Solving the housing supply mystery

Static thinking creates the mystery

A famous 1999 article in the The Journal of Real Estate Finance and Economics was entitled Why don't we know more about housing supply? It starts by observing that in the 1960s and 1970s most scholars had found that the supply of new housing was perfectly elastic. In plain English, this means that new housing construction seemed to mysteriously occur whenever it was required, regardless of the price.

So if the standard economic logic that high prices incentivise more new construction fails, how is one to solve this economic mystery?

The solution is surprisingly simple and was identified as early as 1970. The decision to build a new house on a piece of land is not a production output decision but an irreversible capital allocation decision (i.e. you can’t easily ‘unbuild’ the house next year if it is the wrong decision to build it today).

If you try and understand housing supply in terms of the standard single-period static supply and demand model you will struggle to make sense of housing. In this static model world, every opportunity for housing construction is already taken up, since it compresses all future time into a single period. If it could be profitable to build a house in ten years time, then the model says it is already built!

Once you break free of this static view and add time to your thinking, housing supply makes a lot more sense. Landowners can choose not only how densely to develop housing on their land, but also when to develop. After all, if the price of the land is rising quickly, why would I develop today when I could make more money by holding the land vacant and developing more housing later?

When you start thinking dynamically the price cycle and the supply of housing become tightly linked. I want to demonstrate briefly how dynamic balance sheet allocation decisions make sense of housing supply mystery with a simple example.

An example balance sheet

To set up this example, we need to understand firstly that the economically optimal behaviour in capital allocation decisions is to maximise the rate of growth in the value of the total balance sheet. For the moment I ignore risk and uncertainty to make a simple point that is much more subtle in reality.

Consider a balance sheet as per the Table below. In the beginning, the portfolio is $100 of cash, vacant land (2x lots worth $50 each), and housing (say one house on a lot worth $50 with a building worth $50).

Now consider that over time the total returns to each part of the balance sheet are as follows:

• Cash receives a total return of 2% from interest.
• Vacant land receives a total return of 4% in capital gains which reflect the rising value of the option to develop.
• Housing gets a 3% rental return that comes in the form of cash, and a 2% return from capital growth.

If no capital reallocation decisions are made, then in the next period the balance sheet is as shown in the Base column. The extra $5 cash comes from the 2% interest on the cash balance plus the 3% rental return from the house. Both the vacant land and housing are marked up to the new market prices.

	Today	Base	More	More	More land
			housing	land	& housing
Cash	150	156	108	105	6
Vacant land	100	104	52	156	156
Housing	100	102	204	102	204
Total	350	362	364	363	366
Growth		3.43%	4.00%	3.71%	4.57%

It is only economical for a landowner to increase housing supply on their vacant land by swapping cash for a house if it increases the total rate of growth of their balance sheet. You can alternatively think about the 'cash for new construction' swap as borrowing for new construction.

More housing

Let us now see what happens to the balance sheet growth if a new house is built on one of the vacant lots using $50 cash. The result is in the More housing column.

From the $150 cash, $50 was used to build a new house on one of the two $50 plots of land, and the now $200 worth of housing increased in value to $204. The two houses also returned $6 in rent, which in addition to the $2 interest on the remaining cash balance, took the total cash balance to $108. The remaining vacant land lot increased in value by 4%, from $50 to $52. In total this portfolio reallocation decision increased the rate of growth of the balance sheet to 4%, compared to 3.43% if no reallocation was made. Thus, it was economical to make this reallocation and build a new house.

Importantly, this decision did not depend on the price of housing at all. We have no price level parameter at play here—only the yield and capital growth rate. Thus, the first important insight from this dynamic view is that decisions to invest in new housing do not depend on the price level. This contrasts with conventional static economic models that suggest that the supply curve for new goods is upward sloping with respect to price.

More land

Now consider that instead of reallocating cash to housing structures, it was reallocated to holding more vacant land.

In the More land column I show the balance sheet effect of buying another vacant lot. Here the now three vacant lots grow from $150 to $156 in value over the period. The cash balance is reduced to $100 but increases with $2 of interest and $3 of rental returns to $105. The housing grows in value to $102 for a total balance sheet of $363, or 3.71% total return.

Adding more land to the balance sheet was also desirable in this situation. Under these conditions there is an incentive to both increase the stock of vacant land owned, and the stock of housing built.

This is exactly what we see happening with land developers in Australia. When they develop more lots they also increase the stock of vacant land held in their ‘land bank’. The chart below shows this relationship for the top eight residential developers (for both houses and apartments). When the rate of new construction increases they also source more vacant land to expand the stock kept on their books.

