<- 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
= = = = = = =
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
https://twitter.com/jburnmurdoch/status/1703752585386094633
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]
john.burn-murdoch@ft.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
1.Apr21
http://housescheaperbettermore.blogspot.com/2021/04/cps-tory-thinktank-still-flogging-dead.ht
No More PPs won’t and
didn’t fix it, on either supply or price
2. http://housescheaperbettermore.blogspot.com/2017/11/its-true.html#more
Nov2017
Oxford boffins say building
more hasn’t slowed HP rises, nor will it.
3. http://housescheaperbettermore.blogspot.com/2017/07/
july2017
Ireland shows why even
massive build-more didn’t SHoPRi
4. http://housescheaperbettermore.blogspot.com/2017/04/building-more-houses-wont-bring-down.html#more
apr2017
My first blogpost in response to Govt’s Fixing Our Broken Housing Market inanity
