I was on Radio National tonight talking about housing (click here for a podcast). My main point concerned the politics of all this. Basically, there are haves and have nots. The have nots do not own their own homes and so suffer when house price rises. The opposite is the case for the haves. Do something to help the have nots that involves lower house prices and the haves will be upset? What is more is that the haves will be the ones most passionate about not losing asset value and so will be responsible for voting in the rules and regulations that keep house prices high. (Click here for an interesting paper by Francois Ortalo-Magne and Andrea Prat on this topic).
The political key will be to find policies that assist the have nots while not harming the haves. That suggests, sadly for the have nots, something that will have a slow impact on housing supply. But it also suggests, which is good for the have nots, that some targeted interventions will be warranted.
According to Ortalo-Magne and Prat, this means providing a way for households to insure against rental price shocks so that they don’t feel they have to own a home for that reason. One possibility in this regard is a housing lifeline as proposed by myself and Stephen King. But my point is that we are going to have to be both careful and very innovative if we want to do something about this issue. The approach of the last decade or more of governments — at all levels — ignoring the growing issue and resting on the laurels of high economic growth needs to come to a quick end.