More land and housing

I demonstrate the effect of responding to both incentives in the final More land and housing column. Here, two vacant land lots are bought with cash and one is used to build a new house, expanding both the stock of vacant land and housing on the total balance sheet. Here, the three vacant lots increase in value by 4%, taking the value from $150 to $156. The two houses increase in value from $200 to $204 and deliver $6 in cash from rents. The total balance sheet at the end of the period is $366, or a 4.57% return. During a price boom, it is optimal to increase both new dwelling construction and the stock of developable vacant land.

When the tide turns land and housing materialise

Consider the again the same starting balance sheet, but this time the capital growth is negative, just like after a peak of housing price boom. Interest on cash falls a little to 1.5%, land price growth turns more negative than the price of housing, but yields are roughly constant.

• Cash – 1.5%
• Land – negative 2%
• Housing — negative 1% growth plus 3% rent

In the table below, we can see the balance sheet effect of reallocation decisions under these new conditions. In this case, since owning vacant land offers a pure negative return with no imminent positive cash flow, it is a bad play to have too much on the balance sheet, and either converting it to housing or cash is the way to go.

	Today	Base	More	Less	Less land,
			housing	land	more housing
Cash	150	155.25	107.5	206	158.25
Vacant land	100	98	49	49	0
Housing	100	99	198	99	198
Total	350	352.25	354.5	354	365.25
Growth		0.64%	1.29%	1.14%	1.79%

This scenario is very similar to what is happening now in Australia. Developers are trying to transform their vacant land assets into new housing using a build-to-rent model while at the same time reducing their land banks. All of a sudden there seems to be a flood of land and housing available!

Similar logic applies to owners of under-utilised housing who might be holding a dwelling vacant, or using it only occasionally, because keeping their options open is being paid for by capital gains. When their balance sheet starts shrinking their best option is to start renting the home to improve their overall portfolio return, further flooding the market.

Why prices and supply must track together

Rising prices encourage the conversion of land and cash to housing but also encourage the conversion of cash directly to housing. This mostly occurs by buying up the existing homes and in the process bidding up prices.

The dynamic balance sheet approach shows why these purchases cannot happen without bidding up prices. The simple reason is that current owners of housing also have an incentive not to sell and to themselves expand their balance sheet exposure to housing. An equilibrium in which prices are stable and the stock expands to accommodate demand defies balance sheet logic. 

The feedback cycle of high house price growth attracting further home buyers can continue until all willing participants have maximised their available exposure to housing. Then, as buying stops, growth rates fall, and logic dictates that reducing balance sheet exposure to housing is necessary, fuelling the bust.

This is why credit plays such a crucial role in the cycle. It facilitates large negative cash balances (loans) being converted to housing, greatly expanding the total capacity of the agents in the economy to shift their asset balance towards housing.

One way to align the cycle more closely to expanding supply rather than prices is to differentiate credit availability, making it more accessible for new housing and less accessible for existing housing. The increase in Chinese buying in the 2012-2017 cycle that was biased towards new housing did help expand supply higher than otherwise in the cycle, but in the process further fuelled price growth.

How does zoning fit in?

Rezoning vacant land to allow higher densities fits into this view as a way to increase the rate of growth in the value of vacant land held. In short, it makes keeping land vacant relatively more attractive than converting it to new housing. It is easy to understand the logic here if we think about the reverse scenario of down-zoning land to decrease its development density. The threat of future down-zoning would encourage faster conversion of vacant land to housing. The possibility of future up-zoning, therefore, encourages the holding of vacant land and a slower rate of conversion to housing.

Developers aren't secretive about this behaviour. In 2013  Stockland told its investors that it was delaying some projects to “improve return prior to launch.” Without the option for up-zoning to improve returns, these projects would have been built and sold sooner than otherwise.

Mystery solved?

I have spent more than ten years trying to unravel the mystery of why the observed patterns of housing supply conflict with standard economic reasoning. I now think I have solved it, but it is a radical departure from the standard thinking that most economists, housing analysts, and policy-makers are trained in.

Instead of housing supply responding to prices, it responds to the rate of return of different asset classes. In this world, the notion of a static equilibrium seems to make little sense if the rebalancing of portfolios into new housing feeds back into prices. Both prices and the rate of new supply move together until the system runs out of new buyers. What seemed in the boom to be a shortage of land and housing suddenly becomes a flood as expectations of high returns vanish. Just ask anyone in Ireland or Spain about this.

