
How cheaper housing can boost productivity - brendannee
http://www.economist.com/blogs/economist-explains/2015/07/economist-explains-12
======
x5n1
Housing is the #1 money sink in developed economy it consumes by far more
money out of people's pockets than anything else. And the banks and the owners
of capital are totally okay with this. And as the housing crisis showed, it's
in no way a sure bet. It's a gamble just like anything else.

~~~
vbezhenar
What makes houses in developed countries so expensive? I live in Kazakhstan. I
can buy some land near city, it would cost me $5-10k for 100 sq. meters of
land. I can build my own house for $40-80k (including materials and workers).
It might not be the huge house, but it will be fine to live in.

Is land more expensive in developed countries? Are materials more expensive?
Are workers more expensive? (probably all components are more expensive, but I
still don't understand where those hundreds of thousands of dollars are coming
from, those prices are just insane).

~~~
x5n1
In Kazakhstan you would have to save for that housing. In developed countries
banks loan you the money for the housing. Which essentially means that housing
price is determined by how much money people make. The more money people make,
the more the people selling the house demand because the banks are willing to
loan them that money, based on their ability to pay the amount on their
mortgage. So in essence housing always costs a significant portion of whatever
you make. That then affects the pricing of land. Labor is also very expensive,
at least legal labor. In California you have a lot of illegal Mexicans that
you can use for cheap construction, but elsewhere labor to build housing is
also very expensive because they expect to be able to function in the economy
so they charge a premium for their services, unlike in the third world where
construction workers are treated like crap. So to answer your question
everything is expensive here and the cost is determined by how much money
people make rather than some other value.

~~~
branchless
This guy gets it. And the corollary? No matter how efficient we get land will
soak up all surplus wealth creation.

Land value tax.

~~~
norea-armozel
I use to be against LVT until I thought about the scenario where you have
someone who buys a house cheap (probably a poor neighborhood) and renovates
it. Under our current system of property tax, which depends on the assessed
value of the property plus improvements, that inevitably prices home owners
and renters in the neighborhood over time. Hence one of the reasons why
gentrification pushes out the original residents from the neighborhood. And
who gains? Those who do the improvements and those who bought the property
before the up tick in valuation (and property taxes).

But under LVT, the tax stays the same whether or not you improve the property.
Obviously, there may be some means to game the tax, but ultimately land
speculation and gentrification wouldn't work out so well. Rents would still
rise due to property improvements, but people would be able to justify those
rents based solely on said improvements and not on some market bubble due to
speculation. Plus, any improvements done by anyone (speculator or not) are not
taxed any worse than those who can't afford or see no use for improvements.
Ultimately, it's a more balanced approach to a real problem to be sure. Or at
least it's one part of the solution.

~~~
branchless
It's a method that attributes reward to where the effort is put in, therefore
you can be sure the rich hate it.

------
branchless
Time for this again, from _The Bank of England 's_ blog:

[http://bankunderground.co.uk/2015/06/30/banks-are-not-
interm...](http://bankunderground.co.uk/2015/06/30/banks-are-not-
intermediaries-of-loanable-funds-and-why-this-matters/)

> _the key function of banks is the provision of financing, meaning the
> creation of new monetary purchasing power through loans, for a single agent
> that is both borrower and depositor. Specifically, whenever a bank makes a
> new loan to a non-bank customer X, it creates a new loan entry in the name
> of customer X on the asset side of its balance sheet, and it simultaneously
> creates a new and equal-sized deposit entry, also in the name of customer X,
> on the liability side of its balance sheet. The bank therefore creates its
> own funding, deposits, through lending. It does so through a pure
> bookkeeping transaction that involves no real resources, and that acquires
> its economic significance through the fact that bank deposits are any modern
> economy’s generally accepted medium of exchange._

Banks create money and lend it against land. This is how western "economies"
create money which we then label "growth".

The more productive we become the more the landlord takes.

[http://www.henrygeorge.org/pchp0.htm](http://www.henrygeorge.org/pchp0.htm)

[http://www.henrygeorge.org/pcontents.htm](http://www.henrygeorge.org/pcontents.htm)

------
ajuc
> One paper published in 2010 found that absenteeism among German workers
> would be 15-20% lower if they did not commute. If it were somehow possible
> to scrap commuting altogether, the British economy would see a productivity
> boost worth £12 billion a year, according to the Centre for Economics and
> Business Research, a think-tank.

Allowing occasional working from home has the same effects, and require no
investment in infrastructure.

> But it is not just housing markets that hold back productivity. According to
> one study, employment in the Bay Area around San Francisco would be about
> five times larger than it is but for tight regulation on construction of all
> types.

I'm not familiar with Bay Area, but in Poland people constantly complain about
overregulation of construction, and we have much less restrictive construction
law than in western Europe (and it shows - public space in Poland is awful
compared to Czech Republic or Germany).

You can have too loose construction law, and the result is a city centre were
nobody lives - people just commute to work and back. This results in suburbia,
and longer commute times - the direct opposite of the effect they wanted to
achieve with the first point in that article.

