem. 

There are non-standard factors that can intentionally or unintentionally affect the housing crisis.

Government intervention can often shape the way markets function.

According to an article from The Daily Cardinal, the Madison Common Council has approved a change in the city’s zoning code, to incentivize more affordable housing.

The article describes how the changes to the zoning codes have incentivized developers to exceed the maximum number of stories in exchange for extra affordable units (Rosen).

Thus, non-standard factors like government zoning policies can either prevent or promote the expansion of new apartment units, subsequently leading to a lower or higher supply of housing.

In this scenario, the remodel of the zoning ordinance has promoted the expansion of new apartment units, leading to a higher supply of affordable housing.

Additionally, the issue of moral hazard can severely affect affordable housing, as landlords are responsible for taking care of apartment units.

Thus, landlords can implement high private fees, such as security deposits, which can impact the affordability of specific apartment units in the Madison area.

There is also the issue of information asymmetry between landlords and their tenants, as landlords may be obligated to withhold specific information before leasing their units.

Information such as hidden fees, security, or even the condition of the unit can result in a disconnect between both parties.

Similar to the current housing shortage currently being experienced in Madison, other colleges have faced similar, if not worse things.

In the 2023-2024 school year at UCLA, there was a similar housing shortage that is still being rectified. For many students at UCLA, the rent is far too high for students who are looking for apartments on or near campus.

According to The Daily Bruin, in 2021, there were only 950 available apartments that were affordable for students to rent. This clearly is insufficient for the nearly 40,000 students that attend UCLA. (Rowell, 1)

This shows the disequilibrium between supply and demand for housing. Although this is a much more extreme version of what is going on in Madison, it is somewhat similar. There is a shortage in the supply of apartments and an increasing demand.

Despite the fact that UCLA is trying to build some more apartment buildings that will help with the problem, the incoming 2028 Olympics will also create more problems.

One way that they are hoping this will be rectified is by the recent Senate Bill that was passed in California, Bill 886, that allows Universities to construct housing faster at lower costs. (Rowell, 1)

Students at UCLA are hoping that this will create better options for students who need to find more affordable housing.

Although the situation at UCLA is not solved yet, it is interesting to compare how they are handling it to what is going on in Madison.

They are trying to build more apartments faster, which it seems, is what they are trying to do in Madison.

In the past year 2 more apartment buildings went up seemingly overnight. While rent prices have not yet lowered, with more buildings in the works, in the future they could.