The ONS's definition of household:
A household is one person living alone, or a group of people (not necessarily related) living at the same address who share cooking facilities and share a living room, sitting room or dining area. A household can consist of more than one family, or no families in the case of a group of unrelated people.
Higher housing costs mean fewer households. Children live with their parents for longer. Graduates move into HMOs because they can't afford a one-bedroom flat. Households growing at a slower rate than dwellings doesn't mean there isn't a supply constraint; it can often mean the opposite.
If I wanted to prove your point, the test would be whether the number of dwellings grew faster than the number of people, not the number of households.
1I'm not sure I agree that lower housing costs wouldn't represent a boost to productivity.
UK average household spend on housing is ~17%:
In London rents are a much higher percentage, somewhere between 45-50%. (Will update with the exact number and a source later.)
Understood as a pot of money that could otherwise be spent on other things, I'm not sure I buy that lowering housing costs wouldn't boost the economy.
Excessive housing costs create negative spillovers that hurt productivity in other sectors. If workers have to commute longer because they can't afford to live near work, that reduces their available working hours. If businesses can't attract workers because of high housing costs, that constrains their output. If consumer spending is constrained by high rents, that reduces demand (and thus production) across the economy.
It's possible that these spillovers aren't occurring – this comment doesn't constitute proof – but basic economics would suggest they are.
The UK housing crisis isn't just about productivity. Hold productivity fixed, and increase floor space, amenities, access to public transport, consumer choice in housing. Is this a UK we'd prefer to live in? Presumably yes.
We can still disagree about where to stack-rank it on our list of priorities, but that's not really what we're discussing.
Tail wagging the dog. High productivity areas cause higher housing costs – just like in London.
The Bay Area example doesn't explain why lowering housing costs wouldn't increase productivity - it just shows that low housing costs isn't a necessary condition for it.
I take it we agree on the basic validity of the laws of supply and demand. My first question: where, if not supply constraints, are these high prices are coming from?
UK house prices are nearly 10x earnings:
Rents in London are amongst the highest in Europe: https://twitter.com/jwhandley17/status/1779782460944900196
But if these aren't supply problems, what explains them?
Great work, Zvi.
I wonder what framework you're using to select which policies to tackle. What you've written here presents a function f: X -> P to go from policy area / idea / problem X to effectively implemented policy P. How are you choosing X?
Sure, but coming up with what to try, which hyperparameters to adjust, which heuristics to apply, etc. is not something for which we have a meaningful programme. You can’t brute force taste!
(Even if we eventually CAN, we’ve got a long way to go before we can disregard the intentions of the researchers entirely. You can’t Goodhart taste either!)
Maybe? For the median person, healthcare seems better, disposable salaries are higher, variety and quality of food is generally stronger. The US does a lot of things better. Housing, for sure, is one of them. But I'm not sure how this is a response to my point. Could you clarify?