Why I think Regulation and Planning will Be Needed for Lower House Prices
We do share many common interests, although I don’t think we see all of the problems in the same way. House prices has been a concern to me for a long time. In Norway, where I live, prices has just gone through the roof and we are seeing a massive redistribution of wealth from the young to the old.
Ironically this wealth transfer does little to improve the living conditions of the old. They are usually set in their ways and don’t feel like moving. Hence sometimes they sit on property which is essentially a gold mine, while they can barely afford proper food.
In Oslo, where I live we are hit but several factors driving up house prices. You cannot build very tall building in Oslo, because we are so far North so tall buildings would block out too much sunlight for people when the sun is low on the sky.
The green area around Oslo, where people go hiking and skiing is pretty much off limits for buildings. Also farmland is also not really available. We have very little farmland in Norway, so building on it is strongly discouraged. And when some building does get aproved, neighbours can engage in NIMBYism for a long time, making a big stink about the plans causing costs to go up for builders who get delayed.
So I agree with you that regulations can help drive up costs and that one should allow more land to be more easily built. In Oslo I think we have to accept more building in the green belt, as well as making the process of getting a permit simpler. People should not be able to object indefinitely.
Government Incentives as Important as Government Obstacles
Thus far I think we are aligned, but this is where we diverge in the analysis. Your criticism seems to mainly center on obstacles government setup. However I think government incentives are a bigger part of the problem. The US, UK and Norway all have a similar destructive incentive. Our government all actively encourage home ownership by giving tax breaks for interest rate payments.
I believe this drives overinvestment into property. The whole mentality in Norway is that borrowing huge amounts of money to buy a house is somehow the proper and safe way to invest. Investing in stocks, certainly borrowing to do so, is considered reckless and irresponsible. Over the years Norway’s economy has grown strongly from oil money. Or rather from the oil fund having the ability to stabilize the economy. E.g. the 2008 crash was barely noticed here as government could just use some of the enormous oil fund to prop up the economy.
Hence people have gotten richer and people want nicer location, bigger or nicer houses. With everybody flush with cash and super low interest rates, they can throw money at the housing market. Yes you could argue that the prices rapidly increase because one cannot build enough in the periphrial. But that isn’t the whole story. People don’t want to live far out. People want to live close to the centre.
So as long as too many people are fighting for the same houses in a small area, and these people are flush with cash from cheap credit, while believing housing prices will reach the moon, there is nothing stopping prices from spiraling out of control.
The German Alternative
We can look at a counterpoint to this. Germany does not incentivize home ownership. German don’t treat property as investment like we do. In Germany you see far more modest house prices. Renting is also fairly cheap. The Netherlands also had somewhat simliar policy I believe for a while. It was interesting living in the Netherlands and seeing house prices was actually somewhat lower there than in my native Norway despite building being strictly regulated and the country being far denser. I think this is changing in the Netherlands as they also encourage home ownership today.
When my parents bought an apartment back in the 70s prices where much lower. Back then a lot of the house prices where governmen regulated. That created its own problems. E.g. people could afford a house but there was basically waiting lines, and a lot of unofficial payment (under the table). People got sick of it and it got deregulated. Yet I am not sure if we are much better off today. Now the market rules. There are no waiting lines for apartments, but that is of course because so many people are entirely priced out of the market. There was also a market for houses then, but even there prices where much lower than today, because requirements for starting capital (downpayment?) was higher. Today house prices are growing far faster than incomes.
My solution would include many different measures:
1. Stop subsidizing home ownership. Put renting and home ownership on equal terms.
2. Increase starting capital requirements.
3. Make it easier to make other investments than in property for people who want to do simple long term investments. Don’t keep making property the default for people.
