Housing Is a Product You Must Buy, and Capitalism Has No Answer for Those

Every rich country has a housing crisis, and every rich country has been promising to fix it for a generation. I want to argue that the promise cannot be kept by the people making it, and that the reason is not incompetence but the nature of the product.

Why It Got Worse

Whoever controls land, whether the government or the market, extracts from it whatever can be extracted. That is not a moral claim; it is what control of a scarce input means.

For most of history the extraction was limited, for a simple reason: the public was poor. There was not much to take, and taking it damaged everything else in the economy, because a population spending everything on shelter buys nothing else.

That constraint has loosened. Living standards rose, at least for part of the public, and with them the amount of money and labour that housing can absorb. The extractable surplus grew, and so the extraction grew to meet it. The crisis is not a malfunction. It is the system finding the new ceiling.

The Thing About Must-Buy Products

Capitalism is genuinely good at a certain kind of product: the kind you can decide not to buy.

If a phone is bad or overpriced, you keep your old one, or buy a rival's, and the maker feels it. The whole incentive to make things better and cheaper comes from the customer's ability to walk away. That ability is the engine. Everything the system does well, it does because of it.

Housing is not that kind of product. You cannot decline to live somewhere. You can buy less of it, or worse, or further away, but you cannot leave the market, and everyone selling into it knows that.

When the customer cannot walk away, the incentive to improve the product or lower its price disappears. There is no need to make housing better or cheaper to sell it, because it sells itself. What is left is the incentive to extract, and nothing pushing back.

Why the Politicians Cannot Fix It

The standard answer is that government should intervene. Build, regulate, tax speculation, zone differently.

The politician cannot. Not will not; cannot. The housing market is a concentrated interest with enormous resources and it sits on every legislator: developers, landlords, banks whose books are mortgages, and the very large number of voters whose wealth is their house and who do not want its price to fall. I have written about how a populist promising to fix housing is heard as sincere by the public and as noise by the donors. The donors are right.

A politician who actually engineered a fall in house prices would be destroyed by the people it cost, who are organised, before being thanked by the people it helped, who are not.

Why the Libertarians Cannot Fix It Either

The other standard answer is to get government out: sell the land to private hands and let them compete.

Follow it through. Give the land to commercial entities and they will do what commercial entities do with a must-buy product: extract the maximum, and spend nothing on making it better or cheaper, because the customer is captive. The dream is that several holders will compete the price down. They will not, because competing is hard and a cartel is easy, and with a product nobody can refuse there is no outside pressure to break the cartel. Several private landlords of a captive market form a natural cartel whether or not they ever meet.

So the market solution reproduces the problem with different owners.

Where This Leads

If neither the representatives nor the market can stop the extraction, then on the current arrangement the crisis simply worsens. Each year there is a little more to take, and it is taken.

What could stop it is a decision made by the people paying, at a level the concentrated interest cannot capture. Not a politician who needs the developers' money, and not a landlord who needs the tenant's, but the public itself voting directly on the question of how much of its income shelter may claim. That is the one party to the transaction with an interest in the answer coming out differently.

I do not think the public would vote wisely on this in every detail. I think it would vote in its own interest, and its interest is the one currently unrepresented. That is why I suspect housing, of all issues, is the one that will push people toward deciding things directly: it is the must-buy product everyone buys, and it is the one the system visibly cannot fix.