The only remaining mystery is why this dynamic approach, which has part of the intellectual debate in economics journals for nearly half a century, is not a central part of mainstream economic discourse.

Unpopular Economic Opinions

I was an illogical ideologue

I recall many heated political and economic discussions with Paul Frijters when I started my PhD. In retrospect, these would simply involve me rambling and him pulling me up questioning the logic of the next line of my argument. I realise now that “younger me” was happy to regurgitate arguments I liked no matter the logical coherence.

But now life is much harder. Being absolutely critical and logical means you don’t believe the same myths as your social groups. It makes you an outsider in the purest sense.

It is also career-destroying. Telling people comforting lies is how you make the big bucks, particularly as an economics consultant.

You can tax capital gains due to inflation

I’ve never understood the concern adjusting for inflation in the taxing of capital gains. The gain, inflation-adjusted or not, is simply a profit in the year it is realised. Businesses investing in new capital equipment don’t get to say “Yeah, but if I bought this machine today it would cost heaps more, so let me just deduct today’s price as an expense."

Brexit will not be an economic disaster 

If supply chains are so tightly integrated that the British economy will collapse, then it is in the political interests of countries at the other end of these supply chains to agree to reasonable trade conditions so that their countries don't also suffer. Indeed, most of the arguments for Remain are not economic ones. They look and sound like economics, but there is no economic reasoning.

Take this article, which suggests that the need for exports to conform to EU product standards is a scary big cost of Brexit. But by definition, all products currently exported to the EU conform to EU standards. This is a minor administrative change by any stretch of the imagination.

While it is certainly in the interests of the EU bureaucracy to make a Brexit as economically disruptive as possible in order to send a message to other countries, I think in reality this will be hard to do.

Also, calls for a second referendum seem pretty anti-democratic— "democracy is good, except when the stupid people vote for things I don't like".

These don’t seem like strong economic arguments against Brexit IHMO.

"No deal? Seven reasons why a WTO-only Brexit would be bad for Britain” https://t.co/SVLTaqEaEv

— Cameron Murray (@DrCameronMurray) November 19, 2018

Am I batshit mental?

Or is it batshit mental to pretend the solution to a problem of badly distributed access to resources won't require redistribution of access to those resources?

Yesterday’s ‘bottom-up’ is tomorrow’s ‘top-down’

Russ Roberts is an excellent interviewer and I thoroughly enjoy his Econtalk podcasts. But every time he talks about ‘bottom up’ solutions to organisational problems I immediately think “here comes tomorrow’s top-down rule that you are going to hate"!

Nobody is serious about higher wages

If you aren’t interested in unleashing enough government spending to decrease the unemployment rate to a number starting with a 3, or even 2, then you can't be that interested in increasing wages.

We were interested in this once. And being far richer than we were then, we could do an even better job today. If that’s what we wanted.

Micro-efficiency obsessions are macro-economically inefficient

With such huge macro-level inefficiency from under-utilised resources, we should stop debating the microeconomic efficiency of government spending so much.

• NBN? Just do it. Spend on the best quality stuff now.
• Airport rail? Just do it.
• Clean our city rivers? Plant trees in the catchment and install stormwater filters now.

Just about anything, even digging holes and filling them in, is better than a 5%+ rate of unemployment with hundreds of thousands of underutilised workers.

High population growth is ideology hiding in economic jargon

Arguments from supporters of high population growth in Australia are that:

• Immigrants are job-creators
• Immigration offsets ageing
• Immigration makes the country richer

Sounds like something our stagnant regional towns could do with more of!

Ignoring the practicalities of internal borders, all of these arguments also favour an “immigrants to the regions” policy. After all, Australian cities are a small global region. Why argue for “immigration to the Sydney region” and not “immigration to the Tamworth region”?

For some reason, this is philosophically wrong rather than impractical, and immigration boosters seem happy to turn their economic arguments 180 degrees when the location of immigration changes.

Also, if you want public support for immigration, don't insult everyone who has concerns about the past decade of record high levels. Has insulting someone ever been persuasive?

Bad economics of the stamp duty discourse

This is an expanded version of an article first published at The Conversation. 

Most think-tanks and policy groups in Australia think that a policy to swap ‘stamp duties for land value taxes’, or what I will call SD4LVT, is going to provide some impressive economic and housing benefits.

But layers of bad economics hide beneath the new populism of SD4LVT.

