There are no solutions, there are only trade-offs

From Here's the Real Reason Young People Can’t Afford a Home by Patrick Carroll.  A little glib but not wrong.  I would add that I suspect that we might be suffering a double bump in demand owing to the Great Recession.  Fourteen years on, there is a cohort of potential home owners who were burned in the Great Recession and forced out of the housing market.  Likely some portion of them have restored their balance sheets sufficiently to return to the housing market, inflating demand above what it would otherwise normally be.

In addition to delayed demand (the return of the Great Recession Housing Refugees) I would also add that politicians of both parties have, for the past three or four decades, been comfortable in rejecting a central plank of communal prosperity which is reducing the cost of living.  There has been an irresistible compulsion to hide the costs of programs and regulations.  

Whether it is military defense or welfare, electric vehicles or alternate energy, subsidized college or accessible healthcare, politicians have not only passed expensive programs but hidden the explicit costs of those programs.  But costs, though hidden, do not disappear.  Those hidden costs become baked into the system, forcing a rising cost of living.  A rising cost of living, when unaccompanied by rising personal productivity, is merely a mechanism for reducing quality of life.  

Regardless of delayed demand and hidden costs, Carroll summarizes the key drivers for the current inflated demand:

• Zoning
• Demographic pressure
• Regulation
• Environmental controls

These four factors among them both limit supply and increase demand.

He then focuses in on what is always the key issue in any constrained system - trade-offs.

So, now that we’ve identified the problems, the solution should be obvious, right? Unfortunately, that’s not quite how economics works.

The point of going through the factors affecting supply and demand wasn’t to identify potential solutions, but potential trade-offs. As we’ve seen, there are many ways that housing prices could be brought down, but if you look closely, every single one of them requires that we sacrifice something.

We could relax zoning restrictions, for instance, but then people would have to sacrifice the character of their neighborhoods. We could stick it to the environmentalists and embrace urban sprawl, but then we would have to sacrifice the environment and the benefits that come with preserving it. We could relax permits and regulations, but we would sacrifice oversight and assurances of safety.

Similar trade-offs exist on the demand side. Though few would be in favor of government interference with the natural growth rate, many people are open to changing immigration policy, and it’s not hard to figure out that fewer immigrants means less demand. The trade-off, however, is that you lose the economic and cultural benefits that come with free movement, which can be fairly significant.

Grappling with these trade-offs helps us put the housing price problem into perspective. It’s easy to want more affordable housing, but the question is, what are you willing to give up to get it. The character of your community? Environmentalism? Oversight? Immigration? You have to pick something. If you don’t, prices will just keep going up. 

 

[snip] 

Now, there’s room to choose what it is that we sacrifice, but there’s no such thing as a free lunch. You can’t have your cake and eat it too. As Thomas Sowell said, “there are no solutions, there are only trade-offs.”

And here's the harsh reality.

Having established the inevitable trade-offs that exist in a world of scarcity, the question then becomes why haven’t we figured out a better trade-off yet. Surely the status-quo isn’t our best option, is it?

The answer has to do with the nature of the political system. “The first lesson of economics is scarcity,” said Sowell. “There is never enough of anything to satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.”

The fact of the matter is, politicians hate acknowledging trade-offs, and as a result, they spend little time considering them. They want to talk about what they will give people, not about what they will take from them. “We will lower the price of housing” is a winning platform. “We will lower the price of housing by increasing the density of your communities and allowing urban sprawl” is more accurate and balanced, which is precisely why it’s political suicide. Remember, the first lesson of politics is to ignore the trade-offs.

But “facts do not cease to exist because they are ignored,” Aldous Huxley reminds us. “You can avoid reality,” Ayn Rand says, “but you can’t avoid the consequences of avoiding reality.”

In other words, trade-offs still exist, whether we want to acknowledge them or not.

 

Well worth the read.