World War II, governments intervened in the housing market by building millions of homes, which paired with new constructions by the private sector allowed families to acquire relatively accessible properties in terms of their income. In the United States, the construction of the interstate highway system initiated by President Eisenhower (for national security reasons) in 1956, and which continued until the 1990s, made possible the development of city suburbs. This caused a major rise in construction around cities. However, during the 1980s, with gradually less available land, the supply of properties became increasingly limited, significantly driving up prices. In many cases, the supply of homes is inelastic, meaning that a rise in prices does not necessarily mean a rise in supply, especially in cities with strict city codes.
Let us take a look at Germany: a very good example of a country where the housing market works properly. There, the government guaranteed a wide supply of new properties through regulations that promote construction. The rate of homeownership is low, a mere 50%, but thanks to long-term rental incentives and young people not feeling pressure to buy, (23) all these measures contributed to the price of properties being –on average– similar to 1980. (24) For instance, in 2018, Germany built twice as many houses as England, despite having a population only slightly higher and a lower demographic growth. (25) (26) In 2019, the city of Berlin decided to go even further by freezing rental prices for five years. (27)
At the other extreme are cities such as London, with some of the highest housing prices in the world. It is still surrounded by a green belt with strict building restrictions even though young people struggle to access property. (28) Increasing the supply of property in this city by clearing areas for new construction and rolling back certain urban restrictions could generate a strong impulse for the British economy at a time when it is reeling from the pandemic and its exit from the European Union (Brexit). It would also reduce traffic jams and the use of public transport by allowing people to live closer to their work.
In many major world capitals, very strict regulations protect an existing elite of property owners by preventing the construction of tall buildings demanded by the modern economy and needed by young people. We are witnessing a clash between urban aesthetics and the needs of the economy. Residents tend to get upset with the construction of new building complexes that increase the population of their neighborhoods. But unfortunately, we need more homes. We are no longer 3.7 billion people in the world like in 1970, but almost 8 billion people; more than double. And these 8 billion people need somewhere to live, for which urban planners are going to have to find a way to reconcile the housing supply with urban aesthetics. Urban planners specialize in how to allow for an increase in the supply of city properties without ruining the urban landscape or affecting public services. Solutions range from re-zoning old industrial, commercial, and single-family districts; to allowing taller buildings in certain areas, increasing green areas, and improving public transport so people living further away can get to work faster. Cities must have squares, parks, trees, and green spaces. Cities like New York are packed with skyscrapers but their citizens have access to plenty of green spaces.
Usually, the issue of real estate supply is not included in government agendas. The technocracy tends to face the problem from a demand standpoint, leading the US government to subsidize interest rates for buyers (by securing them) or increasing the supply of social housing, which is insufficient considering the scope of the problem. The solution lies within the private sector; by letting it do its job and build new homes. And to do so, it needs space, either to grow vertically through the removal of caps on construction, re-zoning or allowing higher buildings; or through horizontal expansion by freeing up new areas for construction.
Big cities are where young people want to live because that is where the best jobs and opportunities are. The 1980s and 1990s, a time when people wanted to live in the suburbs, are over; the new generations want to live in urban centers and this is where there needs to be a greater supply of housing. The revival of urban centers, congested highways, and the fact that couples have fewer children at a later stage in life leads young people to choose to live in urban centers where there is greater cultural and social activity. If only three cities –New York, San Francisco and San Jose– loosened their building restrictions, the American GDP could rise 4%, according to one study. (29) Globally, the impact could be similar thanks to an increase in the available income of young people and the expansion of business-friendly environments.
Although young people, in general, prefer city centers, in the post-pandemic scenario, two main factors will reinvigorate the suburbs. On one hand, the economy will not be the same, many people who shifted to working from home will never return to their physical offices. We will see a permanent trend toward remote work, which will allow people to live further away from the city centers. Others will take advantage of their online jobs to move further away for fear of a second pandemic. On the other hand, the widespread adoption –and acceptance– of autonomous vehicles (i.e., self-driving cars), which will take place during this decade, will have deep implications for the transformation in mobility and transportation. These vehicles are already a part of our reality, and it is just a matter of regulating them before they start roaming the streets. This will make it easier to live farther from the city center, allowing people to use their commute to do other activities.
The impact of the housing crisis on the economy, society, and politics is significant. Its main effects include: deeper inequality due to lower available income, high levels of mortgage debt, young people living with their parents for more years, and the resulting unhappiness contributing to the election of populist governments. Many analysts believe that what is truly happening in Hong Kong –aside from its citizens’ legitimate claims of the infringement on their rights against the Chinese government– is a profound unhappiness due to the astronomic cost of housing in the city. (30) Other studies speak of a correlation between the rate of homelessness and the increase in housing prices, an issue that strongly affects cities like San Francisco, New York, and Los Angeles. (31)
If a higher supply of properties could allow us to return to a relationship between the cost of housing and income similar to the 1980s, this would unlock a huge mass of income currently spent on mortgages and rent, which would notably increase the available income of the middle classes. Supply, supply, and more supply of real estate! Re-zoning, less regulation, and better transport are the keys to tackling the unhappiness of young people, low economic growth, and excessive family mortgage debt.
THE COST OF HEALTH AND HABITS
In the inaugural address of his second term in office, President Abraham Lincoln told the crowd in front of the Capitol that the government would provide medical care to those wounded in the civil war “to bind up the nation’s wounds; to care for him who shall have borne the battle, and for his widow, and his orphan.” (32) Lincoln passed a bill that established what became known as Freedmen’s Bureau to assist the wounded during the Civil War, their families, and the neglected. The program consisted of 40 hospitals that employed 120 doctors who provided free medical care to more than 1 million former slaves. At the time, it was one of the largest public healthcare programs in the world. (33)
One and a half centuries later, now a much richer country, things are entirely different. In spite of Obama’s 2010 healthcare reform and having some of the best hospitals in the world, it is the only large, developed country without universal healthcare. This is so extreme that 530,000 families declare bankruptcy every year because they cannot pay their medical bills, which represents 66.5% of total bankruptcies, (34) A low-income individual without health coverage who has cancer or needs a transplant may have to face the decision of losing their house and all their assets in order to pay the cost of their treatment.
Michael Flor is a 70-year-old American who was admitted to Seattle’s Swedish Medical Center on March 4, 2020, with coronavirus. When he was discharged two months later, he received a 181-page bill for a total of over $1 million. (35) The country spends 17.5% of its GDP on healthcare, as opposed to 10% spent by most developed countries with universal health coverage. Many factors come into play here: high rates of
