The cause of the hous­ing cri­sis? Look in the mir­ror

The Irish Times - Weekend Review - - NEWS REVIEW -

Let’s look at the hous­ing short­age through the lens of plan­ning per­mis­sion ob­jec­tions. We rarely think about the im­pact on house prices of in­di­vid­u­als or groups of in­di­vid­u­als op­pos­ing plan­ning per­mis­sion.

Each ob­jec­tion may be le­git­i­mate but, in the ag­gre­gate, plan­ning ob­jec­tions have a knock-on ef­fect on the avail­abil­ity and cost of hous­ing. In­deed, the trade-off be­tween in­di­vid­ual rights and the col­lec­tive good, so ev­i­dent when plan­ning re­stric­tions are sought via ob­jec­tions, goes to the very heart of macroe­co­nomics.

One of the most im­por­tant laws of macroe­co­nomics is the “para­dox of ag­gre­ga­tion”: what is good for the in­di­vid­ual is not al­ways good for the col­lec­tive. For ex­am­ple, if the Gov­ern­ment an­nounces a tax break for first-time buy­ers, it feels good to the in­di­vid­ual first-time buyer.

How­ever, it will only con­fer an ad­van­tage on the in­di­vid­ual if she and only she gets that tax break. If ev­ery­one gets it, the unique ad­van­tage will be can­celled out and maybe even re­versed by the ag­gre­gate rise in starter-home prices, driven by the tax break.

In­ter­est­ingly, when we think an ad­van­tage is con­ferred on us, we rarely con­sider how this plays out through the so­ci­ety and the econ­omy. If, for ex­am­ple, you buy a posh car, it con­fers sta­tus only as long as few oth­ers buy a sim­i­lar one. In fact, such a pur­chase throws down the gauntlet for oth­ers to match us or go one bet­ter.

Such is the na­ture of the mod­ern econ­omy. It re­ally works like a crowd in a foot­ball match. When one lad stands to get a bet­ter view, he forces ev­ery­one be­hind him to do like­wise, and in no time the en­tire sta­dium is stand­ing when we had all paid to sit.

In­di­vid­ual ad­van­tage

The econ­omy works in the same way, as in­di­vid­ual ad­van­tage is quickly elim­i­nated, and the cost is borne by some­one else.

Now con­sider the ag­gre­gate ef­fect of ei­ther in­di­vid­ual or or­gan­ised com­mu­nity op­po­si­tion to plan­ning ap­pli­ca­tions. We have a hous­ing cri­sis and one of the rea­sons for this is that we can’t build enough homes quickly enough across all in­come brack­ets. As a re­sult, the hous­ing short­age puts pres­sure on the hous­ing mar­ket, from the rental sec­tor to the up­per ech­e­lons of the mar­ket.

As a re­sult, more ac­com­mo­da­tion is needed, and quickly. As land is a re­source, it is only pro­duc­tive if it is be­ing used. In a hous­ing cri­sis, its most pro­duc­tive use is for ac­com­mo­da­tion. And in ur­ban and sub­ur­ban ar­eas with the best trans­port links, the best schools, the best pub­lic in­fra­struc­ture, roads, shops and other ameni­ties, hous­ing de­vel­op­ment should be more in­ten­sive.

The value of prop­erty in th­ese ar­eas is not gen­er­ated by the in­di­vid­ual own­ers, but by the col­lec­tive pub­lic in­vest­ment in such places. The same goes for ur­ban ar­eas where gen­er­a­tions of com­mu­nal in­vest­ment un­der­pin in­di­vid­ual prop­erty val­ues. When peo­ple op­pose denser/higher hous­ing de­vel­op­ment in the city, what they are ac­tu­ally try­ing to do is pri­va­tise pub­lic in­vest­ment in their ex­ist­ing prop­erty val­ues.

Like­wise out in the sub­urbs, op­po­si­tion to plan­ning ap­pli­ca­tions can be good for the in­di­vid­ual but bad for the col­lec­tive be­cause it lim­its the amount of land that should/could be used for ac­com­mo­da­tion. So what is good for the in­di­vid­ual is not good for the greater com­mu­nity.

In Ire­land, as house prices have in­creased re­lent­lessly, the premium in liv­ing in good ar­eas has risen in tan­dem. Not sur­pris­ingly peo­ple who are for­tu­nate to have done well in the process move to “lock in” those gains by pre­vent­ing oth­ers mov­ing in and avail­ing of the same ameni­ties – be it ac­cess to schools, a pub­lic space or a sea view.

This leads to a syn­drome which is of­ten termed “ba­nanaism”. “Ba­nana” in this con­text stands for “Build Ab­so­lutely Noth­ing Any­where Near Any­thing”. Wel­come to the Ba­nana Repub­lic, a place where time stands still, ad­van­tage is en­shrined and the col­lec­tive is sec­ondary to the in­di­vid­ual.

Slow­ing progress

All over Ire­land, ba­nanaism is ev­i­dent and it is slow­ing progress be­cause it is lim­it­ing zones of de­vel­op­ment. For ex­am­ple, in Dublin, within the M50 where we should be build­ing, 47 per cent of the to­tal space is grass – ei­ther parks or back gar­dens. The Ba­nana Repub­li­cans want to keep it that way; the rest need it to be de­vel­oped to re­duce house prices, re­duce rents and make bet­ter and fairer use of pub­lic in­vest­ment. Now let’s add an ex­tra lo­cal po­lit­i­cal spice to our dish.

Ire­land’s PR elec­toral sys­tem means that few seats are ab­so­lutely safe and where they are, po­lit­i­cal par­ties’ vote man­age­ment im­plies that no votes are wasted. This also means that a ded­i­cated res­i­dents’ as­so­ci­a­tion, deep in the Ba­nana Repub­lic, can wield enor­mous power by threat­en­ing to vote against a politi­cian who doesn’t side with them in their ef­forts to block de­vel­op­ment.

This leads to politi­cians who be­moan the lack of hous­ing sup­ply in the coun­try and ful­mi­nate against ris­ing rents, lin­ing up with lo­cal res­i­dents who want to stop the very de­vel­op­ment that will cre­ate more hous­ing sup­ply – which is the so­lu­tion to the prob­lem.

We term this form of pol­i­tics “nim­too”. “Nim­too” stands for “Not In My Term Of Of­fice”. So politi­cians might sup­port more hous­ing as a na­tional con­cep­tual ob­jec­tive but not on their turf while in of­fice. It is not hard to see how the sys­tem seizes up un­der the twin forces of ba­nana and nim­too, re­duc­ing the avail­able foot­print or height for de­vel­op­ment, forc­ing peo­ple out of cities, am­pli­fy­ing com­mut­ing times and driv­ing up house prices and rents.

Some­times when we are look­ing for rea­sons for the hous­ing cri­sis, look­ing in the mir­ror mightn’t be a bad place to start.

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