Home > Policy > Broad-based home ownership is a disaster

Broad-based home ownership is a disaster

For reasons that have never really been clear to me, governments seem to love promoting home ownership. The utterly monstrous mortgage interest tax deduction was thankfully abolished in the UK in 2000, although the capital gains tax relief on primary residences unfortunately remains.

 

One of the many problems with broad-based home ownership is that it creates a broad constituency of voters who want house prices to rise. This is at odds with the simple observation that high prices are almost universally a BAD thing. At any given level of nominal income, if the prices of things we want to buy are higher, then we are worse off in real terms. More expensive houses means we can afford less housing. The desire of homeowners to have increasing house prices leads to a fallacy of composition; it is individually rational for any individual homeowner to vote for policies that increase house prices, however it leads to the collectively irrational outcome that we can all afford less housing.

 

What kind of policies lead to higher house prices? Well, anything that restricts the supply of housing, or increases the demand for housing relative to other goods and services. It’s the former that are extremely dangerous, and the latter leads to more people having an incentive to vote for the former. Combine this with NIMBY-ist attitudes towards development, the unpopularity of property developers and the completely mistaken belief that the UK’s ridiculous planning permission policies are against developer’s interests (hint: property development would be a lot less profitable if relationships with local planners and knowledge of the process didn’t create such high barriers to entry) and you have a recipe for fewer homes and higher prices.

 

Just one of the many reasons to build more skyscrapers.

Categories: Policy
  1. June 26, 2013 at 1:00 am

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