~~~
jon-wood
> If it were somehow possible to scrap commuting altogether.

Indeed. If only there were a way that people could do work without travelling
to a specific desk in a specific building during specific hours.

~~~
Gys
The problem is actually in the time and boredom while traveling. So maybe
autonomous cars, workplaces in trains or (far fetched ;-) teleportation could
improve the 'commuting-problem'.

I think most people still like to work physically with other people. That is
why I go to a co-worker space. Because I am actually more productive at home.

~~~
TeMPOraL
Boredom while traveling is something that could be solved for most, but it
goes against the will of people and various cost-cutting solutions. You could
get rid of cars in the big cities and replace them with more public
transportation. But people won't willingly give up their cars because of
various - often not very rational - reasons, and the public transportation is
being developed in the wrong way too. Someone figured out the cheapest way to
increase the capacity is to replace sitting places with standing places, and
so each new generation of buses and trams has less space to sit down. To get
rid of boredom in commute, you need the opposite - have much more sitting
spaces, so that commuters can read books comfortably or work on their
computers.

~~~
dasmoth
Not so very long ago, there seemed to be a movement in quite the opposite
direction: live somewhere car-friendly and work on out-of-town campuses with
ample parking.

While I'm another one who believes that the ideal commute is "step across the
hallway" (or perhaps an office at the bottom of the garden...), I'd argue that
the old low-density promise of commuting 20 or 30 minutes on open roads isn't
so bad (and certainly no more taxing than what the public transport/new-
urbanist lobby seem to be proposing). Why is this never on the agenda any
more?

~~~
TeMPOraL
I don't know why there's such "new-urbanist lobby" in the US, but in Europe
you can't realize the dream of "open-road commuting" and low-density
employment, not without turning the entire continent into one big suburbia. I
don't think we have enough land for that.

I'm personally for public transit because of efficiency. Even if you could
somehow get that "old low-density promise of commuting 20 or 30 minutes on
open road", which would definitely be not a bad situation for commuting, it
would still be an energy disaster. Mass transportation and high-density
settlements are much more energy-efficient, and energy is one of the biggest
problems we're facing as a civilization right now.

~~~
dasmoth
The UK has 26.7M households in 243,610km^2. That's nearly a hectare per
household -- doesn't sound "suburban" to me (although maybe some parts of the
US would disagree!).

Of course, the UK population is _very_ unevenly distributed at the moment...

~~~
TeMPOraL
You still need land for agriculture, industry, forests, animal habitats, etc.
Also, not all of the land in that 0.25M km^2 is habitable nor suitable for
other uses mentioned above.

I've heard some calculations that in theory you could have all 7 billion
people living comfortably on 50% of the land while the other 50% could go to
agriculture, industry, forestation, etc. but that would require geoengineering
on an unprecedented scale, not to mention being very energy inefficient.

------
massysett
Naively assumes that the building restrictions cause permanent productivity
losses. Instead, building restrictions likely push some jobs elsewhere. Since
housing is too expensive in SF, some tech jobs go to other places. Since
housing and office space is too expensive in NYC, some finance jobs go
elsewhere.

