Monday, October 05, 2009

‘Smart Growth’ and the coming ‘Housing-Led Recovery’ – or, to put it another way: ‘Oxymorons for Morons’ [updated]

I don’t know about you, but if I keep hearing excited talk about the oxymoron of a so-called “housing-led recovery” I’m either going to scream or blow up a housing project. News that mortgage lending is outstripping business lending by several percentage points is not news to about which we should be excited, but alarmed.

Haven’t we learned already that family homes are not productive investments but consumer goods? That buying consumer goods with investment capital is a great way not to recover, but to go broke?  That durable consumer goods whose prices are inflated by truckloads of the central bank’s counterfeit capital don’t represent “growth” but an asset bubble ready to pop?

If any other class of goods inflated as fast as houses do, and have, we’d want to do something about it.  But not when it’s housing.

The inflation and then the popping of the housing bubble, for which we’re all now paying, was brought about, in simple terms, by the ability of banks in a fractional reserve system to create credit out of thin air; all that newly created credit going predominantly into housing instead of genuine productive investment; and the supply of new housing being kept down by so called “town planners” – more specifically. those planners’ obsession with what they amusingly call “Smart Growth.’ 

None of these things has changed.

There’s no pressure to change or rein in the fractional reserve banking system, and little understanding of the urgent need for this to be done.  There’s very little mainstream understanding of the difference between productive investment and unproductive consumption.  And planners are still obsessed with so called Smart Growth.

If you only come here to read the economics posts, then you probably still unaware of the effect of this Smart Growth delusion on the economic disaster, so do yourself a favour and read Randal O’Toole’s latest critique of Smart Growth – which as Owen McShane says “is a ‘must read’ seeing so many local authorities are rushing to write Smart Growth into their current Plan Reviews” – go here to read How Urban Planners Caused the Housing Bubble. And in case you think this will be totally American centred, or of little interest to economists, then note this quote from page 17:

“In a recent survey of 227 housing markets around the world, former governor of the New Zealand Reserve Bank Donald Brash observes that ‘the affordability of housing is overwhelmingly a function of just one thing, the extent to which governments place artificial restrictions on the supply of residential land’.”

Would that Don, or his successor in the Reserve Bank, understand the effect of that particular institution on the housing bubble.

UPDATE: Vin Suprynowicz points out that continual government interference during the  Depression served only to delay economic adjustment and recovery.  As it was in the Great Depression, so too for this one.

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7 Comments:

Blogger KG said...

Now you're in trouble PC--threatening to blow up a housing project will have Ruth wetting her knickers and running to her friends in the CIA..

10/05/2009 04:04:00 pm  
Blogger PC said...

I'm sure Ruth won't miss my ever-so-subtle 'Fountainhead' reference. :-)

10/05/2009 04:07:00 pm  
Anonymous Anonymous said...

Nicely put. I agree.

10/05/2009 04:11:00 pm  
Anonymous Elijah Lineberry said...

It is good someone is pointing out that housing is just a consumer good (hence why I prefer renting to owning, in much the same way the washing machine and television are from 'Mr Rentals'); it is simply astounding how few people grasp this concept and realise they have thrown away their opportunities to become rich by purchasing their house.

10/05/2009 04:18:00 pm  
Anonymous Anonymous said...

Yeah, but guess what: the government taskforce on how to make more taxes can see the only fix for this being ... drum roll ... more taxation.

http://www.interest.co.nz/ratesblog/index.php/2009/10/02/tax-working-group-favours-land-tax-over-capital-gains-tax/#comment-40171

http://www.interest.co.nz/ratesblog/index.php/2009/10/02/tax-working-group-favours-land-tax-over-capital-gains-tax/#comment-40360

Mark Hubbard (posting from the impressive Vodafone 3G network from 'somewhere' in the Marlborough Sounds.

10/05/2009 06:54:00 pm  
Anonymous Nick said...

Certainly understand and agree with your sentiments with regards to getting all the beauracrats and town planners out of the way as being the best way to stop artificial booms PC. I am interested in your opinion though with regards to the present state of things, i.e if we don't have a Libz revolution, and have another term or to of the National commies. Would you support the elimination of deductability of rental losses in exchange for personal tax cuts? It seems in this way the State is allowing people's investments to be subsidised with negative gearing.

10/05/2009 09:19:00 pm  
Anonymous Real estate in Toronto said...

Hello. Even though I'm from Canada I must admit that I'm quite curious about the future development of the current situation in the US. Because I work as a realtor I totally agree that people should realize that purchasing a house is not an investment! So if they continue taking loads to buy a house they will only help to contribute to the creation of another housing "bubbles". Of course, so does the US government providing the first time homebuyer credit.
All the best,
Julie

10/12/2009 09:30:00 am  

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