I read an interesting article in the NY Times, via Marginal Revolution, interviewing the CEO of homebuilder Toll Brothers about housing prices. His assertion was:
"In Britain you pay seven times your annual income for a home; in the U.S. you
pay three and a half." The British get 330 square feet, per person, in their
homes; in the U.S., we get 750 square feet. Not only does Toll say he believes
the next generation of buyers will be paying twice as much of their annual
incomes; in terms of space, he also seems to think they're going to get only
half as much. "And that average, million-dollar insane home in the burbs? It's
going to be $4 million."
I don't necessarily buy this whole story. For one, Mr. Toll has business reasons for taking a public position that prices will keep rising - after all, his customers buy his product in part as an investment, and would be leery about paying current prices if they thought prices might fall in the future. Second, as I have talked about a number of times with petroleum, when prices of any product start to rise, observers always tend to underestimate market and technology responses that might bring supply more into balance.
However, the one exception I did make in my oil price posts was that government supply restrictions, both on lands that can be explored for oil as well as things like refinery permitting, may indeed put structural upward pressure on prices. And in fact, this is where Mr. Toll puts the blame for high housing prices as well:
Toll agrees with Glaeser et
al. that the key force driving up prices is zoning and growth regulations.
In New Jersey it now takes Toll Brothers up to two million dollars in legal fees
and ten years in time to get the permits necessary to build.
Which got me thinking that home owners (of which I am one) may be the worst rent-seekers of all. Most people are already familiar with the very large tax breaks for home buyers, in the form of the mortgage interest tax deduction, that is not available to people who rent or to people who borrow for purposes other than home purchase. However, it may be that a much larger implicit subsidy to home-owners is the government restrictions on new home supply. By restricting supply, the government is keeping prices up for current home-owners and restricting new entrants who might compete with our homes in the resale market.