It’s the Old Folks Fault

Usually, The Economist lives up to its name in analyzing important issues. But it misses the point in its latest article on housing affordability. The article notes that the British government has set a target of building enough homes so that real housing prices rise only 1 percent faster than inflation.

That’s an idiotic target. First, why should housing prices rise faster than inflation at all? In a market unhampered by government regulation, housing prices will rise and fall with incomes, and rising incomes lead to higher prices because people buy bigger or more luxurious homes, not because homes themselves rise in price faster than inflation.

Second, the idea that government planning can control housing prices is as bad as the idea that government should plan housing in the first place. The government’s plan is to relax some housing regulation, which is good, and to subsidize new homes, which just transfers the burden from one group of people to another. What the government should do is get out of the way entirely.

Currently, land in Britain may be privately owned, but the right to develop that land is held by the government–which makes private ownership pretty meaningless. The practice of American homebuilders of buying 10 to 10,000 acres and subdividing and developing them is almost unheard of in Britain because no one can assemble that much land on which the government has granted permission to develop.

The Economist is appropriately skeptical that the British government’s plan will work. But the magazine-that-calls-itself-a-newspaper proposes its own idiotic plan. “More than one-third of households have two or more spare bedrooms,” the writer notes. “Allocating housing more efficiently–encouraging elderly couples to downsize after their children fly the nest, for instance–would free up some of these 16m or so rooms.”

The first problem with that is that maybe those people have two or more spare bedrooms for a reason: one is a guest room, perhaps, while the other is a home office. The second problem is that, even if some of those people want to downsize, thanks to the government-created artificial housing shortage, they can’t afford to do so. They probably bought their current house when prices were lower and, even though the price of their home has gone up, the transaction costs of moving are a lot higher when real estate is expensive than when it is affordable.

Instead of trying to calculate how many spare bedrooms are appropriate, government should just get out of the housing and land-use planning business. The benefits of zoning and planning have proven illusory while the costs have practically destroyed Britain’s economy.

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10 thoughts on “It’s the Old Folks Fault

  1. FrancisKing

    In the UK, we have very little space & so we protect the space that we have. We try to prevent ribbon development, where people build houses along the roads, and we try to avoid one town merging into another.

    Where children have left home, the family home can have unused rooms. I live by myself in a small three bedroom house. Like many, I could downsize, but appreciate a garden and peace and quiet.

    Housing costs are a problem, but have not destroyed the economy.

  2. Jardinero1

    FrancisKing, I assume that you are being facetious. Seven percent of the UK is urbanized. If you increased the housing stock by 50 percent then about 10 percent would be urbanized and housing would be much, much more affordable. There would still be plenty of room for your garden and peace and quiet.

  3. C. P. Zilliacus

    The Antiplanner wrote:

    Usually, The Economist lives up to its name in analyzing important issues. But it misses the point in its latest article on housing affordability. The article notes that the British government has set a target of building enough homes so that real housing prices rise only 1 percent faster than inflation.

    Though increasing housing prices by 1% a year more than inflation would be a remarkable change in many parts of the United States (especially in Paul Krugman’s zoned zone, mostly along the Atlantic and Pacific coasts), and in southeastern England too.

    That’s an idiotic target. First, why should housing prices rise faster than inflation at all? In a market unhampered by government regulation, housing prices will rise and fall with incomes, and rising incomes lead to higher prices because people buy bigger or more luxurious homes, not because homes themselves rise in price faster than inflation.

    Second, the idea that government planning can control housing prices is as bad as the idea that government should plan housing in the first place. The government’s plan is to relax some housing regulation, which is good, and to subsidize new homes, which just transfers the burden from one group of people to another. What the government should do is get out of the way entirely.

    Consider a counterpoint (and I am no fan of ham-handed government land use regulation by elected officials that control local governments in much of the United States, especially the zoned zone). To varying degrees, the price of housing is driven by government services provided in specific geographic areas (in some U.S. states it is municipalities, other states it is counties, still other states it is school districts and so on) such as roads and streets (and conditions of same); strict parking enforcement; mass transit; public schools; fire/EMS; law enforcement (and crime rates); availability of water and sewer lines; public parks; availability of broadband Internet (not usually provided by government, but government regulation can encourage or discourage its availability); and employment (and employment (especially private-sector employment) is influenced by those very same local governments).

    Government corruption (or perception of same) or lack of government corruption and transparent government also matters.

  4. C. P. Zilliacus

    FrancisKing wrote:

    In the UK, we have very little space & so we protect the space that we have. We try to prevent ribbon development, where people build houses along the roads, and we try to avoid one town merging into another.

    Francis, every time I have come to the UK (England only, as I have not been in Wales or Scotland or Northern Ireland), it has been in an aircraft. But looking down from above on England from the window seat on a reasonably clear day, it seems that there is plenty of open space available (including the Metropolitan Green Belt), and some of that land (IMO) probably should be made available for development, with exceptions made for areas that are close to historic and cultural sites (and I concede that England has a lot of those)..

  5. CapitalistRoader

    Francis, every time I have come to the UK (England only, as I have not been in Wales or Scotland or Northern Ireland), it has been in an aircraft. But looking down from above on England from the window seat on a reasonably clear day, it seems that there is plenty of open space available (including the Metropolitan Green Belt), and some of that land (IMO) probably should be made available for development, with exceptions made for areas that are close to historic and cultural sites (and I concede that England has a lot of those)..

    Ditto, although I have alighted from aircraft in London when forced to. England’s population density is between New York state’s and Maryland’s. It’s hardly the case that you have very little space that needs protecting. I’m guessing—but I doni’t know for sure since I spend little time in England—that it’s the same rich, white busybodies in England as it is on the US coasts who have theirs and have the political clout to keep the unwashed brown people out. Yer Pakistanis and Mexicans and whatnot.

    Amiright?

  6. MJ

    “Allocating housing more efficiently–encouraging elderly couples to downsize after their children fly the nest, for instance…”

    I wonder what they mean by “encourage”?

    *shudders*

  7. C. P. Zilliacus

    Ditto, although I have alighted from aircraft in London when forced to. England’s population density is between New York state’s and Maryland’s. It’s hardly the case that you have very little space that needs protecting. I’m guessing—but I doni’t know for sure since I spend little time in England—that it’s the same rich, white busybodies in England as it is on the US coasts who have theirs and have the political clout to keep the unwashed brown people out. Yer Pakistanis and Mexicans and whatnot.

    Amiright?

    Wealthy busybodies with time and money. There is an article about the history of the 149 British Town and Country Act on Wikipedia that seems to match up with what I know about it here.

    Years later, I know that some wealthy busybodies in the U.S. were involved in enacting similar laws starting in the 1960’s. I read someplace that the late Paul Mellon (heir to the Mellon banking fortune and married to an heir to the Noxzema skin cream fortune) took the many involved in land use planning in Fauquier County, Virginia (included elected officials) on a 1972 trip to the UK to look at the results of their planning laws and policies. You can read a summary online (written by someone in favor of such restrictive policies) here.

  8. Fred_Z

    “to encourage”. To shoot those who disagree, from the French, “Pour encourager les autres”, to shoot those who do not joyously attack German massed machine guns.

    Hillary “encourages” you to vote for her.

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