Could you perhaps do a post comparing and contrasting the housing market to markets for other goods where fierce competition actually does push down prices?
For example:
- flatscreen TVs, which originally cost $20k and can now be found at Aldi for $200. Where advancements in screen technology permitted constant cost cutting, and no gov-granted monopoly barriers to entry exist
- the avocado market where we’re now hearing about a glut, also where competition can’t isn’t blocked by licensing or protectionism
Additionally, you’ve articulated when property owners naturally behave collusively to set the “speed limit” on new properties entering the market.
Could you perhaps explain when that behaviour could break down, like in severe economic downturn or banking system collapse like those seen in Japan, Ireland or Detroit?
I do feel like I should explain in more detail why property markets aren't the same as good and services markets.
To start that discussion here, a lot of people say "houses are like bananas, you supply more and prices come down" because banana prices are sensitive to supply and supply is foten determined by random weather events. So people see that.
But with housing, it's more like the supply of banana farms. We don't flood the market with banana farms themselves, even though from the current number of farms we have variable supply.
I’m actually a libertarian type, and it took me a while wrestling with your ideas to overcome my gut instinct about the property market and other ideas about individual freedoms and planning rights.
I can now see the property market behaves not as an openly competitive market like that for TVs, but more like a government-monopoly restricted or licensed market like that for taxi medallions.
What myself, and people like Bryan Caplan, would love to see happen is “an Uber for property” disrupting that monopoly.
Though I’m hazarding a guess that property titling system may simply stop that in its tracks.
Perhaps I can comment on Bryan Caplan’s Substack for his thoughts 😆
While Bryan is a libertarian type, conservative policy makers do draw on ideas and arguments like Bryan’s to sway public opinion, because I know the public has similar gut instincts.
"What myself, and people like Bryan Caplan, would love to see happen is “an Uber for property” disrupting that monopoly.
Though I’m hazarding a guess that property titling system may simply stop that in its tracks."
Bingo. I mean, if we could start a competing property titles system that would be great.
My view is that the private property market system gets a certain type of housing outcome, which is good for many people. So let it be. But in addition we can have a parallel system with a cheaper outside option. In a way, its competing with the market as a whole with a non-market system. Singapore is one way to do it. Vienna, another. Australia and the UK's historical public housing options too. It doesn't have to be a large alternative system either—enough that some people use it but many adjust their willingness to pay in the private market due to it.
By the way, I think Bryan is a good guy. He genuinely engages with ideas.
Gut instincts are a tough nut to crack, especially when they align with people’s ideologies.
And then to us, it sounds like you’re proposing more socialism as a solution, but I’ve even come around on that!
While below-market price housing would just be another form of low-income support, it wouldn’t be as harmful to the productive engine as other government central planning in the economy, like the USSR running farms 😂
Yeah, I think we need to seperate administration of activities, where there is often bad incentives for government departments, with ownership of them. Governments could simply by stocks/shares of major homebuilders, for example, and retain all the market-based incentives.
I generally don't even use the words socialism or capitalism or any other -ism. I find they just aren't helpful in described things and are just verbal representation of emotional/ideological baggage. Just describe the system in plain words, and its incentives, and compare with reference to what has be tried and worked or failed before.
Especially when politicians in the Liberal party - or politicians from the managerial-class Labor party - cite markets & enterprise as their focus.
But they happily sign off on subsidies for developers, the construction union, or “mums & dads” investment property owners.
To me, as a libertarian crank, it’s all one form managed-economy program or other. Adam Smith’s invisible hand guided with a firm government-grip on its wrist.
I’d be satisfied if we could trade in all the property subsidies for your proposed Singapore-style parallel market.
Aggressively taxing land that is zoned residential, purchased, but sitting untouched for a length of time (say, a year) seems like an obvious starting point.
On a somewhat related note, I was recently directed to this article by The Algorithm and in it there's some commentary and graphs showing that quarterly housing completions have not changed appreciably for ****fifty years****.
