Why we need a political economy of housing: part I

The Week in Housing 18/11/22

To my mind, a political economy perspective is the most useful way of studying housing. There are two key elements to this. First, this approach has the greatest explanatory power because it focuses on the intersection of politics and economics, and this is precisely what tends to shape housing systems and housing system change. Second, a political economy perspective has the most critical power because it denaturalises housing markets and is attentive to the relationship of property, power and inequality which characterise housing systems.

Having said that, it is not immediately clear what exactly a political economy perspective is when it comes to housing and the literature is actually pretty limited. I am currently working on a chapter on this issue with my colleague Stephan Koppe, which got me thinking about what the main aspects of a political economy approach to housing are.

There are different ways of thinking about what a political economy of housing looks like, but I tend to see it in terms of two sets of insights into housing. The first set relates to the specific nature of housing as a commodity and of housing markets. The second set emphasise that housing is inherently political, both because of the important role played by the state and other political institutions, and because of the inequalities and power relations that typically characterise housing systems. This week, I look at the first set of issues, next week I’ll focus on the second set.

Attention to the specific nature of housing, its idiosyncrasies and what makes it different from other market goods, has its origin in the concept of economic rent, through which early political economists, such as David Ricardo, critiqued landownership. For the early political economists, profit is derived from investing in the production of goods and services. It generates employment, creates new products that satisfy needs of consumers, and therefore expands prosperity. Charging rent for land, in contrast, does not involve the production of any good or service, nor does it generate employment. Rent, according to this perspective, does not create wealth, it simply distributes it from workers and businesses to landowners. I’ve written before about Henry George, one of the most influential thinkers of the late-19th and early-20th century, who wrote that ‘As a landowner you may sit down and smoke your pipe... and without doing a stroke of work, without adding one iota to the wealth of the community, in ten years you will be rich.’

This introduction to early political economy critiques of land markets is useful for highlighting some of the specific qualities of housing and housing markets. Like land, housing derives much of its value from its location, and therefor asset prices do not solely reflect investment by the property owner, but rather a variety of social and locational factors such as the presence of infrastructure, or the natural and aesthetic qualities of the location. Moreover, housing is also immobile, i.e. locationally fixed, which means that the supply of housing cannot be increased in one location to meet the demand for housing in another location (as is the case with most commodities). As such, all housing markets are local. Housing, of course, is also built on land, which, as Polanyi noted, is not a real commodity because it is not in fact produced, but is rather naturally occurring, and the supply of land is more or less fixed.

Drawing on these insights, political economists emphasize that housing markets are supply constrained. This can lead to market failure, where the supply of housing does not respond, or does not respond quickly enough, to increased demand for housing, for example due to population growth. When this happens, increased demand will lead to increased asset (i.e. house) prices, rather than more housing. Market failure of this sort provides one of the major rationales for Government intervention in housing, for example large-scale construction of social housing or intervention in land markets.

The other specific feature of housing that provides a strong rationale for widespread Government intervention relates to housing’s ‘externalities’. Economists use the concept of externalities when the production of a good generates costs that are not borne by the producer, but by the wider society or environment. In the case of housing, many of the relevant externalities where all too clear in the industrialising cities of the 19th and early 20th century. Unplanned and unregulated housing, without adequate infrastructure, led to overcrowding, unsanitary conditions and highly dangerous buildings, as famously documented by Engels. These issues have a society wide impact, for example by leading to the spread of infectious disease.

The unique nature of housing, and the associated market failures and externalities, are one of the reasons most societies have seen widespread Government intervention in housing markets, including planning regulation and the direct provision of non-market housing, such as social housing. Consequently, housing systems are inherently political as their nature and development reflect political decisions, an issue we return to next week.

The explanatory potential of a political economy approach is derived from the fact that it recognises the unique nature of housing and situates it at the intersection of the political and economic processes which have shaped housing system development for at least the last couple of hundred years. Next week, we will continue this discussion, focusing on the critical potential of a political economy approach.

Events

On November 24th the Simon Community are holding a seminar on trauma-informed care. The Housing Unlocked exhibition is still on at the Science Gallery. A part from the exhibition itself there are loads of great seminars and talks lined up.

What I’m reading

I had a new piece published this week on RTE Brainstorm, looking at ‘four steps to fix renting’. The RTB have just published their annual report for 2021. Some interesting new comparative data from the OECD on the proportion of young people still living at home. A really interesting new report from CACHE is just out, looking at landlords behaviour in the Scottish PRS. And finally, this cross-national comparative account of the ‘rise and fall’ of social housing is well worth a look.