It is extremely frustrating to me that leading minds in Australian policy have smashed their heads together and decided that the best reform they can think of is to replace one good tax on property with another good tax on property that is less politically popular. It's like subbing off the best player on the field for the best player on the team? Why not sub off the worst player instead?

The better minds in this game don’t even think SD4LVT will have any effect on reducing housing prices or making housing at all more affordable, yet still put it forward as the ‘holy grail’ of state tax reform.

Is this some kind of joke?

The bad economics behind SD4LVT arises because four key points are missing or overlooked.

1. Price effects

The economic incidence of stamp duty is on the seller. This means that if you remove stamp duty, all else equal, prices will rise by exactly the amount of the duty. Good analysts know this, even if they rely on poor analysis by others that assumes stamp duty “increases the price that property buyers pay”. If the average home price is $500,000, and stamp duty is 5%, prices will immediately rise to $525,000 when you remove the duty.

But if you want to replace the same tax revenue from stamp duty with revenue from land value taxes, you could wind up inflating prices and inadvertently creating an economic transfer to property owners.

Imagine an example economy with:

• 20 houses 
• Turnover of 1 house each year (a turnover rate of 5%) 
• Average rent of $25,000 per year (5% gross yield) 
• An average home price of $500,000 
• Land price component of $250,000 per house (total land value of $5 million) 
• Total stamp duty revenue of $25,000 per year. 

To replace the $25,000 stamp duty revenue with a land value tax requires taxing all twenty homes at $1,250 per year each.

Whether the market price of homes rises or falls depends on whether buyers think the upfront present value of $1,250 per year is lower or higher than the $25,000 upfront stamp duty they would have paid. At a 5% capitalisation rate in this example, $1,250 per year in perpetuity is equivalent to $25,000 and the taxes replace each other perfectly with no price effect.

But what if turnover is half that, say 2.5%, which in this example would be where one house is sold every two years? Here, the total tax revenue to be replaced is $12,500, which equals just $625 per house in land tax.

If we capitalise the perpetual cost of $625 per year at 5% we get a present value of only $12,500, which is half the stamp duty rate. A new buyer can now pay $512,500 for the house plus $625 per year in land tax and be equally as well off as paying $500,000 for the house plus $25,000 upfront in stamp duty. The net effect in this case is a land price increase from $250,000 to $262,500, or 5%.

If this situation happened nationally in Australia, that would be nearly a $200 billion economic transfer to landowners, which would completely offset the value of their new land tax obligations.

In short, replacing stamp duty revenue with land tax will increase prices if the capitalisation rate is higher than the turnover rate, and decrease prices if the opposite holds. Price effects are ambiguous for SD4LVT.

2. Asset churn

Taxing capital gains only happens when a transaction is made that realises gains. Thus, it is a transaction tax, just like stamp duty, though the size of the tax is related to historical changes to property values rather than current values.

Many in the housing discourse, such as the Grattan Institute, want to increase transaction taxes on housing by increasing capital gains taxes and expanding their scope to apply to owner-occupiers. At the same time, they want to decrease transaction taxes on housing by eliminating stamp duty because apparently transaction taxes stop people relocating.

Somehow abolishing a transaction tax in the form stamp duty is good because it reduces the cost of owner-occupiers relocating, but then putting back a large transaction tax in the form of a capital gains tax specifically on owner-occupiers is also good. Huh?

There are two problems with the ‘transaction costs impede household mobility and are bad’ view. First is the simplest. People who relocate for work generally don’t buy and sell houses to accommodate that move. 

Moving for work is not a common reason for buying a home, regardless of age, which might reflect a view by some households that work is a temporary reason for moving and therefore not sufficient to commit to homeownership.

Thus, the effect of stamp duty on reducing housing turnover is likely to fall mostly on investors, who make up nearly half of housing transactions and can easily time their decisions. Transaction taxes make it more expensive for people to quickly buy and sell and deters speculative buying that seeks only to capitalise on short bursts of capital growth before selling, which itself fuels the capital growth and accentuates the bust. Many investors fall in this category, and many homeowners also make their location and purchase decisions based on expectations of capital gains rather than housing need. Go on, ask new homebuyers about property prices. See if they bought where they did for housing need or capital growth?

The evidence on stamp duty deterring moving shows pretty clearly that moving for work is unaffected, as the below plot shows, with the main effect being from people making 'short moves' by relocating less than 10km. Indeed, the best evidence on turnover effects estimates only the size of the short-term shock as people adjust to the new price equilibrium.

