How cheaper housing can boost productivity

http://www.economist.com/blogs/economist-explains/2015/07/economist-explains-12

by brendannee • 11 years ago

38 61 11 years ago

ajuc8• 11 years ago

One paper published in 2010 found that absenteeism among German workers would be 15-20% lower if they did not commute. If it were somehow possible to scrap commuting altogether, the British economy would see a productivity boost worth £12 billion a year, according to the Centre for Economics and Business Research, a think-tank.

Allowing occasional working from home has the same effects, and require no investment in infrastructure.

But it is not just housing markets that hold back productivity. According to one study, employment in the Bay Area around San Francisco would be about five times larger than it is but for tight regulation on construction of all types.

I'm not familiar with Bay Area, but in Poland people constantly complain about overregulation of construction, and we have much less restrictive construction law than in western Europe (and it shows - public space in Poland is awful compared to Czech Republic or Germany).

You can have too loose construction law, and the result is a city centre were nobody lives - people just commute to work and back. This results in suburbia, and longer commute times - the direct opposite of the effect they wanted to achieve with the first point in that article.

jon-wood• 11 years ago

If it were somehow possible to scrap commuting altogether.

Indeed. If only there were a way that people could do work without travelling to a specific desk in a specific building during specific hours.

mooreds• 11 years ago

This sentence jumped out at me too. Of course, not all jobs are amenable to remote work, but many are. However, it will take a long time to change the expectations of managers and coworkers to reflect this new reality.

Gys2• 11 years ago

The problem is actually in the time and boredom while traveling. So maybe autonomous cars, workplaces in trains or (far fetched ;-) teleportation could improve the 'commuting-problem'.

I think most people still like to work physically with other people. That is why I go to a co-worker space. Because I am actually more productive at home.

sillygeese6• 11 years ago

You can have too loose construction law, and the result is a city centre were nobody lives - people just commute to work and back.

It's not that Poland (or any other country) needs more laws. It's a problem of incentives, or lack thereof.

If a construction company has bribed politicians to keep giving them lucrative gigs on other people's money, they will have no incentive to actually do a good job.

If, on the other hand, there were free competition among construction companies, they would all strive to do their best so that they would be awarded more gigs in the future.

It's as simple as "corruption", but that's a misnomer because that's just the system working as intended. What's the point of being a city official if you're not in a position to get bribes one way or another?

With great power comes great.. opportunities for collecting bribes!

ajuc8• 11 years ago

I don't think the corruption is the main problem here. Nobody pays bribes to paint their commie block in fuchsia-green stripes (it's a thing here, I guess because of 50 years of shades of gray everywhere). Or to put 20-meter tall billboard on their small plot in front of XIII-th century castle. Or to build "Mountainer style one-family-house" between 16th century tenament houses. With huge brick wall all over it, and billboards on every square meter of the wall. It's chaos.

It's just that after communism people consider all regulation "communist-like restriction of God-given freedom".

It changes slowly for last few years, but '90s and '00s were awful.

TeMPOraL5• 11 years ago

in Poland people constantly complain about overregulation of construction

In Poland people constantly complain about overregulation of pretty much everything (I'd say complaining itself is our national sport, but that's another topic) - but that's probably typical of humans. It's easy to complain about overregulation when the government tells you you can't do whatever you want and dump externalities on everyone around you.

But I agree with your conclusion. We have quite lax construction laws and people still commute. I don't really see how the two are actually related in practice. Majority of people doesn't get to pick and choose jobs. You can spend months looking for a good opening, and if you don't like one because it's on the other side of the city, then no worries, there are thousands of people who will happily take your place.

ajuc8• 11 years ago

IMHO making it easier, cheaper, and less risky to rent flats is the low-hanging fruit.

You can't predict where you will work in 10 years, why expect to live in the same house for 10 years? Of course - not wanting to move kids to a different school is valid reason, but still kids change school every few years. Many people could reduce commute with no bad side-effects, if not for the problems with renting flats.

People are very careful about renting flats to families with kids, because it's very hard to expel them if they stop paying right now.

s_kilk• 11 years ago

> If it were somehow possible to scrap commuting altogether...

I'm about to start a remote job, and this is the bit I'm most looking forward to. I'll be able to claw back that 2 hours I'm losing every day to a pointless commute.

x5n13• 11 years ago

Housing is the #1 money sink in developed economy it consumes by far more money out of people's pockets than anything else. And the banks and the owners of capital are totally okay with this. And as the housing crisis showed, it's in no way a sure bet. It's a gamble just like anything else.

vbezhenar• 11 years ago

What makes houses in developed countries so expensive? I live in Kazakhstan. I can buy some land near city, it would cost me $5-10k for 100 sq. meters of land. I can build my own house for $40-80k (including materials and workers). It might not be the huge house, but it will be fine to live in.