Even units, apart from a ~5 year surge in the mid-2010s, remain at similar completions to the 1970s.
This is such a ridiculous situation I can't help but think there must be an error in the data somewhere ?
I am disappointed YIMBY-sympathetic researchers do not seem to respond or acknowledge the developer's constraining role. It feels like many upzoning proponents are mostly enjoy their time in the sun, rather than trying move the debate forward or inform policy. Even if the goal is densification directly, rather than living affordability, then hurrying developers should be a concern.
Simply abolish the ability of SME & the big boys like Lend Lease and Stcoklands to land bank. There is no disincentive currently to avoid this. However, a land tax high enough to significantly impose ongoing business expenses on holding that same land, rather than putting it to productive use, seems to me to be a decent alternative to discourage this.
There is zero economc & business sense in allowing approved land for development to simply sit idle for 40 years. None. Plus this would dissuade a lot of overseas purchases of Australian land who end up doing precisely the same thing.
Do note though the 2003 article quoted above: that headline was deliberate. Vested interest stir up controversy in the midst of a then land boom. Classic behaviour to witness during the 2nd half of a real eatate cycle, which is where we were in 2003.
A comment professing ignorance is not a good way to star, I know, but I do not understand the positive points you want to make. I'll suppose you are correct in refuting all the erroneous opinions you criticize, but exactly what do you want land use permitting bodies to do instead?
I'm coming at the from the US context, where in urban areas, it is not possible for regulatory reasons to build housing in many places where builders could satisfy market demand for it. In many cases this would result in an increase in density so favoring regulations that permit more housing looks like favoring "density" and indeed proponent often say that when pointing out that some of the demand that would be satisfied is for amenities that "density" provides proximity to places of shopping, recreation and employment. That is what gives the US debate an "anti-regulation" flavor.
"what do you want land use permitting bodies to do instead?"
I guess my point is that although some planning authorities may be inefficient, and regulations could be simplified in many ways, they aren't the cause of housing rents and prices. So those that want a society with cheaper well-located housing outcomes will need to focus on allocating housing by non-price methods.
Are you saying that less restrictive land use policies, policies that allowed developers to build housed where it is currently not permitted would not be a good policy, or just a prediction that it will not be easy to find evidence of house prices falling? Do you want different policies or different rhetoric in support of those policies??
I am fine with upzoning for urban planning and infrastructure reasons, but would prefer that additional development rights are priced rather than given for free to current property owners.
In terms of making housing cheaper, yes, I want different policies and I want us not to pretend that upzoning is an effective mechanism for getting cheaper homes.
Yes. Tiny marginal relaxation of land use restriction will mean that almost all the benefit will go to the existing property owner. In DC we gesture at that problem by requiring some "affordable" housing to be part of the permitted development. Not the best solution
Planners influence the construction of houses in ways other than by providing adequate areas that are zoned for housing. What if the zoning is for single rather than multiple residences per lot and the demand is for the latter?
Availability of lots zoned for development is one thing. How many are speculators who have no intention to build? Will the developer be happy to sell to speculators and see no houses actually built?
Are potential buyers in a financial position to put down a deposit.
How many will be able to finance the build?
What proportion of lot purchasers are intending to rent and making a judgement that although rents are healthy, a collapse in house values could be imminent?
Are people feeling insecure about their employment.
Is the recent increase in the cost of building and interest rates disenfranchising those who might like to build? Is the four bedroom two bathroom offer now beyond the capacity of the single income earner to finance? Is the zoning appropriate for three by one and two by one or would these styles not be allowed.
If we changed the offer to one where modular factory built houses were provided by the landowner on rural land that is rented along with the house rather than on land that is subdivided (to create freehold titles on land zoned for residential construction), would there be a rush to engage? If part of that land was set up to accommodate 'Tiny Homes', would there be demand?
Could you perhaps do a post comparing and contrasting the housing market to markets for other goods where fierce competition actually does push down prices?
