"Building more expensive housing helps everyone"

[Brendan Burgess]

A very interesting article by David McWilliams

David McWilliams: Dereliction is vandalism and must be stopped

Parts of Limerick – potentially a wonderful, liveable city – are literally falling down

www.irishtimes.com

I thought we should bring in incentives to encourage builders to build more starter homes. But his argument (after you wade through all the waffle) is that if you build posh homes, the posh people will vacate smaller houses, and this will work its way through.

Or alternatively, if you don't build expensive homes, there will be a shortage of them and expensive people will buy less expensive homes and this will push people down so that starter homes won't be affordable.

One of the obvious consequence of having too few homes is that everyone shunts down. By this I mean, if there are not enough exclusive homes for rich people than they will buy the homes that used to be the preserve of the middle class. The middle class will then shunt downwards.

So homes that were once solidly working class are bought up by middle-class people elbowed out of their traditional areas by richer people who just out-bid them. This is why old council estates, traditionally homes for the industrial working class, are now full of barristers, marketing executives and journalists. Then the children of former council estates move out to commuter towns because they have also been priced out.

Finally, the shunting process stops as the poor, who are now priced out at the cheap end of the market, end up homeless or on various subsidised rent schemes.

 

[Brendan Burgess]

It's an interesting idea, but I am not sure.

We have limited resources to build houses. As a society, would we not be better off building three 700 sq ft houses than one 2,100 sq ft house?

 

[PebbleBeach2020]

Can't read the article as I'm not a subscriber

 

[skrooge]

I kind see the logic. Government policy is stuck in the 1980s. The idea of incentivising first time buyers to purchase new builds is a throwback to a time when new builds were in someway inferior to existing stock. The modern new build far exceeds the standards of the past. Unfortunately this also makes new builds expensive - significantly out of reach of a typical first time buyer. We overcome that issue by giving them massive grants.... Cause that's what we did before and somehow before was better than now.



Two things the government wants to do is have more housing and retrofit the existing stock.

If you want retrofit existing houses but only offer to pay for half of it that leaves owners of existing stock with having to fund the remaining half themselves. Pay back on such investments are measured in years if not decades. For those of a certain age it's not worth it for others they may have the wealth but it's locked up in their homes. Government policy should encourage these people to trade up to the posh A-rated houses and enjoy the comfort they have. Reduce the costs associated with trading up i.e., remove stamp duty on new builds

Let the younger (and less posh) people purchase the older houses - with the supports that are currently focused on buying new builds - these are the people with the greatest incentive to improve the existing property stock.

We should stop trying to come up with policies that try to bypass the property ladder - that doesn't work and ultimately adds to the dysfunction.

 

[Leo]

We have limited resources to build houses. As a society, would we not be better off building three 700 sq ft houses than one 2,100 sq ft house?

Perhaps extending his point, a shortage of larger homes has seen lots of people with money extending their existing homes to meet their needs. Building developments of 3-4 bedroom homes is more efficient than lots of one off extensions.

 

[Zenith63]

Trickle-down economics has given trickle-down a bad name, trickle-down housing makes perfect sense.

 

[AlbacoreA]

Lots of people needing cheaper housing will not fit into less people need more expensive housing.
Gallon into a pint pot etc.

Which will make more profit. The expensive housing...

 

[Purple]

Lots of people needing cheaper housing will not fit into less people need more expensive housing.
Gallon into a pint pot etc.

Which will make more profit. The expensive housing...

I suppose the ground works costs (sewage, drainage, utilities etc) are the same and the cost of the land is the same per square metre and since soft costs account for 52% of the total cost of housing the actual additional construction costs aren't that much higher.

 

[AlbacoreA]

Can't see how the ground works for 50 small houses would the same as 10 large ones.

Sub division invariably adds cost and complexity. Never mind the resources to service more people in a denser space.

 

[Purple]

Can't see how the ground works for 50 small houses would the same as 10 large ones.

Sub division invariably adds cost and complexity. Never mind the resources to service more people in a denser space.

The same per unit.

 

[T McGibney]

Lots of people needing cheaper housing will not fit into less people need more expensive housing.
Gallon into a pint pot etc.

Which will make more profit. The expensive housing...

Not axiomatically. Remember, Primark is vastly more profitable than House of Fraser.

