Lesson 1, Topic 1
In Progress

Case Study


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UoC July 14, 2022

What’s Next for Housing Series: Supply and Demand

This whole supply and demand thing is really a ruse to keep us from understanding how price works in reality: “big” firms sense an opportunity to raise prices for products people need, and then gouge them brutally. For many on the left, the same view applies to housing. In the coming decade, every approach to housing policy and economics must be based on the simple concept that when something is in short supply, the price will rise. As a result, if we want more growth and more people migrating into cities, production must keep up with demand.

How can we increase output? Now things get a little trickier. Housing isn’t like pizza; it can’t be delivered 30 minutes after the buyer decides he or she wants it. The funding and construction of houses is a complicated procedure. Private companies, such as banks and lenders, can promote efficiencies in lending by investing in concepts such as smaller units without parking in desired neighborhoods rather than traditional huge flats. What the government can do is weigh the benefits and drawbacks of reducing regulations that aren’t related to the health and safety of new homes. Finally, the concept of supply and demand is inextricably linked to inflation. Rising costs are the worst thing that can happen to folks who don’t have a lot of money. The solution is to produce more of what people require, rather than making it more difficult and expensive to do so.

In the coming decade, the answer will be to examine every proposed housing policy on whether it would result in more housing with no additional sanction or expense to build that housing. That is, housing production with a penalty or obligations to reach price targets is just another sort of price control with the same result as all price controls: increased prices. Accepting the most basic form of supply and demand is a binary test; if you don’t believe it exists, your remedies will only exacerbate the problem.

Source: Adapted from Forbes, 3 Jan 2022

Issues to Analyze

Based on this article, what do you think the ideal strategy for the government to manage the price of housing?