For example:
- flatscreen TVs, which originally cost $20k and can now be found at Aldi for $200. Where advancements in screen technology permitted constant cost cutting, and no gov-granted monopoly barriers to entry exist
- the avocado market where we’re now hearing about a glut, also where competition can’t isn’t blocked by licensing or protectionism
Additionally, you’ve articulated when property owners naturally behave collusively to set the “speed limit” on new properties entering the market.
Could you perhaps explain when that behaviour could break down, like in severe economic downturn or banking system collapse like those seen in Japan, Ireland or Detroit?
Good comment and question.
I do feel like I should explain in more detail why property markets aren't the same as good and services markets.
To start that discussion here, a lot of people say "houses are like bananas, you supply more and prices come down" because banana prices are sensitive to supply and supply is foten determined by random weather events. So people see that.
But with housing, it's more like the supply of banana farms. We don't flood the market with banana farms themselves, even though from the current number of farms we have variable supply.
More to come. Stay tuned.
Thanks for the reply 👍
I’m actually a libertarian type, and it took me a while wrestling with your ideas to overcome my gut instinct about the property market and other ideas about individual freedoms and planning rights.
I can now see the property market behaves not as an openly competitive market like that for TVs, but more like a government-monopoly restricted or licensed market like that for taxi medallions.
What myself, and people like Bryan Caplan, would love to see happen is “an Uber for property” disrupting that monopoly.
Though I’m hazarding a guess that property titling system may simply stop that in its tracks.
Perhaps I can comment on Bryan Caplan’s Substack for his thoughts 😆
While Bryan is a libertarian type, conservative policy makers do draw on ideas and arguments like Bryan’s to sway public opinion, because I know the public has similar gut instincts.
"What myself, and people like Bryan Caplan, would love to see happen is “an Uber for property” disrupting that monopoly.
Though I’m hazarding a guess that property titling system may simply stop that in its tracks."
Bingo. I mean, if we could start a competing property titles system that would be great.
My view is that the private property market system gets a certain type of housing outcome, which is good for many people. So let it be. But in addition we can have a parallel system with a cheaper outside option. In a way, its competing with the market as a whole with a non-market system. Singapore is one way to do it. Vienna, another. Australia and the UK's historical public housing options too. It doesn't have to be a large alternative system either—enough that some people use it but many adjust their willingness to pay in the private market due to it.
By the way, I think Bryan is a good guy. He genuinely engages with ideas.
Gut instincts are a tough nut to crack, especially when they align with people’s ideologies.
And then to us, it sounds like you’re proposing more socialism as a solution, but I’ve even come around on that!
While below-market price housing would just be another form of low-income support, it wouldn’t be as harmful to the productive engine as other government central planning in the economy, like the USSR running farms 😂
Yeah, I think we need to seperate administration of activities, where there is often bad incentives for government departments, with ownership of them. Governments could simply by stocks/shares of major homebuilders, for example, and retain all the market-based incentives.
I generally don't even use the words socialism or capitalism or any other -ism. I find they just aren't helpful in described things and are just verbal representation of emotional/ideological baggage. Just describe the system in plain words, and its incentives, and compare with reference to what has be tried and worked or failed before.
That’s fair.
Especially when politicians in the Liberal party - or politicians from the managerial-class Labor party - cite markets & enterprise as their focus.
But they happily sign off on subsidies for developers, the construction union, or “mums & dads” investment property owners.
To me, as a libertarian crank, it’s all one form managed-economy program or other. Adam Smith’s invisible hand guided with a firm government-grip on its wrist.
I’d be satisfied if we could trade in all the property subsidies for your proposed Singapore-style parallel market.
If not exactly happy about it 😂
Aggressively taxing land that is zoned residential, purchased, but sitting untouched for a length of time (say, a year) seems like an obvious starting point.
Allow a single block exception for individuals.
On a somewhat related note, I was recently directed to this article by The Algorithm and in it there's some commentary and graphs showing that quarterly housing completions have not changed appreciably for ****fifty years****.
