Affordability, the "Wealth Ladder," and the True Causes of the Housing Shortage

Count Binface became an international phenomenon this past summer.  For those who are unaware, the Count is a "novelty candidate" who has used the UK's easy ballot access to run for a series of offices as an ongoing publicity stunt.  Interestingly, the man behind Count Binface is a British comedian who happens also to have a classics degree from Oxford, which means that his political persona is both hilarious and unexpectedly well informed.

In the "About Me" section of the Count's website, he helpfully explains that

I’m an intergalactic space warrior and leader of the Recyclons from planet Sigma IX. I came to Earth in 2017 and stood against Prime Minister Theresa May (as ‘Lord Buckethead’), going went viral (in a non-Covid way). Then in 2018, after an unfortunate battle on the planet Copyright, I rewspawned [sic] in my true form as Count Binface to take on Boris Johnson in the 2019 election, where I scored a surprising 69. In 2021, I received 92,896 votes (including 24,775 first choice votes) from the humans of London, who made me their 9th choice to be Mayor of the Earth capital, out of 20 candidates. This is a new record for an alien standing for public office on planet Earth.

It goes on from there, but the point is made.  Sigma IX sent us its best and brightest, and we should all be grateful.  But what would Count Binface do, should he ever be elected?  His website begins with a full list of his promises, out of which I will offer just a sample:

• Arcade grabber games to be made fairer so players actually have a chance to win.
• A windfall tax on cozy crime novels written (or “written”) by celebrities.
• A referendum on whether Pluto should regain its planet status.
• Cyclists who break the highway code to be forced to ride unicycles instead.
• People who use speakerphones on public transport to be conscripted.
• The hand dryer in the gents’ toilet at the Crown & Treaty pub, Uxbridge, to be moved to a more sensible position.

He also still wants to "nationalise Adele."  Notably, however, his platform includes some ideas that at least touch on serious policy issues, though often in an unserious way, including this: "I will cut your taxes, and raise everyone else’s"; and having the water managers of the river that runs through London "take a dip in the Thames… see how they like it."

And now for the smooth transition into today's policy discussion.  Yes, this column up to this point (clearly excluding the headline) is a shameless version of click-bait.

Count Binface also promises this: "I pledge to build at least one affordable house."  Why is that important?  Because it shows that even the most "out there" candidate (in every sense) in a wealthy country thinks it useful to talk about the housing affordability crisis.  He sensibly does not cover every issue that he might, but he talks about housing, pollution, and a small number of other issues that genuinely matter to people.

On housing in particular, his proposal unmistakably implies that other politicians have talked for years about providing affordable housing without keeping their promises, such that Count Binface can stand out from the crowd of standard politicians by saying, in essence: "Yes, this is a pathetically minimal response to a real problem, but at least you know that I'll carry it through."

And that is in fact very important, because one of the most pressing policy problems around the world today is the housing affordability crisis.  Name a city, at least in a relatively wealthy country (a caveat that I add simply because I have not looked at the data for relatively poorer countries), and it is experiencing a housing crisis.  New York, Dublin, Vancouver, Sydney, Lisbon, San Francisco, London, and on and on.  All are in crisis.

Indeed, it is the rare city that does not have at least an ongoing political conversation running at full boil around housing.  And if I were to name any city as an exception, suggesting that it did not have a housing crisis, I have no doubt that I would be inundated with messages telling me that I am quite wrong.  And I would be wrong in anything other than a relative sense.  For example, my read on Chicago's housing market is that it is terrible for a lot of people, but probably not as bad as, say, Miami's.  One could then dive into the data, but the point is that housing seemingly everywhere is more scarce and expensive than ever.  (Chicagoans, please walk away from your keyboards!)

So yes, housing is a big deal.  When I have written about it over the years, however, I have focused mostly on a key sub-category of the housing policy debate: whether it makes sense for governments to continue to favor people owning their dwellings rather than renting them.  With rare exceptions allowing for some nuance (most importantly the losses that current owners would be forced to swallow during any policy transition), my conclusion has been consistent: not only is owning not (as most people believe) obviously superior to renting, but it is in fact much worse.  Pro-ownership policies and attitudes are therefore harmful.

I will come back to that issue toward the end of this essay, but before I move on, it is important first to make it clear that there is no home ownership crisis (anywhere, as far as I am aware).  Rather, there is a housing availability crisis.  If there were enough dwellings available for everyone, dwellings that are affordable for either purchase or lease -- it would, in fact, have to be both -- then we could have a secondary debate about the buy-versus-rent question.  But what matters now is that there are simply not enough dwellings for the people who would take them if the cost were not beyond their means.

An at least B+ student in Intro to Economics would say that this is simple: supply of housing currently only meets demand for housing at a price that pushes many people to live with their parents, on friends' sofas, in cars, in parks, and so on.  Surely, even assuming that economic transitions are sluggish, we should see a situation in which there are buyers who clearly could afford somewhat-lower costs and sellers who could make a profit at that somewhat-lower price.  In other words, a housing shortage is merely a housing boom waiting to happen.

Longtime readers of this blog know that I am an apostate economist, and I tend to mock simplistic pronouncements offered by the former A students who become economists.  On this issue, there is room for plenty of skepticism, but the fundamental idea is correct: unless there are more physical places in which people can live, average prices will not come down.

