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A social housing fund is a policy idea gaining traction. The ALP has proposed a $10 billion one in their election platform. The Grattan Institute has proposed a $20 billion one.
The basic idea is to sell bonds to the market and use the cash from that sale to buy a range of higher-yielding assets. Because there will be a differential return between the low cost of borrowing and the higher return on assets, this creates a net return from the fund to pay for building new public housing.
It sounds so bland and innocuous that it is easy to miss how economically backwards the policy really is.
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UQPPES Statecraft Autumn Lecture, March 2022
Let me start with my thesis.
Much of the contemporary debate about housing affordability is a distraction; promoted by vested interests and reinforced by political incentives. The proposed solutions are usually policies that favour property owners, not renters and buyers.
The first way we know something is off is the language. Affordability is a beautifully vague word. It’s a word that works nicely as a covert signal—that is, a word that means something different to your target audience compared to others.
Aspiring homeowners can be led to believe that the word implies cheaper prices to buy homes. Maybe also cheaper rents. They feel their concerns are acknowledged. It appears like something is being done for them.
For homelessness and public housing advocates, the word affordability can imply a boost to public housing investment to provide non-market housing options to the neediest. The word makes it appear that something is being done for them too.
But the beauty of a covert signal is that the true meaning is known only to the target audience. In this case, large property owners and developers. They know that affordability means that absolutely nothing will be done that puts the value of their property assets at risk. To them, the word is an invitation to participate in the next great property scam.
They know that to appear to be doing something about affordability, their political mates will simply ask them what policies they want. Whatever tax break, rezoning, or subsidy they come up with will then become the nation’s new “affordable housing” policy.
It is no leap to say that these outcomes are in fact the real objective of pretending to care about cheap housing by distracting us with the word affordability.
In his 1946 essay on Politics and the English Language, George Orwell wrote:
When there is a gap between one's real and one's declared aims, one turns as it were instinctively to long words and exhausted idioms, like a cuttlefish spurting out ink.
Affordability is a long word that hides the real aim of boosting the asset portfolios of major property owners behind the declared aim of making housing cheaper for residents.
So why must politicians play this Orwellian game of pretend at all? There are three political economy issues at play.
Like the dozens of previous housing inquiries before it, Falinski’s inquiry into housing supply will find that giving valuable rezoning development rights to well-connected property owners and developers is the housing policy we need.
The puzzling part is that the housing developers interviewed under oath during the inquiry said that they wouldn’t flood the market to decrease prices even if they could.
Falinksi: Is it not your view that, if we increase the amount of supply, prices will go down?
Mr Helmers: I don't think that's the case…
Mr Long: My view is consistent with Richard's: rezonings won't necessarily lead to lower housing prices… … Falinksi: …[d]o you think if state local governments rezoned more land to allow greater supply, that you could see dwelling prices drop by 20 per cent?
Mr Warner: No. Straight out, I concur with some of the comments before. It's not going to create that much of a difference.
For perspective, Australian capital city housing prices increased 21.7% in the year to September 2021. No housing developer thought it plausible that mass upzoning could get close to reversing one year’s price growth.
Instead, they all latched on to the phrase that mass rezoning will “will moderate price growth”. I have no idea what this means. If price growth is zero in the counterfactual, will it mean prices start falling? If it moderates price growth, why can’t rezoning moderate price growth down to a negative?
I’ve long puzzled over the exact mechanism by which planning regulations are supposed to constrain the rate of new housing supply. Sure, they constrain the locations at which different types and densities of uses can occur. That’s their purpose.
But density (dwellings per land area) and the rate of supply (new dwellings per period across all sites in a region) are very different.
It seems logical to me that landowners maximise their economic returns from two choosing
It is not at all clear that if more dwellings can be built on one site that this changes the optimal rate of sales per period for that site.
It is also the case that only landowners can choose to make planning applications, and that a huge majority of approvals are for projects that exceed coded density limits. We have a property market after all.
What I am puzzled about is that when someone claims that planning reduces housing supply, what sort of counterfactual pattern of supply do they have in mind?
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My first ever public comment about COVID was this. I was both prescient and wrong.