In terms of the claim lower stamp duty helps more efficiently use the stock of dwellings, as it reduces the costs to older people down-sizing, freeing up large homes for families, the evidence here is the opposite. When the ACT scrapped stamp duty for over-65s, the retirees who utilised the exemption bought bigger homes, rather than smaller ones, requiring them to implement a low value-cap on the exemption. After all, the distribution of home ownership is not driven by housing need, but primarily by wealth. Reducing the cost of redistributing housing by wealth will not suddenly make housing ownership less unequal. 

Regardless, turnover as a whole seems relatively unaffected by stamp duties. The early 2000s boom also saw massive stamp duty increases yet turnover shot up dramatically. The role of stamp duty in these patterns of housing turnover is tiny compared to other factors.

Indeed, if you want people to move more frequently for a lower cost then implement a ‘moving house subsidy’, which could also apply to renters. It would also help renters forced to move unnecessarily due to investor turnover (yes, stamp duty also reduces undesirable moves for renters).

Second, taxing capital gains on owner-occupied housing will be a far bigger transaction tax than stamp duty for most homeowners. Stamp duties are typically around 5% of the property price. For a homeowner who bought a home prior to 2012 in Sydney or Melbourne, their home has appreciated in value about 50%, or to put it another way, 33% of the current price is capital gain.

If a capital gains tax applied to their sale, the tax rate as a proportion of the current value would be:

Capital gain (33%) x Marginal tax rate (45%) = 14%

This is triple the stamp duty for most properties. Even if the capital gains tax was discounted 50%, the nearly 80% of homeowners who bought prior to 2012 would still have much higher transaction costs from capital gains taxes than from stamp duties.

In effect, stamp duties are taxing some of the capital gains during a boom that would otherwise accrue to homeowners, particularly owner-occupiers who are exempt from the capital gains tax. This seems like a good thing to me.

So while stamp duties are often claimed to be economically costly because they deter households relocating, their main effect is actually reducing investor churn, which is a good thing for property market stability. Additionally, the costs of relocating are probably less than the costs from other property transaction taxes that opponents of stamp duty support.

3. Tax revenue stability 

Another concern in the discourse is that “stamp duty revenues are much more volatile than other taxes.” During a boom, revenues rise more than proportionally to prices since they depend on prices and turnover. Vice-versa in a bust.

If I was to think in the abstract about what sort of taxes are good macro-economically, I would say those that are pro-cyclical, meaning they automatically increase tax revenues during an economic boom, and decrease them in a bust. On this metric stamp duty is a terrific tax to help stabilise the economy, which is even more useful in Australia as our economic cycles are closely tied to the housing market.

The land value tax that many propose to replace stamp duty would have smaller automatic stabiliser characteristics, meaning the tax system as a whole would be less stabilising.

From what I can tell the call for more stable tax revenues is not driven by economic reasoning at all. At best it appears to rest on some kind of political preference for state governments not to be involved in macroeconomic objectives.

4. Wrong assumptions 

The metrics of economic disaster caused by stamp duties are usually derived from economic analysis using computational general equilibrium (CGE) models of the macroeconomy. Sounds fancy.

You might have even seen a chart similar to the one below, with stamp duties presented as having massive flow-on economy-wide costs compared to other taxes. In this example, stamp duty is apparently forty times more economically costly per dollar of revenue than council rates, which are also levied on property values.

As you might have guessed, this is absolute nonsense. CGE models cannot account for transaction taxes because, wait for it, there are no transactions in these models. It’s true. Look it up.

But that hasn’t stopped many economists. Instead of using a better tool for the job, they simply invent a different thing that they pretend is stamp duty and put that into a CGE model.

Rather than a transaction tax that is incident on the seller, and therefore incident on land values, a key layer of bad economic analysis assumed this instead (p125).

conveyancing stamp duties are modelled as a tax on investment in residential and commercial structures

Against all the evidence they assume that stamp duty is not a tax whose economic incidence is on land. Instead, they assume that stamp duties raise the cost of housing to all buyers and renters. In addition, the model assumption requires that stamp duties also raise the cost of building new houses without affecting land prices, leading to reduced new housing construction in general. Garbage in, garbage out.

It’s hard to explain in plain English what is going on in these models. My best explanation is that the model says that stamp duty forces every new home to be built with an additional extension on the house, where the construction cost of the extension is the same as the stamp duty. But then as soon as it is built, the extension is immediately demolished, yet somehow the buyer is forced to pay for it. Meanwhile, all the other households in the economy are somehow forced to also pay more to occupy their existing houses, as if they were now renting non-existent home extensions. 

