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.
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).
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.
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.
The big thing you pay for is to have good neighbours. You want to live close to highly productive in your field. You want to live far away from the criminals. You want to live close to fun people to hang out with.
If Alice and Bob want to hang out then they have to pay a big proportion of their wage to Charlie the Capitalist for the privilege. The land owners sell us to each other.
All those are more expensive, but its mostly land prices. We are talking about cities too, you can hardly buy a plot of land in London, as it is largely built on. Prime central London property costs £20k/square meter and rents are £50/square meter per month, so if you move your 100 square meters of land to London you can do well out of it!
More stringent building regulations probably add to the cost, but the planning system is the big factor. "Desireable area" makes a difference in some cases: a while ago Stoke-on-Trent were selling derelict houses at £1 to anyone who promised to renovate and live in them.
Who will build the infrastructure (roads, electricity, water, sewage)? If you build sth without planning you can block or make it harder to provide these services to others. It only makes sense to plan such thing beforehand.
Planning restrictions are very popular with the local public. So much so that some places in the US invent their own weird private contract law versions (HOAs).
> 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.
> 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.
> You can have too loose construction law, and the result is a city centre were nobody lives - people just commute to work and back.
It's not that Poland (or any other country) needs more laws. It's a problem of incentives, or lack thereof.
If a construction company has bribed politicians to keep giving them lucrative gigs on other people's money, they will have no incentive to actually do a good job.
If, on the other hand, there were free competition among construction companies, they would all strive to do their best so that they would be awarded more gigs in the future.
It's as simple as "corruption", but that's a misnomer because that's just the system working as intended. What's the point of being a city official if you're not in a position to get bribes one way or another?
With great power comes great.. opportunities for collecting bribes!
I don't think the corruption is the main problem here. Nobody pays bribes to paint their commie block in fuchsia-green stripes (it's a thing here, I guess because of 50 years of shades of gray everywhere). Or to put 20-meter tall billboard on their small plot in front of XIII-th century castle. Or to build "Mountainer style one-family-house" between 16th century tenament houses. With huge brick wall all over it, and billboards on every square meter of the wall. It's chaos.
It's just that after communism people consider all regulation "communist-like restriction of God-given freedom".
It changes slowly for last few years, but '90s and '00s were awful.
You seem to be describing the results of shitty construction companies getting gigs even though they produce shitty, "chaotic" results. But you somehow don't think it's because of "corruption" anyway?
Do you think you need a law that says "construction companies must build sturdy, reliable, good-looking buildings in good taste, or else!" .. ?
> You seem to be describing the results of shitty construction companies getting gigs even though they produce shitty, "chaotic" results.
My examples were of people building or "upgrading" their houses by themselves and covering them in billboards. No developer or corruption needed. They have the right to do that - it pays (or it satisfies their needs) so they do that. Externalities be damned.
Sure, there is some corruption, but that's irrelvant, if there was law forbidding building malls with huge parking lots in a historic center there would be no malls and parking lots there, no matter the amount of corruption. Law isn't outright broken, just the corner cases are abused, and law covers very little of what it should.
> Do you think you need a law that says "construction companies must build sturdy, reliable, good-looking buildings in good taste, or else!" .. ?
There is no problem with "sturdiness". It's in the law, and people obey. The winter/summer cycle here ensures people don't skimp on good quality.
I think there should be law specifying which kind of buildings should be build in which region. Incliding details like "which kind of roof", "how high", etc. There's nothing wrong with one-family housing, but the kind of fence you can use should be specified. Otherways people build 3-meters-high solid walls to have village in the midle of city.
There should be ban on huge billboards in the city center. It's not some evil corporations donig it, it's small few-person or family companies. They are engaged in spiraling war for attention, covering cities with bigger and bigger ads. It's out of control, like banners on early '00s internet. And there's no adblock for brain.
> Sure, there is some corruption, but that's irrelevant [..] Law isn't outright broken, just the corner cases are abused, and law covers very little of what it should.
How could it possibly be irrelevant? We're talking about countless millions of dollars (over time) of other people's money being used here. Why would anyone work hard to get himself into a position to decide who gets it, if there was nothing in it for him?
You want more regulation, but what exactly do you want the laws to say? If there's no problem with quality, what is the problem?
If the problem is just that you personally don't like X, Y and Z, then there is no real problem.
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.
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.
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?
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.
Yes, individuals optimize traveling focused on cost (less space = cheaper) so they get what they want. Whereas society and employers would like to see higher output. If only 'they' were willing to pay for that.
Personal happiness is mostly a long term goal which does not go well with short term needs.
This sentence jumped out at me too. Of course, not all jobs are amenable to remote work, but many are. However, it will take a long time to change the expectations of managers and coworkers to reflect this new reality.
> in Poland people constantly complain about overregulation of construction
In Poland people constantly complain about overregulation of pretty much everything (I'd say complaining itself is our national sport, but that's another topic) - but that's probably typical of humans. It's easy to complain about overregulation when the government tells you you can't do whatever you want and dump externalities on everyone around you.
But I agree with your conclusion. We have quite lax construction laws and people still commute. I don't really see how the two are actually related in practice. Majority of people doesn't get to pick and choose jobs. You can spend months looking for a good opening, and if you don't like one because it's on the other side of the city, then no worries, there are thousands of people who will happily take your place.
IMHO making it easier, cheaper, and less risky to rent flats is the low-hanging fruit.
You can't predict where you will work in 10 years, why expect to live in the same house for 10 years? Of course - not wanting to move kids to a different school is valid reason, but still kids change school every few years. Many people could reduce commute with no bad side-effects, if not for the problems with renting flats.
People are very careful about renting flats to families with kids, because it's very hard to expel them if they stop paying right now.
>> If it were somehow possible to scrap commuting altogether...
I'm about to start a remote job, and this is the bit I'm most looking forward to. I'll be able to claw back that 2 hours I'm losing every day to a pointless commute.
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.
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.
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.
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.
Not sure if those are always the same people :). There's only a subset of HN participating in each discussion, and those subsets often don't overlap between the topics.
Putting aside the fact that capitalism is the private ownership of the means of production, and that you probably mean something like "free market" which is very much not the same thing at all, housing isn't a free market. It's subject to massive restrictions and barriers.
> 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.
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>
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...
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.
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.