 

[AlbacoreA]

Not axiomatically. Remember, Primark is vastly more profitable than House of Fraser.

This isn't about profitability.

There are simply more people looking for cheaper houses than expensive one. People moving up doesn't create enough supply at the bottom end.
Trying to justify focus on expensive housing as means to solve supply is illogical.

I only mentioned profit as focusing on the high end is about profit margins, not supply. Which is fine, but lets not pretend its about supply. It will have an impact, but lets not over state it.

 

[T McGibney]

This isn't about profitability.
..
I only mentioned profit

focusing on the high end is about profit margins, not supply. Which is fine, but lets not pretend its about supply. It will have an impact, but lets not over state it.

All construction is about profit margins. If there are profits, there will be abundant supply, assuming the market is allowed do its thing. And vice versa.

 

[AlbacoreA]

All construction is about profit margins. If there are profits, there will be abundant supply, assuming the market is allowed do its thing. And vice versa.

That a bit like saying the profit margins on €1000 iPhones are driving down the cost and increasing the supply of cheap Android Phones.

 

[T McGibney]

That a bit like saying the profit margins on €1000 iPhones are driving down the cost and increasing the supply of cheap Android Phones.

How? I made no assertion that the profit margins on expensive houses are driving down the cost and increasing the supply of cheap houses.

But in the case of phones it's probably true, when you think about it.

 

[AlbacoreA]

Well thats the subject of the thread.

Supply at the top end will give supply at the bottom end.
Why pick the worst and least effectual way of doing something. Makes no sense.

 

[T McGibney]

Well thats the subject of the thread.

Supply at the top end will give supply at the bottom end.
Why pick the worst and least effectual way of doing something. Makes no sense.

No, there's no mention of profits in the subject of the thread.

And your view on what is "worst and least effectual" is totally subjective.

Builders and developers do not owe a responsibility to anyone to ameliorate or cure social ills. They will build and develop wherever and in whatever manner there is a profit to be made. And if they build and develop enough units, their collective actions will collectively ameliorate or cure the social ill that is the housing shortage. But that happy outcome will be merely a byproduct of their activity.

On the other hand, any command for them to direct their energies to ameliorate or cure the housing shortage, will most likely end in failure, as this objective will sooner or later conflict with the objective to make a profit on what they do.

It's an example of the principle of obliquity.

 

[Purple]

No, there's no mention of profits in the subject of the thread.

And your view on what is "worst and least effectual" is totally subjective.

Builders and developers do not owe a responsibility to anyone to ameliorate or cure social ills. They will build and develop wherever and in whatever manner there is a profit to be made. And if they build and develop enough units, their collective actions will collectively ameliorate or cure the social ill that is the housing shortage. But that happy outcome will be merely a byproduct of their activity.

On the other hand, any command for them to direct their energies to ameliorate or cure the housing shortage, will most likely end in failure, as this objective will sooner or later conflict with the objective to make a profit on what they do.

It's an example of the principle of obliquity.

Yep, then the State is unable to provide social infrastructure and attempts to shoehorn the private sector into providing it instead it invariably makes things worse. Rent controls, section 23's, first time buyers grants etc all result in a worse medium to long term situation in the housing market.
The State's input into the housing market is one of the biggest problems; VAT, Development levies, planning delays, the cost of provision of utilities. All of these things have a significant influence on the price of housing but rather than getting their own house in order they screw things up on the other side.

 

[AlbacoreA]

Depends what the goal is. The Developers goal isn't to solve the crisis. Its should be the Govts goal though.

High end supply will not significantly effect the supply at the bottom end indirectly or otherwise.

"...Building more expensive housing helps "Everyone"..." ..too much faux altuism for me.

My criticism here is of the Govt. Not the market or those active within it. But what is the purpose of the article. What's the message? If there is one.

 

[T McGibney]

Depends what the goal is. The Developers goal isn't to solve the crisis. Its should be the Govts goal though.

High end supply will not significantly effect the supply at the bottom end indirectly or otherwise.

"...Building more expensive housing helps "Everyone"..." ..too much faux altuism for me.

It's nothing to do with altruism, and all to do with the principle of obliquity. And in a situation of acute shortages of a particular category of goods, there is obviously a clear social benefit to adding to its available stock, whether it be at the higher or the lower end of the market.