If that sounds crazy, that’s because it is. There is no actual economic evidence of broad economy-wide costs of stamp duties. Just garbage inventions that don’t look anything like stamp duties.

In sum

Stamp duties don’t increase the cost of housing. They do reduce asset churn by investors and speculators, which is desirable for price stability, and the apparent economic costs from reducing household mobility are overblown. The ‘revenue instability’ of stamp duties is actually a huge positive for the economy as a whole, and the economic analysis that has underpinned the talk of the high economy-wide costs of stamp duty is simply made up.

All of this is true. Yet SD4LVT is the apparently the holy grail of Australian tax policy. Our best policy wonks want politicians to use up the precious political capital to swap one very good property taxes for another very good but electorally unpopular one, for no net economic gain.

A housing jubilee and lottery to solve affordability

People fuss over housing being expensive without ever really thinking about what their ideal world would be. My ideal world is one where everyone has the benefits of outright homeownership—few ongoing housing costs with tenure security.

One way to get those desirable social outcomes is for everyone to own their own home outright. This can be done with the stroke of a pen. Simply convert all the current residential rental leases to land titles, transferring homes from landlords to tenants, then write-off all the existing housing debt (or shift it to the central bank’s balance sheet and adjust the interest to zero).

After this housing jubilee, all homeowners will become debt-free and all tenants will become debt-free owners.

Any other vacant and under-construction homes would be nationalised and given away in a lottery to anyone who missed out by not being a tenant at the time of the switch. Holiday rental housing stock can be exempt from the Jubilee if evidence is provided that the home has been used for holiday letting in the past year.

The whole jubilee could be enacted by Christmas and our housing affordability problems would vanish.

To maintain the affordability benefits of the jubilee the government can periodically give away homes to anyone who does not have one to allow for changes to population, household formation, and age distribution. It can also redo the jubilee every couple of decades.

A public agency can build new homes at a bunch of different locations across all the major cities and towns, just like a private developer. Or it can purchase them from developers, get them through inclusionary zoning, use homes that end up at the public trustee, or get homes into the system in a variety of other ways. But instead of selling them they are given away.

My preference for how to do this in practice is a housing lottery. Anyone who wants a house and doesn’t have one would go through a screening process, then if found eligible, would get a ticket for a lottery for a new home in their preferred location. Every Saturday night, to great fanfare, the lottery would be drawn. Perhaps as many as 1,000 homes per week could be drawn nationally, broken down into regional sub-lotteries of local housing to qualifying local lottery entrants. Ideally, there could be statistical targets on the number of homes needed for the system so that the typical entrant, for example, is expected to win the lottery within a year of first entering.

The total cost of producing 50,000 new homes a year is about $15 billion. This could be funded ten times over by simply tightening up existing tax loopholes and existing giveaways.

Alternatively, and perhaps more practically, those homes transferred for free in the jubilee can be lifetime leases rather than perpetual freehold titles. This means that when people in these homes die or move to old-age care, the house re-enters the system to be given to someone else. If their children don’t have a home, which is unlikely, since they would have themselves been eligible for a free home, they can inherit the lease for their lifetime. Otherwise, the house re-enters the system to be given to someone else. There can also be controls on sub-letting or selling free homes back into the private market.

Alongside this system, the private market can continue to function as people sell and repurchase as they choose, though if they do sell they can then enter the lottery if they choose.

You might think this is radical. But in fact we do exactly this in healthcare.

We spend over $100 billion per year to provide health and hospital care for free to anyone who needs it, no questions asked. Politicians quite often even brag about how much they are going to spend on the health system. Imagine if they also wanted to brag about how many new homes they built to give away!

In healthcare though we have a system of medical professionals who decide on health needs, rather than a ‘medical procedure lottery’ which would be totally inappropriate. I personally think a lottery adds excitement to the whole process. It also adds fairness, as the homes won’t ever be exactly equal in terms of locational and quality attributes, so if luck determines who gets the slightly better homes, then so be it.

The only role for bureaucratic assessments will be to ensure eligibility to enter the housing lottery in a certain location. We could foster a system of professional ‘housing general practitioners’ who assess whether the person entering the lottery is eligible (they don’t already own property) and their need based on age, family size, and location preferences.

This is absolutely doable. If we can spend $50 billion on submarines we can do this. If we can spend $100 billion per year on free healthcare, we can do this. If can give away $30 billion per in superannuation tax discounts for the richest households, we can do this.

If this idea is too radical for you, perhaps consider whether you actually want affordable housing for all.