Noah Smith In one post arguing for policy reform to encourage housing construction, he makes the following observations:
Housing policies in the United States and other developed countries are very demanding because homes must serve two functions simultaneously. Consumer Goods and Investment AssetsA home is a place to live, but if its price rises over time, it should make you wealthier. These two objectives are in direct conflict. When owner-occupied housing becomes more affordable, It makes most Americans poorer.
“Most Americans” is no exaggeration. Homeownership rates are About two-thirdsThere’s only a small fluctuation. And for middle-class Americans, most of their wealth is in the value of their homes.
This fact creates a direct and unavoidable conflict between the two great classes of American society: home buyers and home owners. If you’re buying a home for the first time or looking to make major upgrades, you want to keep the price as low as possible. But if you already own a home you’re happy with, you want to price it as high as possible so that home buyers will be willing to pay you the most money when you’re finally ready to sell. It’s essentially a zero-sum game.
but, New Constructionit is indeed a positive-sum game. (To be clear, in this paragraph Smith is discussing changes in the prices of existing homes, so as far as I can see there is no disagreement on this point.)
There are two ways to think about the issue of economic well-being: in terms of the flow of money and the consumption of goods and services. In my view, a monetary approach often leads to sloppy thinking. That’s why some people complain that building lots of new housing won’t bring down the cost of homeownership. But who cares? The point of building lots of housing isn’t to bring down prices (as Smith correctly points out, that’s a zero-sum game), but to create more housing. So while building more housing might not bring down prices ( Other conditions are the same As is usually the case, housing supply will certainly increase. Countries are rich not by having a lot of money (Zimbabwe has a lot of it), but by having a lot of things.
When you travel around the US, you only need to look out your car window to see how wealthy an area is. But there are exceptions. There are areas in New York City, San Francisco, and West Los Angeles that are much wealthier than they appear. You hear the area is trendy and upscale, but the exterior is somewhat rundown, the buildings look shoddy, and they don’t look well-maintained.
As we all know, the cause of this disparity is regulation: rent control laws, restrictions on conversion to condominiums, burdensome permitting processes, union employment requirements, affordable housing mandates, restrictive zoning rules, and a host of other regulations that force property owners to let their buildings fall into disrepair.
The root cause of all this was satirized by Kurt Vonnegut. Harrison BergeronThe pursuit of excellence leads to inequality. If we let market forces create beautiful neighborhoods in blighted areas, low-income residents may be replaced by wealthier residents. So all this misguided regulation is made in the name of the poor. If we make neighborhoods blighted, the poor can afford to live there.
There’s just one problem: In the long run, it’s the poor who suffer the most from a housing shortage. While the wealthy can usually find ways around misguided government regulations, the poor who aren’t lucky enough to get into rent-regulated housing often end up homeless.
If the country has 100 million housing units and 110 million households, 10 million could become homeless. This problem cannot be solved by rent control, because landlords prefer to rent to wealthy tenants who they can be sure will pay their rent on time. YIMBYs understand that the only lasting solution is to build 10 million more housing units. It doesn’t matter whether the new housing is “affordable,” because new construction tends to drive down the prices of existing housing, as the wealthy move into the new McMansions. In fact, affordable housing mandates actually make housing cheaper. few It’s affordable because it discourages new construction.
So why is housing such an important public policy issue? Why aren’t we writing about the television manufacturing industry or the dry cleaning industry?
Housing has two special characteristics. First, housing spending represents a very large share of consumption. Second, housing is a very inefficient industry, especially in some major coastal regions. And this inefficiency is mainly due to regulation. Let us add that the other two major economic problems, health and education, are also industries that absorb large shares of GDP and are heavily distorted by subsidies and regulation. In all three cases, the media focuses relentlessly on the money issues, but the solutions can only come by approaching these industries from an objective perspective. Output perspectiveThe goal should be to change the total amount of output and/or the quality of the amount of output so that each unit of output is produced at a lower opportunity cost. Monetary solutions such as subsidies and price controls only mask a deeper problem.
