<- Shanghai suburb Or leafy Dublin suburb? ->
Here’s an FT writer using click-bait in an attempt to ‘prove’ building more stops house prices rising.
John Burn-Murdoch writes for the Financial Times, a highly respected newspaper. Read widely in the commercial world, it (the FT) cannot peddle the usual narrative propaganda to its well-informed readership.
John B-M writes some very good stuff, but this article which claims to overthrow the mantra of “building more houses won’t stop house-prices rising” is nothing of the sort. Let’s look a bit closer.
(Normally FT articles are behind a strict paywall. However, so pleased was J B-M with this piece that he open-sourced it on his TwitterX account. So I think it’s OK for me to reproduce it in full here. My comments are [added in italic,thus]
So here’s John Burn-Murdoch’s piece
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Repeat after me: building any new homes reduces housing costs for all [note the childish tone!]
Building unsubsidised housing pushes down rents and prices while freeing up cheaper properties [always? As we’ll see only in very specific circumstances]
15 Sept 2023
Nimbys have long opposed housebuilding on the grounds that it lowers the value of their own properties. [ No they don’t! It’s loss of amenities, views etc, and the disruption caused by building that mostly bugs them.]
But lately they have found unexpected allies in the leftwing “supply scepticism” movement, whose advocates argue against new market-rate housing developments on the basis that they may increase rents and prices locally — hindering their aim of making housing more affordable for people on low incomes. [Phew! ‘supply scepticism’! Lefties! This long sentence is loaded with straw-men.]
This position rests on a rewriting of one of the fundamental principles of economics. All other things being equal, if the supply of a good or service increases, its price will decrease. Unless that thing is housing. [What a clown! Housing is most emphatically not just a normal good, it is also primarily an investment vehicle. Of course the laws of supply and demand cannot work here.]
It would be exasperating [!] enough if that way of thinking were confined to the supply scepticism group — which has already contributed to delays and outright blocking of proposed developments around the US. But the affliction appears to be much more widespread, according to a recent paper by three social scientists in California. The study found that when Americans were asked [!] to predict the impact of a supply shock on prices for labour, commodities or consumer goods, the correct answers outnumbered the wrong ones by at least two to one.
[What next? Public surveys conducted to test the validity of Copenhagenist versus frequentist theories of Quantum Physics?]
When asked about the impact of a 10 per cent increase in regional housing supply, however, 40 per cent say prices and rents would rise, while only a third say they would fall. [Do obscure, baffling references to ill-informed opinions the US add much to his case? I think not!]
The supply sceptics have theories [not just theories, there’s plenty of evidence too, from Ireland especially, and here on this blog, in my very first posting back in 2017] for why housing could be different,
but they fall apart when confronted with the evidence, as set out in a comprehensive review of the latest research by James Gleeson,[more on what Gleeson actually said later] a housing analyst at the Greater London Authority.
One argument is that only by building affordable housing can you increase affordability. Market-rate dwellings will simply go to people on higher incomes, leaving lower earners high and dry. But recent studies from the US, Sweden and Finland all demonstrate that although most people who move directly into new unsubsidised housing may come from the top half of earners, the chain of moves triggered by their purchase frees up housing in the same cities for people on lower incomes. The US study found that building 100 new market-rate dwellings ultimately leads to up to 70 people moving out of below-median income neighbourhoods, and up to 40 moving out of the poorest fifth. Those numbers don’t budge even if the new housing is priced towards the top end of the market. [straw man, no ref, but I’ve done the homework and found out who James Gleeson is, and what he says. More later.]
Another argument is that building market-rate housing in a lower-income area leads to gentrification, with higher earners moving into a lower-income area and displacing the incumbents. But the latest research from Britain and the US shows that there is typically little, if any, outward displacement of incumbents. It is the incomers who have been displaced, priced out of wealthier areas by supply constraints. In other words, even if you think it’s inherently bad if high earners move into poorer neighbourhoods, the answer is to build more market-rate housing for those higher earners.
[Both of these cases are very specific to particular local conditions. The Housing Market Big Problem is that the whole level of prices is far too high, has galloped up far faster than inflation, and requires huge amounts of subsidy just to ensure sub-average income families get housed. Fix the impossibly high house prices first (as they did in the 1930s and to some extent in the 1950s/60s) and THEN you can talk about balancing supply and demand.]
Recent policies to increase housing supply in major western cities are compelling — as documented in recent analyses by Australian economist Matthew Maltman. In November 2016, large areas of New Zealand’s largest city, Auckland, were rezoned to allow for higher-density building. The results were twofold: a boom in construction of multi-unit housing — predominantly at market rates — and the flattening off of rents in the city in real terms. On the eve of upzoning, median rents were 25 per cent higher in Auckland than the capital Wellington. Six years later, nominal rents had grown by an average of 3 per cent a year in the former and 7 in the latter, putting the two neck and neck. Adjusted for inflation, renting in Auckland is now no more expensive than it was in 2016, compared with a 25 per cent rise in Wellington.
[I can’t be bothered to follow up this obscure, far-away, and quite probably irrelevant case study! Try thinking how this would work in London? Manchester? Cardiff? Tower blocks everywhere? ]
It’s a similar story in the American Midwest, where Minneapolis has been building more housing than any other large city in the region for years, and has abolished zones that limited construction to single-family housing. Adjusted for local earnings, average rents in the city are down more than 20 per cent since 2017, while rising in the five other similarly large and growing cities. If you want to improve housing availability and affordability for all, the good news is that any new housing will help.
[and here the article ends. Not a glimmer of insight into the politics of planning, the actual economics of the housing markets, the steps that could be taken to fix the whole thing, not little bits of tinkering here and there]
email@example.com, @jburnmurdoch Copyright The Financial Times Limited 2023.
But what did James Gleeson, who works for the Greater London Authority really say:
- financialisation does increase demand to own housing [yes banks are the proximate cause of pumping up house prices]
- but if housing supply is elastic then house prices don’t have to rise much and rents can even fall [words fail me! Of course (new) housing supply is very inelastic, do the maths.]
- when land supply is relatively fixed, the key to elastic housing supply is allowing land to be used more productively through denser construction. [Land is always in fixed supply, and it is good to see at least a mention of the most important factor determining the market price of houses! But will intensification will save us all? Probably, but not until the market is fixed.]
So ONE correct and obvious conclusion, two abstruse and unattainable conclusions
****HERE’S MY DEBUNKS
No More PPs won’t and didn’t fix it, on either supply or price
Oxford boffins say building more hasn’t slowed HP rises, nor will it.
Ireland shows why even massive build-more didn’t SHoPRi
My first blogpost in response to Govt’s Fixing Our Broken Housing Market inanity