Monday, March 11, 2013

Question from a commenter

Commenter Hume asks a question about housing. I'll share my thoughts and then see what you all think. He writes:
This is completely off the subject, but I have a question for you. I am currently working through Iris Marion Young's Responsibility For Justice (2012), and she makes a bunch of claims about housing shortages that seem obviously wrong. I am not an economist, so I do not know, although I am familiar with standard textbook explanations (zoning & land-use restrictions; rent control; ownership incentives (e.g., tax deductions), etc.). I was wondering if you could give me a brief reaction to the following statement (I do not have time over the next few months to really research the issue, I just wanted to see what you think the mainstream economist view is on these matters):  
“Vulnerability to housing deprivation for large numbers of people is nevertheless a normal outcome of contemporary housing markets in the absence of aggressive regulatory intervention to prevent it. Free markets can deliver many kinds of goods to most people who want them relatively efficiently. Decent housing appears to be too costly, however, for this to be possible in most urban areas.” Young, Responsibility For Justice, at 64.  
Thanks, I appreciate it.
My reaction is that this is probably defensible insofar as it's probably not a positive economic claim using economic terminology.

Economists (myself included) are going to be very skeptical of claims about housing shortages as we define "shortages", in terms of an inability for the housing market to clear leaving demanders of housing unable to get housing from a seller willing to offer them a price they're willing to pay. We could make up all kinds of convincing market failure stories about the housing market and they would probably be excellent - even accurate - stories. But big-picture they're not going to change skepticism of chronic shortages.

My reaction reading this, though, is that this is not the angle she is coming from. She is concerned with "decent" housing. Of course we economists have no way of thinking formally about guarantees that decent housing will be provided. She also uses this phrase "too costly". Well what does that mean? Does it mean "at the market clearing price?" Presumably not, nor does it have to mean that.

In my opinion there is far too much mysticism around clearing markets - even if everything is tied up nicely. Who says that that's the "best" outcome that is delivered. I think it's very reasonable to say that the housing market may clear so there is no shortage of housing in the sense that economists mean it and still be concerned with whether there is enough "decent housing". Housing markets probably cleared 100 years ago too and a lot of us would agree that the housing back then wasn't decent in a lot of cases.

So I guess my reaction is that this probably shouldn't be evaluated purely on economic grounds.

If I were responding to her, I would say that we generally can count on the market to efficiently allocate scarce housing resources based on peoples' existing demand for housing. However, peoples' demand for housing is a function of their level of income and we know that there are a lot of disadvantages some people face in earning income. On top of that, children of low income earners are no different than children of high income earners but the housing they end up living in is strongly dependent on the earning power of parents, and depending on what you consider "decent" housing they may go without decent housing - certainly in developing countries and even in the United States. So concern over these issues is entirely legitimate. But if you are considering a solution to the problem, you need to recognize how difficult it is to duplicate anything close to the market's capacity to efficiently allocate goods and services. You probably don't want to think so harshly of the market considering how much better it does relative to alternatives. Instead, maybe consider vouchers or subsidies for low income families for the goods and services we think are especially important: housing, medical care, and food. Or, consider policies that enable them to access income streams so that they can go to the market themselves (policies to boost labor supply and demand generally, without distorting the labor market too much, and education and training policies). This is my advice because the housing market really isn't the problem when we think of inadequate housing. The problem is inadequate wealth and income levels and inequality.


  1. I would say there is a difference in housing in urban areas where price is determined by income and that in outer areas where price is determined by cost. This difference is the cost of land and is the reason a similar median $200k house can run double or triple or more that in urban areas. That additional cost doesn't make it any more decent. We call those costs housing though they are more investment, and better investments command higher demand and prices than structures.


  2. As Steve Sailer often states, one major problem of being poor is that you have to live in close proximity to other poor people. Even if the infrastructure/amenities of an inexpensive house is "decent", it will be surrounded by other houses whose residents are poor people.


  3. Great, thanks so much for the response, I really appreciate it.


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