Is land more expensive in developed countries? Are materials more expensive? Are workers more expensive? (probably all components are more expensive, but I still don't understand where those hundreds of thousands of dollars are coming from, those prices are just insane).

x5n13• 11 years ago

In Kazakhstan you would have to save for that housing. In developed countries banks loan you the money for the housing. Which essentially means that housing price is determined by how much money people make. The more money people make, the more the people selling the house demand because the banks are willing to loan them that money, based on their ability to pay the amount on their mortgage. So in essence housing always costs a significant portion of whatever you make. That then affects the pricing of land. Labor is also very expensive, at least legal labor. In California you have a lot of illegal Mexicans that you can use for cheap construction, but elsewhere labor to build housing is also very expensive because they expect to be able to function in the economy so they charge a premium for their services, unlike in the third world where construction workers are treated like crap. So to answer your question everything is expensive here and the cost is determined by how much money people make rather than some other value.

bencollier49• 11 years ago

Supply and demand. Kazakhstan has a population density one hundredth that of the UK.

pjc502• 11 years ago

Land with planning permission, in desireable areas, is very expensive. Random example from near me: http://www.plotfinder.net/plot/land-sale-city-edinburgh-situ... - that's just over $100k.

More stringent building regulations probably add to the cost, but the planning system is the big factor. "Desireable area" makes a difference in some cases: a while ago Stoke-on-Trent were selling derelict houses at £1 to anyone who promised to renovate and live in them.

justincormack• 11 years ago

All those are more expensive, but its mostly land prices. We are talking about cities too, you can hardly buy a plot of land in London, as it is largely built on. Prime central London property costs £20k/square meter and rents are £50/square meter per month, so if you move your 100 square meters of land to London you can do well out of it!

presty• 11 years ago

What makes houses in developed countries so expensive?

Demand and lack of (enough) supply. Buying a piece of land that you can build on in a city like SF costs a lot more than $5-10k for 100 m^2.

According to http://www.trulia.com/real_estate/San_Francisco-California/m...

Average price per square _foot_ for San Francisco CA was $962

im3w1l• 11 years ago

The big thing you pay for is to have good neighbours. You want to live close to highly productive in your field. You want to live far away from the criminals. You want to live close to fun people to hang out with.

If Alice and Bob want to hang out then they have to pay a big proportion of their wage to Charlie the Capitalist for the privilege. The land owners sell us to each other.

TACIXAT• 11 years ago

I disagree that housing is a gamble. It's a long term investment and historically it has gone up. The housing crisis was a correction.

ralphgsn• 11 years ago

It's funny how HN people are all like "capitalism is awesome!" and then they complain when housing prices are high.

netcan• 11 years ago

How so?

TeMPOraL5• 11 years ago

Not sure if those are always the same people :). There's only a subset of HN participating in each discussion, and those subsets often don't overlap between the topics.

khuey• 11 years ago

The housing market is filled with massive government intervention. Zoning codes, building codes, state backed mortgages, etc.

Nimitz14• 11 years ago

The high prices come from government intervention dude. Good job making yourself look like an uneducated fool.

A ceiling on rents reduces the quantity and quality of housing available. (93% of economists agree)

http://gregmankiw.blogspot.de/2009/02/news-flash-economists-...

pessimizer2• 11 years ago

ad hominem: https://rwer.wordpress.com/2015/01/17/pikettys-response-to-m...

fedor-cc2• 11 years ago

how MASSIVELY regulated market can be considered capitalism/free market? It's exactly the opposite and so prices are high.

PS capitalism is awesome indeed

Kiro• 11 years ago

What are you talking about? The HN crowd is known for its anti-capitalism.

pessimizer2• 11 years ago

And its laissez-faire libertarianism.

EliRivers• 11 years ago

Putting aside the fact that capitalism is the private ownership of the means of production, and that you probably mean something like "free market" which is very much not the same thing at all, housing isn't a free market. It's subject to massive restrictions and barriers.

massysett• 11 years ago

Naively assumes that the building restrictions cause permanent productivity losses. Instead, building restrictions likely push some jobs elsewhere. Since housing is too expensive in SF, some tech jobs go to other places. Since housing and office space is too expensive in NYC, some finance jobs go elsewhere.

Some amount of municipal planning is a good thing. It provides needed services for residents and increases the quality of what is built. But there is probably a limit to how much growth a government can handle in a responsible way. That suggests that building restrictions might even be a good thing. If the government is overloaded, the restrictions push the growth to other areas where the governments are more eager to plan for the growth.

repsilat• 11 years ago

push some jobs elsewhere

The theory goes that these high-density population centres have higher productivity, for a couple of reasons:

- "Truer" competition -- distance is an artificial barrier that reduces employees' access to jobs and reduces employers' access to job candidates. It also reduces companies' access to each other.

