The Economist has had, over the last year or two, a number of stories about the rapid escalation in housing costs in the U.S., U.K., and other rich countries around the world.  It attributes the problem (correctly, I believe) to a number of factors, one of which is lack of flexibility in local land use regulations.

It all just goes to show that solving the housing affordability issue will not be easy, and certainly not just by focusing on one of the many contributors to the problem.

Case in point, last week’s issue had a story and an opinion piece about whether the increased presence of corporate investors in buying up homes and rental properties is contributing to the crisis.  The basic conclusion is that it is not a major factor, and that it may in fact be spurring more housing production.

The editorial piece, titled Barbarians at the Garden Gate, concludes with this paragraph which I think helps portray the complexity of the issue.  The bolded text are my comments inserted.

“The crux of the problem is a lack of supply in the places where economic opportunities are greatest (that is, the hot economic metro areas, which includes the Wasatch Front).  Some say the answer is higher interest rates or macroprudential tools, such as restrictions on the amounts that banks can lend. These policies would temper demand and price growth, but would not bring the economic benefits of letting successful cities grow (because raising interest rates will affect all economic activity, not just financing for homes). Some favour loan schemes for first-time buyers, but these only inflate house prices—failing both homebuyers and taxpayers (because it would just add more eligible buyers to a market that already suffers from over demand). Straightforward solutions such as relaxing planning laws can be politically poisonous (there’s no question that some local land use regulations limit the ability of the housing market to provide for variety and availability, but pushing forward with the appropriate changes would likely result in electoral massacres of a lot of elected officials, as acknowledged by The Economist editors). Britain seems to have shelved a proposed planning reform that would have encouraged more house-building.”

So what to do?  I guess that’s what’s keeping us all up at night trying to figure it out….