Who’s harmed by (housing) inflation?

Jason Ruspini writes about a discussion of upcoming housing futures. One of the open questions about this new market is who will buy (buy long that is — use for hedging against price declines is considered obvious). I often see it implied that the only set of people harmed by housing price increases are non-homeowners. Ruspini:

The natural buyers would be prospective home-buyers, trying to ensure that they aren’t priced-out of the market, but the relative wealth of that group is – naturally – very small.

But most homeowners are prospective home-buyers. Though U.S. residents are moving less often (this was a big surprise to me) 1 in 14 homeowners moves each year and the market for second homes is booming. It seems that anyone potentially moving to better, additional, or housing in a more expensive market than their own would be interested in hedging against price increases. Add in parents who want to ensure their children can buy a home nearby, you have a large and very wealthy group.

is quoted making essentially the same mistake in an otherwise excellent article on his work recently published in the NYT Magazine:

Homeowners, he points out, have a strong incentive to stop new development, both because it can be an inconvenience and also because, like any monopolist, stopping supply drives up the price of their own homes. “Lack of affordable housing isn’t a problem to homeowners,” Glaeser says; that’s exactly what they want. “The thing you want most is to make sure that your home is not affordable if you own it. And for that reason, there’s absolutely no reason to think that little suburban communities with no businesses that are run essentially by their homeowners will make the right decisions for the state as a whole, for the business in the area, for the country as a whole.”

Actually I think it is the anti-housing homeowners who are mistaken (or very short-sighted), not Glaeser, who is probably right at least in part about their motivations.

It seems to me that except to the extent one exits the market (by selling vacation homes, trading down, or moving to a less expensive market) rising prices don’t offer homeowners much benefit apart from bragging rights and the ability to obtain larger secondary loans (which have to be paid back).

Consider car owners, or an even more extreme case, food owners. If car or food production was restricted, the price of their assets would increase. However, in a few years, or a few days in the case of food, they would have to pay in some combination of higher prices, lower quality, and lower quantity.

It is pretty clear that everyone benefits from cheaper transportation and food regardless of whether they presently have a car in the garage and bread in the cupboard and that everyone is harmed by more expensive transportation and food. I’d argue housing is much more like cars and food — consumption goods — than most people are ready to admit.

2 Responses

  1. Well, if they are selling to buy, rising prices wash-out to some extent. Yes, since they are probably buying something better, the multiplier effect will work against them, but a noteworthy error? Eh. Likewise for potential multiple home-owners. Neglecting a rigorous attempt to quantify it, it doesn’t seem that significant in terms of the overall imbalance.

    By the way, that was more of a news than an opinion piece. Although I shared the questions, I was reporting what Gartman and others asked the panelists (and their lack of satisfactory responses on the buyer point). For opinion, I think the market will be a success.

  2. […] Stop the bailout, which will only prolong the pain and ensure future bubbles. Instead take this “crisis” as an opportunity to eliminate all of the various politically imposed causes of expensive housing. […]

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