- More cross-pollination as people a free to move jobs more often and (in theory) have more interactions with other companies.

There are no doubt some downsides to concentrating all of your nation's business in one place, and things like telecommuting and fast public transport will have the effect of bringing people closer together without straining infrastructure as much, but there's really no alternative to density.

venomsnake• 11 years ago

Unless productivity picks up, wages cannot grow. Investing more in education, health care and technology is the normal way of boosting productivity growth.

We could always put progressive tax on capital and property. It will be very efficient redistribution.

x5n13• 11 years ago

Yes these were the rules. And then the rules changed. Now people don't need an education as what are they going to do with that education if there are no jobs. There is no need for more productivity because there are no more jobs, the robotic algorithms are already designed to auto-optimize and so they are as efficient as can be. Health care eats most of the the budget because people are old and don't want to die. etc. etc. </hypothetical future>

fedor-cc2• 11 years ago

Situation here (in Hong Kong) is one of the worst in developed world. Government owns all land and supply is almost nothing. Dispite the reputation of overpopulated city (its true) only ~20% of area is used and only ~8-10% is residential area.

Sadly, general public don't read Economist or at least look at the facts. Govt "subsidies" public housing instead of land supply and ppl seems to complain but not analyze the issue.

lukiebriner• 11 years ago

It is a self-feeding problem in London. It attracts job so massive government investment is made, which attracts more people but also pushes prices up so high that we need to give benefits to certain people who can't afford to live there.

If investment was made to comparable levels in any of the 10 or more other large cities in the UK so companies don't feel the need to work in London, perhaps we would solve productivity without producing a Mega-city.

It sounds easy and I know there are loads of bureaucratic hurdles and it doesn't help that local councils don't always want the change that is needed in their nice cities to create the influx of jobs...

branchless8• 11 years ago

It's not just about the wealth added to private land holders via public investment. It's about loose credit from banks plus the fact that London is a great place to wash dirty money via property.

http://www.independent.co.uk/news/uk/home-news/london-proper...

Also why do we "need" to give housing benefits to people? They don't go to people they go to landlords who have set their prices higher than the market can bear.

I'm afraid I disagree with you - the jobs aren't paying for the cost of land. The state, corruption and printing money via land are. And without it all the UK economy would have collapsed.

They will never try to stop the cheap money and money laundering.

branchless8• 11 years ago

Time for this again, from The Bank of England's blog:

http://bankunderground.co.uk/2015/06/30/banks-are-not-interm...

the key function of banks is the provision of financing, meaning the creation of new monetary purchasing power through loans, for a single agent that is both borrower and depositor. Specifically, whenever a bank makes a new loan to a non-bank customer X, it creates a new loan entry in the name of customer X on the asset side of its balance sheet, and it simultaneously creates a new and equal-sized deposit entry, also in the name of customer X, on the liability side of its balance sheet. The bank therefore creates its own funding, deposits, through lending. It does so through a pure bookkeeping transaction that involves no real resources, and that acquires its economic significance through the fact that bank deposits are any modern economy’s generally accepted medium of exchange.

Banks create money and lend it against land. This is how western "economies" create money which we then label "growth".

The more productive we become the more the landlord takes.

http://www.henrygeorge.org/pchp0.htm

http://www.henrygeorge.org/pcontents.htm

richliss• 11 years ago

Its all about the vested interests.

One of the primary problems in London, and probably many countries with similar issues is that the politicians are far more likely to be landlords than the general public.

I read that in the UK 1 in 4 members of parliament are landlords, compared to 1 in 30 for the general public.

The side effect of this is that ever increasing demand for property, and then passing laws that make demand even stronger (right to buy for example), whilst limiting building programmes increases the politician's wealth for zero effort. They don't have the money to profit from lots of new builds, so its easier to constrain supply, and the general public who own houses will think they've never had it so good because their house is worth more.

Same thing in the US but for the arms industry.

Also mix in the fact that huge numbers of new build London apartments are being kept empty by Chinese owners (and others) and you've got a crisis waiting to happen.

There's going to be a tipping point for London - when young white collar workers such as software developers, accountants, graphic designers, marketing professionals and the other skills that make London competitive won't be arsed to travel to London for 1-2 hours, or live in a shoebox to get a salary that's 15% higher than in Leeds, Birmingham or Manchester where they could have a large house.

The way out isn't just building more property, but passing laws that force owners to rent out properties when they own more than say 3 or 4. Although that would of course crash rental income, so politicians won't do that either.

How cheaper housing can boost productivity

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