One of those little bugbears - that rising whine you can hear in the background is my shriek of despair at this idiocy reaching peak performance - in life is people not grasping the simple, simple, implications of the supply and demand model. Yes, yes, Econ 101 is so terribly simplistic and we’re all sophisticates who grok the subtler parts of life, right? Actually believing Econ 101 is true, that it ever applies in real life, would be like being straight and insisting that Eurovision has some nice tunes, actually. Somewhere between outre and perverted that is.
Except the reason they put this at the front of every economics book is because it’s true. Sure, there are subtleties, there are times when we have to think harder, but it is still basically true - it useful in describing the world around us.
Which leads to one of those statements that causes that rising whine about to harm eardrums everywhere before I finally Violet Elizabeth Bott myself into exhaustion:
In the last decade, 50,000 social homes were demolished in England, 121,000 were sold and 330,000 new properties were completed – a net gain of 159,000 homes. But that is insufficient to meet need, with 1.3m households on social housing waiting lists last year.
It’s that word “need” there. The correct one is “desire”. And now for the Econ 101:
As we can see, as the price rises then more people are willing to supply that thing. As the price falls, fewer. OK. Also, as the price rises fewer demand that thing - we can go into advanced subtleties if we like and talk of effective demand, people who could have it, they’ve got the resources to have it, but decide against because the price has risen. But it’s that fourth outcome that’s relevant here. As price falls then more people would quite like to have some - demand rises.
OK, in housing, the cheaper it is then the more housing space people might have - we definitely see the opposite in that people in Manhattan live in spaces we’d not put a dog into. I certainly have a larger house than I would do if I returned to the south of England - because price.
That market clearing price is where demand - if you prefer, effective demand - meets the willingness to supply. Cool. Our model is correct.
Sure, we can all say that housing’s too expensive for poor people. We should do something about it. Which we could - we could give poorer people more money to buy housing with, which we do - housing benefit. We could blow up the Town and Country Planning Act 1947 - proper blow up, kablooie - and make housing cheaper once again. A thoroughly good idea even if one that’s not going to happen.
We could, and this is a temptation only in those dark periods of early morning insomnia, say fuck the lumpenproletariat and let’em live under bridges. But that would be a bit too American for civilised people.
OK, but our supply and demand model. Social housing - Council, affordable and so on - is below market rent. By definition it’s below market rent. So, what does our model tell us about the demand for something below the market clearing price? Quite, it’s higher than the market can provide, right? And given that we’re no longer rationing it by price we end up, inevitably, rationing it by queues.
Exactly and precisely because social housing is below market price there will be a waiting list for it. It’s just inherent in it being below market price. We cannot, therefore, take the existence of a queue for social housing as an indication of the need for social housing. It’s an expression of the desire for it, not the need.
Needs and desires are not the same thing.
There is another way to put this of course.
There’s a queue for something going cheap.
Shocker.
it wouldn't make a diagram that could be visualised but d-Supply d-Demand d-Rent and d-Fungibility need to be considered in d-Price.
We should do something about it. Which we could - we could give poorer people more money to buy housing with, which we do - housing benefit.
Er that's Landlord benefit really.