Even units, apart from a ~5 year surge in the mid-2010s, remain at similar completions to the 1970s.
This is such a ridiculous situation I can't help but think there must be an error in the data somewhere ?
https://theconversation.com/4-ways-to-bring-down-rent-and-build-homes-faster-than-labors-10billion-housing-fund-205643
I am disappointed YIMBY-sympathetic researchers do not seem to respond or acknowledge the developer's constraining role. It feels like many upzoning proponents are mostly enjoy their time in the sun, rather than trying move the debate forward or inform policy. Even if the goal is densification directly, rather than living affordability, then hurrying developers should be a concern.
Simply abolish the ability of SME & the big boys like Lend Lease and Stcoklands to land bank. There is no disincentive currently to avoid this. However, a land tax high enough to significantly impose ongoing business expenses on holding that same land, rather than putting it to productive use, seems to me to be a decent alternative to discourage this.
There is zero economc & business sense in allowing approved land for development to simply sit idle for 40 years. None. Plus this would dissuade a lot of overseas purchases of Australian land who end up doing precisely the same thing.
Do note though the 2003 article quoted above: that headline was deliberate. Vested interest stir up controversy in the midst of a then land boom. Classic behaviour to witness during the 2nd half of a real eatate cycle, which is where we were in 2003.
A comment professing ignorance is not a good way to star, I know, but I do not understand the positive points you want to make. I'll suppose you are correct in refuting all the erroneous opinions you criticize, but exactly what do you want land use permitting bodies to do instead?
I'm coming at the from the US context, where in urban areas, it is not possible for regulatory reasons to build housing in many places where builders could satisfy market demand for it. In many cases this would result in an increase in density so favoring regulations that permit more housing looks like favoring "density" and indeed proponent often say that when pointing out that some of the demand that would be satisfied is for amenities that "density" provides proximity to places of shopping, recreation and employment. That is what gives the US debate an "anti-regulation" flavor.
"what do you want land use permitting bodies to do instead?"
I guess my point is that although some planning authorities may be inefficient, and regulations could be simplified in many ways, they aren't the cause of housing rents and prices. So those that want a society with cheaper well-located housing outcomes will need to focus on allocating housing by non-price methods.
Are you saying that less restrictive land use policies, policies that allowed developers to build housed where it is currently not permitted would not be a good policy, or just a prediction that it will not be easy to find evidence of house prices falling? Do you want different policies or different rhetoric in support of those policies??
I am fine with upzoning for urban planning and infrastructure reasons, but would prefer that additional development rights are priced rather than given for free to current property owners.
In terms of making housing cheaper, yes, I want different policies and I want us not to pretend that upzoning is an effective mechanism for getting cheaper homes.
Yes. Tiny marginal relaxation of land use restriction will mean that almost all the benefit will go to the existing property owner. In DC we gesture at that problem by requiring some "affordable" housing to be part of the permitted development. Not the best solution
Would love you to find 40 years of supply on the Gold Coast as stated in the LSDM!
Planners influence the construction of houses in ways other than by providing adequate areas that are zoned for housing. What if the zoning is for single rather than multiple residences per lot and the demand is for the latter?
Availability of lots zoned for development is one thing. How many are speculators who have no intention to build? Will the developer be happy to sell to speculators and see no houses actually built?
Are potential buyers in a financial position to put down a deposit.
How many will be able to finance the build?
What proportion of lot purchasers are intending to rent and making a judgement that although rents are healthy, a collapse in house values could be imminent?
Are people feeling insecure about their employment.
Is the recent increase in the cost of building and interest rates disenfranchising those who might like to build? Is the four bedroom two bathroom offer now beyond the capacity of the single income earner to finance? Is the zoning appropriate for three by one and two by one or would these styles not be allowed.
If we changed the offer to one where modular factory built houses were provided by the landowner on rural land that is rented along with the house rather than on land that is subdivided (to create freehold titles on land zoned for residential construction), would there be a rush to engage? If part of that land was set up to accommodate 'Tiny Homes', would there be demand?