The Brittle Housing Market: Why the System Is Worse Than You Think - Part 1

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1:11David McWilliams: To understand the economy, you have to understand human nature. This podcast is powered by ACAST. How are you doing there? It is time for the podcast. And today's podcast is going to be the first of a series of three on the housing market. This is largely going to be about the Irish housing market, but the housing market all over the Western world is broken. Young people cannot get not only a foot on the housing, they can't get a place to rent. the fact is that over the last 20 years in English-speaking countries in particular, the housing markets have not just not operated, they are entirely broken.

1:56David McWilliams: So what we're going to do is we're going to do three series with the brilliant Professor Ronan Lyons of Trinity College Dublin. The first of our series is today and this is on what he calls the brittle rather than broken housing market. Largely speaking, this is about the fact that the failure of the housing market is not just a failure of price, not just affordability, but it's a failure to build appropriate houses in appropriate places for the demographic outline of the population. We have young people, we have middle-aged people, we have old people, all of whom want different things in the housing market.

2:31David McWilliams: And it's going to be much broader than just the housing prices and the rental prices. It's going to be about the unwillingness or inability of our authorities to plan properly, to build properly, to price properly, and to zone properly. It is a fantastic series. I think it's almost the definitive series. Ronan is one of the great brains on the housing market, not just in Ireland, but worldwide. So it is the first episode of this three-part series of The Great Housing Market Tragedy is today, and it's going to be on the Brittle Housing Market. Let's go to Trinity College, Dalton, and talk to Professor Ronal Lyons.

3:09David McWilliams: Now, ladies and gentlemen, we have part one of a trilogy. I've always actually wanted to do a trilogy on this podcast. It's like Lord of the Rings, Mike. Exactly. It's like, you know, a trilogy means you're really getting into shit. You've got loads of things to say. You've got loads of things to learn. But a trilogy nonetheless, John. This is our first trilogy, okay? We've had twins. We've had two partners before. We've had twosomes, but never a threesome, John. Here we are, a trilogy. Threesome of podcasters and economists. We have the brilliant professor, Ronan Lyons, joining us. Ronan, great to see you.

3:44David McWilliams: How are you? Listen, Dave, thanks. And John, thanks so much for having me on. It's a pleasure to come on. And as you say, to do a trilogy. If it goes well, we could go George Lucas and do a trilogy of trilogies. but let's maybe one step at a time. Let's see how this goes first. Even having back for episode two, we've got episode one has to go well first, right? Exactly. So what we're going to do, listeners, is we're going to say, where are we now? Second part, how do we get here? And third part, how do we rebuild, unravel and move forward? So Roland, in terms of episode one, you described the housing market with the word brittle, a brittle housing system.

4:22David McWilliams: explain to me why you use the word brittle and then I want to talk straight away about prices and rents yeah I mean David you probably get this quite a bit as well that when like everyone cares for obvious reasons everyone cares about housing it's the single biggest expense we have this is pretty much true everywhere in the world and for obvious reasons you need somewhere to stay at night time because everyone cares about housing everyone cares about what they might not call it the economics of housing but that's ultimately they're interested in the economics of housing. So a question I get asked a lot, especially in Ireland, given what happened in Ireland in the 2000s, is, is this another bubble?

4:59If you see prices rising and rents rising for 10, 12 years, is this another bubble? And I'm using the word brittle to try and distinguish what we have now, not just in Ireland, but in lots of places around the world from what happened 20 years ago. Because I do think, especially for policymakers, there's a tendency to fight the last war. Whatever happened the last time, that must be the single most important thing to prevent from happening again. And you can do it, right? Stop what happened the last time with the loose credit. But this is a different kind of problem. So I'm using the word brittle because if you think about a bubble, what do you think about the bubble?

5:33The bubble pops, right? And you get a sudden reversal. And we saw that in Ireland. We saw that in places like Florida. In Spain, in the UK, you had big reversals in credit conditions and expectations. and all of a sudden you get a 50 % fall in prices or in some parts of Ireland, an 80 % fall in prices. But that's not the system we're in at the moment. But we're in a system where pressure has built up over time. That pressure should have been accommodated. It's gradual increasing requirement for homes. And in a flexible responsive system, which we should have, then you wouldn't have any pressure.

