Friday, September 25, 2015

#268 / Two Markets

The July 2015 edition of Land Lines (pictured) contains a "Message From The President" that is well worth reading. In essence, the article argues that there is not one housing market, but two: 

The fundamental flaw of the housing market is that it is actually two markets, not one. Housing markets supply both shelter for local consumption and a globally tradable investment good made possible by broad capital markets that serve global investors.

To the extent that this analysis is correct, and I believe it is entirely on target, it is "impossible" for the private market to produce "affordable housing," since "housing" isn't really "housing" at all; it's an investment commodity, and the Golden Rule of economics is definitely in force. What is that "Golden Rule?"

Those who have the gold make the rules.

Or, in this case, those who have the gold set the price.

To the degree that we are, collectively, actually concerned to produce housing that can be afforded by an average or below average income family, we will either have to use public money to build the housing, and retain that housing in some form of public ownership, or we will have to impose direct price controls. 

There isn't going to be a "market solution."

Not so long as there are "two markets," with the global investment market calling the shots for both of them.

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1 comment:

  1. While there is clearly some truth to what was said above, I suspect the vast majority of housing is not much impacted by global competition. At the same time, however, it seems highly unlikely market forces alone will provide sufficient affordable housing. Large-scale public housing doesn't have a good track record in the U.S. and offering incentives to developers hasn't worked well either. A new approach is needed, but so far, it isn't clear what that should be. My guess is it will require experiments on the local level to see what works as opposed to some top-down "solution."


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