It is truly a tall order to fully understand the contribution of housing to growth, welfare and prosperity among individuals and societies. The field is generally under-researched and under-funded. Where there is research, it is often concentrated on a specific issue within a topical area such as: the link between labour market mobility and housing availability; the effect of poor housing on individual health outcomes, or the macro-economic risk of increased household indebtedness.
Rarely does housing research capture, or attempt to capture, the full socio-economic and dynamic effects of housing on individuals and society. Still, housing is affected by, and in turn affects, most other societal areas from architecture to private sector development. An obvious explanation is that housing markets are too complex to be described by unitary market equilibrium models and would require an empirical basis for submarket modelling. This, however, has not been embraced in applied research to any greater extent and, when it’s been done, it has been subject to inconsistency. The likely implication of this is that the effects of a functional, or indeed a dysfunctional, housing market may be both under-estimated and under-valued in literature and policy-research. Why so?
One possible explanation is that many of the really significant effects of housing are secondary or tertiary. For instance, if the primary effect is to provide shelter for individuals, a secondary effect might be better labour market mobility, i.e. that an individual can be gainfully employed in a specific location. This in turn contributes to increased tax income and economic growth.
Another explanation is that many effects associated with housing are intangible and thus difficult to monetise. For instance, even if we know that overcrowding makes it harder for children to study, it may be difficult to estimate the effect of this on these children’s expected life earnings. Yet, another explanation may be that housing investments are costly and the effects of an active housing policy take time to materialise, often significantly longer than any political mandate, which means that the political incentive to invest significant resources is limited.
The inherent complexity of housing and housing policy does mean that many politicians and economists make proposals based on ideology or over-simplified theoretical models that bear no resemblance to reality or have no basis for playing out the intended way in real life. This is why it is so important to highlight the interdependencies of housing with other areas and to try and “join the dots” with facts and figures.
Right to a home
The fact that the UN Universal Declaration of Human Rights (article 25, first point) quite clearly states that: “Everyone has the right to… housing” seems to suggest that housing can be regarded as a right for which society has, at least some, responsibility to provide for its citizens.
By the same token, this suggests that housing should be regarded, not as a private consumption good, but more as a merit good. Unlike a private consumption good, that has clear and immediate private benefits to the individual consumer, she or he will not be fully aware of the effects that a merit good such as housing will have on his/her life (and nor will producers). Very few individuals will be aware that his/her children’s lifetime earnings, labour market outcomes, chances of social mobility etc. might be affected by where geographically he/she lives or the quality of housing he/she lives in. Chetty et al (2015) has shown that moving a child out of public housing to a low-poverty area when young (under 13 years old) significantly improves college attendance rates and earnings. In their mid-twenties this group of children has an annual income that is 31% higher ($3,477), on average, than the mean of the control group ($11,270). Over the course of a lifetime, this signifies a total earnings boost by about $302,000. The additional tax revenue generated from these earnings increases would itself offset the incremental cost of the subsidized voucher relative to providing public housing. Chetty et al (2014) have also shown that spatial variation in intergenerational mobility is strongly correlated with the degree of local residential segregation, income inequality, school quality, social capital, and family structure. There can be large variations: the probability that a child reaches the top quintile of the national income distribution starting from a family in the bottom quintile is 4.4% in Charlotte but 12.9% in San Jose.
Nor will individuals be aware, at the time of consumption, that his/her housing consumption will have external benefits to society. For instance, the fact that the closer the person lives to an active labour market and/or in the vicinity of public transport, the greater the chances that he/she will find a job and thus contribute tax revenue to society instead of drawing on societal means through e.g. unemployment benefits. In short, the benefits to society of consumption of housing according to need (as opposed to affordability) are thus greater than the individual would be aware of, or would therefore prioritise.
As shown in recent weeks, the kind of housing available and where it is located does not only matter for social mobility and growth, it can also determine the outcome of elections. When Rothwell et al (2016) cross-referenced Gallup survey data with the work of Chetty et al (2014), they found that Trump was popular in those parts of the country that have low economic mobility. This is in turn affected by how we construct our cities: Ewing et al (2016) found that upward mobility is significantly higher in compact than in sprawling metropolitan areas/commuting zones. Thus, the more spread-out our cities become (urban sprawl) the worse for individual opportunities and societal growth and prosperity.
Thus, sustaining a housing policy that delivers to citizens matters not just for our economy but for our democracy.