6:07But in a brittle system, that pressure comes out in all sorts of ways. and I think actually one of the ways you can think about the fallout of a brittle housing system rather than a housing bubble is that in the housing bubble most of this is a financial issue right that people end up with too much debt compared to how much their home was worth but in a brittle system that the fallout can be political as well that you can see it housing becoming this live wire issue because it's infected the the society like if you look in Ireland and you look at younger adults they are and they're being forced to stay at home with their parents or to buddy up five or six to a semi-D or indeed emigrate to other countries to try and start their own independent lives.

6:46That's what I mean by brittle as opposed to a bubble.

6:49David McWilliams: Okay, well, I think that's actually a really good distinction because again, you're absolutely right. What people tend to look at is what was the last war and how do we fight the last war? And what you're saying is the last war was a credit financial issue more than anything else. This is something more broadly based and probably unfortunately something that's a little bit more trickier to actually solve. So first of all, let's get in. Everyone talks about prices and rents. Is this actually the problem? Should this be the focus? Well, this is, what is it? Is it Drucker's law? These management's rules where, you know, what gets measured gets managed.

7:23David McWilliams: And I think John says that regularly in the podcast. He's the Peter Drucker of podcasting. And the problem is when we focus solely on prices or overwhelmingly on prices, whether that's sale prices or rental prices, it's not that that's unimportant. It's that we end up with solutions that don't make sense. So if you were seeing, for example, rents rising because there's a lack, a severe deficit of rental housing, the solution is not to ban rental prices from going up. No more than you'd say, I'm worried about getting a fever, therefore I'm going to stop my thermometer at 38 degrees Celsius and the problem has been solved.

7:57So what I'd love to do is actually move the debate a little bit from prices, whether they're sale or rental prices, to quantities. The real issue here, and it's not just an Irish issue, you see it across Europe and across other high-income countries as well, is a lack of housing. And the most obvious way, it's not the only way, but the most obvious way is if you look at the current living arrangements of younger adults, ask them how do they live and how would they choose to live if cost and availability were not an issue. Not if housing was free, but if things were just reasonable. And if you look at Ireland, about 60 % of younger adults live either with parents or with friends or strangers.

8:38But you ask them how would they choose to live, only about 20 % would choose to live that way. And the vast majority would choose to either live alone or with a partner. And this gets into, I mean, I don't want to run too far ahead. We've got to, you know, before you can run. But there's a mix here, an issue of housing mix, is that if you think about a society arranged in households of one or two, versus society and households of four or five. It's a completely different kind of housing. And I think that's why this is a pressure that's built up decade on decade. And this is certainly not an Irish or even an Anglophone issue.

9:12I've been involved in some work with Eurofound. There was a report out about a month ago at looking at the housing arrangements of younger adults across Europe. And this is an issue that you can see in Sweden, you can see in Czechia, you can see in Spain that younger adults are simply not able to take those important foundational life steps in the same way previous generations were.

9:35David McWilliams: So let's just explore that a little bit more, the idea that this is happening even across the non-Anglosphere world. So what you're looking about is a shortage of houses across the board, irrespective of tax systems, irrespective of levels of employment, irrespective of levels of income, well, it's kind of relatively medium to high income countries. So what we're saying is that if you're listening to the podcast, you know, in Czech Republic, which the new word for Czech, I can't get my head around just yet, but I will. What's it called? Czechia? Czechia, okay. Right, but if you're living in Portugal, all these are germane issues.

10:15That's right. Like, so Eurofound is this EU, sort of like a think tank looking at social policy and associated issues. And they've got really interested in housing. Often they would look at kind of working conditions, but they're really interested now in living conditions. and there's a number called headship and headship is what percentage of a group is the head of their own household right it may be a slightly out of date concept right because does that mean if you're a man and a woman living together that the man is the head of the household yeah but aside from that is how many people head up their own household and if you look at spain at the moment for for younger adults about 30 percent of younger adults head up their own household but about 42 percent would like to.

10:54And that may sound like a relatively small gap, but when you multiply that up by just how big, that's a shortage of about one and a half million homes in Spain. And these are smaller homes, right? Homes for one and two persons compared to where they are currently. And that's true in Sweden. It's true in the Netherlands. It's true in Czechia. And I'm trying to work with your friend to do this for all EU member states, because I think going back to what you measure, you manage that if you don't understand the scale of the housing deficit, you can't understand the scale of the, for example, political anger around housing, nor can you understand the scale of the solution.