4. Allow more areas to be built up. Accept that more green areas are built on.
5. Simplify building permits. Give neighbors less power to object to building.
Change in Professions and Industry Drives House Prices as Well
But beyond that there are deeper problems that are harder to formulate a concrete policy around. The nature of industry and business is changing in Norway. In earlier times a lot of people lived in small towns with a single big important factory utilizing some natural resources. Could be a fish processing plant or like Hydro fertilizer plant, which had to be located where the waterfall was, because power could not be transported far distances back in the early 1900s.
Yet fewer people work in those kinds of industries today. More people have white collar office jobs and those tend to cluster in the bigger cities such as Oslo. Thus despite the population not growing that fast, Oslo is growing rapidly and it does not really have anywhere to put people.
Urban Sprawl is Not the Solution
This is where I think I deviate from your way of looking at the problem. I don’t see continued urban sprawl as a solution (apologize if I misunderstod you analysis). I have lived in the US and seen the massive road networks required for even moderately sized towns because everbody drives. I have lived several years in the Netherlands and seen an entirely different direction for urban planning. The Dutch downs I have lived in are absolute architectural beauties. It is like living in a beautiful museum. Canals and narrow cobblestone street and fairly small brick houses. Okay they are all about 3–4 stories high in the downtown areas but in general the Netherlands does not have very many tall buildings.
A North American approach of simply building roads and expanding housing would have killed these towns. The Dutch bike revolution that began in the 70s was in lage part a counter revolution towards an Americanization of these towns that was killing them. The road networks in these towns was not built for North American automobile lifestyle.
And this is what fascinated me endlessly about living in the Netherlands. You had these really dense cities that still almost felt like vilages because there was relatively little car traffic. Instead there was a massive amount of biking, and public transport was very well built out. Imagine when looking at huge clusters of bikers on the road how it would have looked if every one of them sat in a car instead. It would have been a disaster.
I very much enjoyed Dutch city life and a big part of that was the bike culture and vibrant downtown areas. We are seeing some of that development in Oslo as well. Biking is increasingly being used. Parts of downtown is being closed off from cars like in many dutch cities. Bike rental, bike paths etc is expanded as well as public transport.
I think this is important because North American style urban development is not something I find very attractive. The American cities which has let sprawl go unchecked like Houston, sure has low house prices, but they are also not very nice cities IMHO. You get donut cities where all business happens in a band outside the downtown. The high car use create desserted areas where people are only to be seen parts of the day. Most of the days these areas look abandoned.
The Cost of Low House Prices from Urban Sprawl
These “low” house prices don’t come without a heavy price that has to be paid elsewhere in the form of crime, social dysfunction and poor health outcomes. The west is experiencing an obesity epidemic and I don’t think encouraging an even more car centric lifestyle is desirable. The pattern is pretty clear IMHO. The most car centric western country, the US also has the highest obesity and health problems. While the direct opposite, the Dutch with their strong bike culture have very low obesity levels and are quite healthy.
There is also a value in autonomy for young children and teenagers. What I noticed most starkly living in the US, was how teenagers essentially got infantilized. They had almost no autonomy because everythign relied on using a car. Until they had a drivers license they had no autonomy. I could compare with Dutch teenagers who early on could bike to friends, go to movies together, a park or whatever entirely on their own initiative. No parents had to be involved.
Hence I don’t think the way forward is a 50s style car driven Utopia. That has IMHO been a failure. Look at Brasilia e.g. as a classic example. Instead we must find ways of being able to create more local communities. Where people can live, work and interact at a more local level. As far as I am concerned the big enemy is really centralization. I have seen this going on in Norway now over many years. I could when I was young simply bike to hospital or walk to a pharmacy. They where not that far away. Same with the police station or post office. Now important functions are getting centralized and made bigger. They get ever further away and a car become more and more important. We end up driving more and more. Cogesting the roads ever more, beccause everything we need to do is getting spaced further and further apart.
If you work, health care, shops etc was all much closer to where you live, then house prices also would not need to rise as quickly as there would be less pressure on everybody trying to live exacty the same place.
This future does not require more deregulation and marke economics. It requires more planning and guided development.