What is The Great Housing Hijack? Who’s housing crisis is it anyway? And why do we need to understand the economic concept of equilibrium to know whether our housing policy will work? Jonathan and Cameron chat about the new book and the big ideas within it. Get The Great Housing Hijack on
Got the book. First run through completed and into the second.
Market for housing is rather special. 1. Diverse range of products in different locations that affect the amenity that relates to each individual product. 2 Requires financing over a very long period with great uncertainty as to what the monthly payment will be over the period and what ones income will be, if in fact a job can be retained. 3. Rate of inflation of the asset price and one's income varies over time. 4 Depends upon endurance of partnerships, government and parental support. 5 Contractors go broke. 6 Takes a long time to build the house.
Very few people have the cash to pay up front. As a result its a big leap of faith in oneself, ones partner, the bank, the reserve bank, the government, the builder, and the economy to commit to buying a house. Emotion comes into it. Sex. the desire for stability. It's a big gamble to commit. Its hard to see this playing out according to the notions of economic theory that are based on all the requirements for perfect competition. ie when there are many sellers, there is easy entry and exiting of firms, products are identical from one seller to another, and sellers are price takers. For that to happen there needs to be the sort of auction that you describe in the early chapters, the auction that determines who houses the Jones family in a standardized product that already exists and at the lowest price.
Ease of entry on the part of the developer and the builder requires a lot of capital and years of experience in navigating the planning system. Builders are licensed. Before you build a permit is required. It's very difficult for an owner builder to get in. And what he can do, and how often he can do it, is tightly regulated. The advent of project homes has reduced the number of sellers. In that context its a highly regulated market. Its frequently asserted that when a government subsidizes a person to sign up to build a house, that goes straight into the builders pocket. When housing is short, builders tend to do very well. All that indicates market power on behalf of sellers. In that circumstance demand will always exceed supply, an equilibrium is never achieved and the question that arises is how fast prices will accelerate. Recent experience indicates that the rate of inflation of house prices can be unrelated to the rate of inflation of the costs of materials and wages, in which case builders are on a very good wicket, introducing an accelerator factor related to how greedy they want to be. So, the big question is how to take the steam out of the market. There are some pretty easy ways to do that and a lot of those relate to governments getting out of the way. Let people with the necessary skills get cracking to look after their friends and family, as occurred in ages past. Ease planning restraints that dictate that house can only be built on land zoned for residential use that is fully serviced, including sewerage. Allow some improvisation. That depends on the neighbours being tolerant. Good luck with that. So, to get over that factor let people build further out where there are no neighbours and introduce mixed use zoning so that they don't have to travel. Of course, there will be vested interests that don't like that idea at all, Coles and Woolworths for a start.
In your book you mention the idea of using shares instead of titles to show possession of a house. When asked why we don't use shares you said it would be too hard to change the mind of people. We are attempting to do this by enlisting community banks - owned by depositors and borrowers (or customers). Here is a description and request for investors and occupiers of homes to work together to make housing affordable by purchasing shares each time you pay rent. It more than halves amount of money needed to buy a house. You might like to join a group and reduce the cost of owning a home. https://medium.com/@kevin-34708/permanent-home-markets-transcript-7941906d3ecc or observe a group by becoming a $10 investor.
Thanks. I finished reading the book last week. I found it really useful and insightful!
Can you please recommend other books, not necessarily housing related? If the recommendations can be finance and AU related, that would be ideal.
I read Game of Mates and The Lucky Laundry. Rigged was on my to do list but you got this one coming out, so I skipped it :)
Got the book. First run through completed and into the second.
Market for housing is rather special. 1. Diverse range of products in different locations that affect the amenity that relates to each individual product. 2 Requires financing over a very long period with great uncertainty as to what the monthly payment will be over the period and what ones income will be, if in fact a job can be retained. 3. Rate of inflation of the asset price and one's income varies over time. 4 Depends upon endurance of partnerships, government and parental support. 5 Contractors go broke. 6 Takes a long time to build the house.
Very few people have the cash to pay up front. As a result its a big leap of faith in oneself, ones partner, the bank, the reserve bank, the government, the builder, and the economy to commit to buying a house. Emotion comes into it. Sex. the desire for stability. It's a big gamble to commit. Its hard to see this playing out according to the notions of economic theory that are based on all the requirements for perfect competition. ie when there are many sellers, there is easy entry and exiting of firms, products are identical from one seller to another, and sellers are price takers. For that to happen there needs to be the sort of auction that you describe in the early chapters, the auction that determines who houses the Jones family in a standardized product that already exists and at the lowest price.
Ease of entry on the part of the developer and the builder requires a lot of capital and years of experience in navigating the planning system. Builders are licensed. Before you build a permit is required. It's very difficult for an owner builder to get in. And what he can do, and how often he can do it, is tightly regulated. The advent of project homes has reduced the number of sellers. In that context its a highly regulated market. Its frequently asserted that when a government subsidizes a person to sign up to build a house, that goes straight into the builders pocket. When housing is short, builders tend to do very well. All that indicates market power on behalf of sellers. In that circumstance demand will always exceed supply, an equilibrium is never achieved and the question that arises is how fast prices will accelerate. Recent experience indicates that the rate of inflation of house prices can be unrelated to the rate of inflation of the costs of materials and wages, in which case builders are on a very good wicket, introducing an accelerator factor related to how greedy they want to be. So, the big question is how to take the steam out of the market. There are some pretty easy ways to do that and a lot of those relate to governments getting out of the way. Let people with the necessary skills get cracking to look after their friends and family, as occurred in ages past. Ease planning restraints that dictate that house can only be built on land zoned for residential use that is fully serviced, including sewerage. Allow some improvisation. That depends on the neighbours being tolerant. Good luck with that. So, to get over that factor let people build further out where there are no neighbours and introduce mixed use zoning so that they don't have to travel. Of course, there will be vested interests that don't like that idea at all, Coles and Woolworths for a start.
In your book you mention the idea of using shares instead of titles to show possession of a house. When asked why we don't use shares you said it would be too hard to change the mind of people. We are attempting to do this by enlisting community banks - owned by depositors and borrowers (or customers). Here is a description and request for investors and occupiers of homes to work together to make housing affordable by purchasing shares each time you pay rent. It more than halves amount of money needed to buy a house. You might like to join a group and reduce the cost of owning a home. https://medium.com/@kevin-34708/permanent-home-markets-transcript-7941906d3ecc or observe a group by becoming a $10 investor.