But returning to that question of economic transitions, just how sluggish should we expect them to be?  One might think that at most a few years of shortage would bring forth a building boom nearly everywhere, yet we have not seen that kick into gear.  Why not?  The familiar answers include NIMBY effects such as local opposition to multi-unit or high-rise developments, which I have seen up close when I lived in Toronto but are most obvious throughout California.  And although Democrats run the government in the Golden State, they are dealing with two deeper problems: hyper-local power over housing decisions, and the perverse effects of 1978's Prop 13, which entrenches housing market stasis via property taxes.  That is too far afield to discuss here, but the point is that California's Democrats are not the ones who saddled their state with that terribly destructive policy.  It was now-standard mindless Republican opposition to taxes.

On the larger question of sluggishness, other explanations can be similarly counterintuitive (or at least non-obvious).  A recent BBC London feature asked this key question in its title: "London has a housing crisis - so why aren’t its flats selling?"  That question evokes the supply-demand idea, but in an especially interesting form.  They are not, after all, wondering why new units have not yet been built.  In London, there are people who want to sell alongside people who want to buy, but the flats are not changing hands.

Could that merely be a matter of sellers not yet having accepted reality, stubbornly refusing to reduce asking prices that were unrealistic for far too long?  Possibly, and if that were the explanation, then we would be back to the sluggishness question, the answer to which is: "It's only a matter of time."  Even if that were true, however, one of John Maynard Keynes's less famous aphorisms is that "[m]arkets can remain irrational longer than you can remain solvent."  In this context, that means that waiting for the Invisible Hand to fix the problem is a recipe for plenty of collateral damage.  It also evokes Keynes's most famous quip (coined in a different context): "In the long run, we are all dead."

The BBC London story, however, offered an explanation that includes some useful real-life details.  It begins by citing a credible data source showing that in 2025, 88 percent of London homes that had been put on the market for sale had not been sold six months later.  The eye-opening part of the story is that there is evidently a problem in London with owners of housing units whose heat and hot water have been cut off, making it impossible to sell their homes.  The current owners are left to create workarounds by heating water in makeshift systems, but they cannot sell their units even if they want to.

But wait, one might reasonably interject, would a new owner not merely contact the gas company and tell them to set up a new account?  That is, why would a buyer care that the seller was a bad customer for the gas company?  It turns out, however, that it is not deadbeat owners but entire blocks that have had utilities cut off because of leaks, followed by a failure of the relevant larger players to fix the leaks.  As the narrator of the video explains:

With so many companies involved in owning and managing and running these whole buildings, problems can often take awhile to get fixed.  The leaseholders who can't fix structural problems themselves are now caught up in a bureaucratic nightmare, as the companies who own and manage the blocks can't work out who should foot the bill.  Meanwhile, they can't sell the flats.

The video goes on to note that many of the flats in London were recently found to be unsafe, which owners discovered after a deadly apartment fire caused people to check whether their homes meet the standards set by fire codes.  Oddly, the narrator then changes the subject to high costs, blaming those on interest rates, taxes, "and extra regulations."  Why do I call that odd?  Because mere seconds after saying that too-loose regulations caused people to die in a fire and that other units have been found to be unsafe, she then lapses back to the old anti-regulatory blame game.  But would we not want there to be a renewed commitment to safety regulations?

In any event, what all of that means is that perhaps there are not as many available flats in London as it seems, if the definition of "available flats" is limited to safely habitable flats and those with working utilities.  All of which brings me back to my larger point that the supply/demand market solution is always more complicated than it looks, and often not because of supposedly excessive regulations or any such blame-the-government-first presumptions.  When the property managements companies, utilities, original builders, and insurance companies are not working in a system with clearly defined contract rights and legal responsibilities, even the most powerful hand -- visible or not -- will struggle to fix the problem.

Earlier, I wrote that I would come back to the buy-versus-rent question.  And here we are.  By coincidence, I wrote a Dorf on Law column late last year about a London-based news organization run by very young journalists who had run a piece about how horrible it is that young people cannot buy homes rather than renting them.  I quoted the narrator of that video, who offered this naive whopper:

Purchasing your own home is probably one of the largest and costliest that you'll make as an adult.  However, it's also one of the most financially advantageous.  No longer are you throwing money away to a landlord.  You're investing in an asset, an asset that, historically speaking, reliably appreciates in value.  In essence, the sooner you get onto the property ladder, the sooner you're financially secure.

Interested readers can look at my earlier column for a full explanation of why that statement is complete nonsense.  I am returning to that quote today, however, to note that the BBC London narrator from which I have been quoting voiced this complaint toward the end of the video: "[W]e have sky-high social housing waiting lists, record numbers of people living in temporary accommodation, [and] young people finding it impossible to get on the property ladder."

There is that British phrase again: "get on the property ladder."  The narrator spent almost the entire video describing people who are stuck owning property, ruing the fact that they bought but cannot sell, which perfectly illustrates my longtime argument against owning: buying a home (or getting on that ladder, if you will) is the worst kind of investment strategy, because it is an undiversified portfolio.  If the property goes down in value or becomes entirely unmarketable, the owner is, one might colorfully say, scuh-rooed!  Why would we worry that young people are being prevented by current reality from willingly climbing down the property ladder into that hole?

What would Count Binface do?  He is right that we need to build more homes, and he most definitely did not say that we should make sure that they are filled by young people who will own them rather than rent them.  More to the point, he at least seems to understand that the solution to the crisis in the housing market is not to let the private market sort itself out.  Affordable, safe housing is very much a matter of public policy, and the solutions include not just "build more units" but other policies that are too complicated to include on the leader of the Recyclons' website.

- Neil H. Buchanan