Everyone has lost their shit about coronavirus as if lives lost this way are worth orders of magnitude more than lives lost any other way. In two to three weeks time the reality will set in that there are real costs of locking down society that can be measured both in value of resources wasted and in blood. All perspective has been lost at present.
If only I’d written years instead of weeks, then it would have been spot on.
As someone who has thought about health policy, well-being, and trade-offs for many years, my first reaction to the media coverage of COVID and the mystery China virus was to ask the following question: What is the normal number of deaths in a city the size of Wuhan? Without this context, all the media coverage made no sense. A city with 12 million people can expect about 96,000 deaths a year. That’s 264 a day.
So when I read headlines like “Death toll rises to 600” and that smoke from crematoriums working overtime was filling the city, I had a reasonable baseline from which to sniff out nonsense. The numbers mattered then and they still matter now.
If you search online for news articles of COVID or coronavirus deaths from February 2020 you will see just how small the death numbers are and how crazed and fearful the reporting was. Some of the reporting just had made-up figures, with orders of magnitude differences from one article to the next. No one really cared.
Even at this early stage, the lack of deadliness of the virus was becoming clear for those who wanted to find out. The case fatality rate was likely to be sub 0.7%, even with relatively limited testing (i.e. 0.7% of known cases, not all cases). Clearly, this implied that early estimates were hugely biased because infections were far more widespread than initially assumed.
The Diamond Princess cruise ship had 3,711 people on board and had 14 deaths. On this cruise, 0.37% of people died over a two month period. Is that good or bad?
We know that background mortality is about 0.8%. So every two months you can expect 0.13% of people to die. But this is across the whole age distribution. Even a small skew towards the elderly massively increases this number. For example, in your 80s you have a one in twenty chance of dying each year on average. In your 90s, a one in five chance.
The age distribution of the Diamond Princess was super high, so 0.37% of people dying within two months is totally within the normal range.
We knew this in March 2020.
Image source: https://wattsupwiththat.com/2020/03/16/diamond-princess-mysteries/
We already knew then from the Italian outbreak that the average age of COVID deaths was higher than deaths from all other causes combined.
Taking all this information together was pretty encouraging. This is why herd immunity was thought to be simply a matter of months away. Flatten the curve for two weeks, then a month or two later the whole thing would be over. No one expected to be having masks, border closures, vaccine mandates and passports for two years.
With markets crashing I took the opportunity to put forward some ideas about macro-stabilisation policy, such as having a public agency take equity stakes in companies that wanted bail-out money and buying up housing developments in distress to smooth construction cycles and add to public housing stocks.
Of course, none were taken up. But looking back, they were much more sensible than what we got with a JobKeeper giveaway, a Cashflow Boost, that cost hundreds of millions and resulted in a net upwards redistribution of wealth.
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I listened to a frustrating Sam Harris podcast about COVID policy yesterday. What struck me about these "expert" commentators was that they
Both these seem like popular ways of thinking, unfortunately.
I want to comment briefly on the second issue. This should help explain why I support vaccinations for the elderly but feel strongly against vaccinating children, vaccine targets and mandates.
The risk of serious illness or death with COVID is far more age-skewed than most viruses. In the below figure I show this skew. COVID is a serious disease for the elderly.
I also plot vaccine risks in the dashed orange. You might not be able to see it because it is so close to the axis. For age 70, the benefit-to-cost ratio of the vaccine is about 250x (i.e. the blue line is 250 times higher than the dashed orange line). A great outcome and something anyone would be foolish not to recommend.
But exponential curves are deceiving. Let's zoom in on this curve for young age cohorts. I do this below (curve equation is 10^(-3.27 + 0.0524xage)). Notice now that we are way down near the vaccine risk. It's close. I show a broad range of risks and call this COVID curve the risk of serious illness. I do this because reality doesn't follow the neat equation I used to plot the curve and children are likely even lower risk than shown.
In short, because the age skew of COVID risk is so severe, these huge many-hundred-times benefit-to-cost ratios can reverse at low ages so that the costs are many times the benefits. This is why so many doctors are calling for a halt to mandates for vaccinating children.
We should let this well-known information about COVID guide us rather than politics and panic.