Some amount of municipal planning is a good thing. It provides needed services
for residents and increases the quality of what is built. But there is
probably a limit to how much growth a government can handle in a responsible
way. That suggests that building restrictions might even be a good thing. If
the government is overloaded, the restrictions push the growth to other areas
where the governments are more eager to plan for the growth.

~~~
repsilat
> push some jobs elsewhere

The theory goes that these high-density population centres have higher
productivity, for a couple of reasons:

\- "Truer" competition -- distance is an artificial barrier that reduces
employees' access to jobs and reduces employers' access to job candidates. It
also reduces companies' access to each other.

\- More cross-pollination as people a free to move jobs more often and (in
theory) have more interactions with other companies.

There are no doubt some downsides to concentrating all of your nation's
business in one place, and things like telecommuting and fast public transport
will have the effect of bringing people closer together without straining
infrastructure as much, but there's really no alternative to density.

------
richliss
Its all about the vested interests.

One of the primary problems in London, and probably many countries with
similar issues is that the politicians are far more likely to be landlords
than the general public.

I read that in the UK 1 in 4 members of parliament are landlords, compared to
1 in 30 for the general public.

The side effect of this is that ever increasing demand for property, and then
passing laws that make demand even stronger (right to buy for example), whilst
limiting building programmes increases the politician's wealth for zero
effort. They don't have the money to profit from lots of new builds, so its
easier to constrain supply, and the general public who own houses will think
they've never had it so good because their house is worth more.

Same thing in the US but for the arms industry.

Also mix in the fact that huge numbers of new build London apartments are
being kept empty by Chinese owners (and others) and you've got a crisis
waiting to happen.

There's going to be a tipping point for London - when young white collar
workers such as software developers, accountants, graphic designers, marketing
professionals and the other skills that make London competitive won't be arsed
to travel to London for 1-2 hours, or live in a shoebox to get a salary that's
15% higher than in Leeds, Birmingham or Manchester where they could have a
large house.

The way out isn't just building more property, but passing laws that force
owners to rent out properties when they own more than say 3 or 4. Although
that would of course crash rental income, so politicians won't do that either.

------
fedor-cc
Situation here (in Hong Kong) is one of the worst in developed world.
Government owns all land and supply is almost nothing. Dispite the reputation
of overpopulated city (its true) only ~20% of area is used and only ~8-10% is
residential area.

Sadly, general public don't read Economist or at least look at the facts. Govt
"subsidies" public housing instead of land supply and ppl seems to complain
but not analyze the issue.

------
ralphgsn
It's funny how HN people are all like "capitalism is awesome!" and then they
complain when housing prices are high.

~~~
Kiro
What are you talking about? The HN crowd is known for its anti-capitalism.

~~~
pessimizer
And its laissez-faire libertarianism.

------
venomsnake
> Unless productivity picks up, wages cannot grow. Investing more in
> education, health care and technology is the normal way of boosting
> productivity growth.

We could always put progressive tax on capital and property. It will be very
efficient redistribution.

~~~
x5n1
Yes these were the rules. And then the rules changed. Now people don't need an
education as what are they going to do with that education if there are no
jobs. There is no need for more productivity because there are no more jobs,
the robotic algorithms are already designed to auto-optimize and so they are
as efficient as can be. Health care eats most of the the budget because people
are old and don't want to die. etc. etc. </hypothetical future>

------
lukiebriner
It is a self-feeding problem in London. It attracts job so massive government
investment is made, which attracts more people but also pushes prices up so
high that we need to give benefits to certain people who can't afford to live
there.

If investment was made to comparable levels in any of the 10 or more other
large cities in the UK so companies don't feel the need to work in London,
perhaps we would solve productivity without producing a Mega-city.

It sounds easy and I know there are loads of bureaucratic hurdles and it
doesn't help that local councils don't always want the change that is needed
in their nice cities to create the influx of jobs...

~~~
branchless
It's not just about the wealth added to private land holders via public
investment. It's about loose credit from banks plus the fact that London is a
great place to wash dirty money via property.

[http://www.independent.co.uk/news/uk/home-news/london-
proper...](http://www.independent.co.uk/news/uk/home-news/london-property-
boom-built-on-dirty-money-10083527.html)

Also why do we "need" to give housing benefits to people? They don't go to
people they go to landlords who have set their prices higher than the market
can bear.

I'm afraid I disagree with you - the jobs aren't paying for the cost of land.
The state, corruption and printing money via land are. And without it all the
UK economy would have collapsed.

They will never try to stop the cheap money and money laundering.