11:30So briefly, just why do you think everyone focuses on the price issue,

11:36David McWilliams: and particularly, you know, politicians, you're talking about that analogy, they're focusing on the thermometer, not the fever. Is it just because it's easier? Is it just because that's where the the acute annoyance, frustration, humiliation, sense of dislocation is it's in the price. And yet what you're saying is this is a much broader issue. The price is just a signal. Yeah, I mean, so it's perfectly reasonable for people to be angry about prices going up. I'm not saying that we should ignore prices, ignore rents. Absolutely. In the same way that when you're sick, you're like, okay, I'd really like some relief from this fever.

12:12But in the case of housing, The solution won't come from just banning prices from going up or banning rents from going up. The solution, if you're a policymaker, is not to focus on prices per se, but to focus on the solutions that will mean that housing is affordable. So by doing the right things, you will actually bring down prices and rents so that they are affordable, rather than focusing just on the prices themselves. Because then you end up in these kind of quick fixes. Maybe we can do something overnight that will improve things. And they rarely work.

12:40David McWilliams: Okay, so let's just think, who has been affected most? Let's cut to the chase in terms of the demography of this. There's two groups that you can think of as pre-family and post-family. But if you go back to the 1950s, and this is true for Ireland, and it's true for, I'd say, most what we call now high-income countries. Life expectancy of the average Irish man was 65 in the 1950s. For women, it was a couple of years older. So you play through the life of someone. John's well past that, by the way. but I certainly feel it don't we all in January if you go through life or the different cohorts that were in Ireland in the 1950s realistically what happened in the 1950s in Ireland was you lived with your parents until your early 20s you got married, you got your own home you had a clatter of children and by the time the youngest hit 22 or 23 you were 64 so you've basically got the family home where your parents grew up your family home and that's it, right, as a country.

13:44But now do the same exercise. We're not dying off in our 60s. We're dying off in our 90s. We're not getting married at 22. We're getting married at 32 or 35 or 38. We're not having a ladder of kids. We're having one or two or maybe zero children. And you could argue some of that might be because of housing problems. But even if housing weren't an issue, people are having far fewer children. So if you look at the diversity of homes, the family home is still important. You know, for the typical person, it's going to be where they live from maybe mid-30s to maybe about 60. But you've got those years before your mid-30s, and you've got a pretty lengthy spell after you hit 60 or 65 when you're an empty nester.

14:20So there's actually two main groups there. The one that's most politically angry, the group that have no housing solution other than... Actually, this is kind of where you think of it as not ruthless, as the Dutch would say in the homeless sense, but they're homeless in the sense they're rootless, right? They don't have somewhere to put down their own roots. They're angry because they're being held back. But there's also a second group, over 65-ish, right? Not everyone wants to move out of the home that they spent the last couple of decades in, but a lot of them do. And they are being denied their housing choices too.

14:50Other countries are better than Ireland at this in terms of independent living and assisted living. But I think all countries, the scale of aging is faster than the scale of policy maneuvering in relation to housing for older people.

15:03David McWilliams: And how does this sort of manifest itself politically before we just go on and then we will talk about the data and how we see all these things? The most obvious way is in a majority kind of owner-occupier society, which is pretty much everywhere. Germany, Switzerland and Austria are about 50-50 owner-occupier renter. But everywhere else is a majority of owner-occupiers. What you don't see is what you might have seen kind of classic 1870s, 1880s New York coalition of renters coming and they're going to dominate the political system. That's not how it's going to work. arguably New York is still doing the same with Mandani in the last mayoral election.

15:42It's marching to its own beat. But most high-income societies, they're a majority owner-occupied. So what you end up with is what Michelle Norris calls the kind of asset-based welfare system. You can provide for your...

15:55David McWilliams: That's a good expression. I like that one. You can provide for your own future through housing wealth. But of course, it means that you have to get housing wealth at some point. And there's all sorts of fascinating routes around asset-based welfare, where the Irish version of that came from. But what we're seeing now is a lot more anger building up across Europe and indeed in North America and elsewhere over the last 10 years. It's getting pointed in all sorts of directions, but a lot of it is what's known as the housing theory of everything. Once you cut back all the layers, it comes down to space being expensive.

16:29David McWilliams: So before we go on about space being expensive, just let's come back to that term, the rootlessness, right? people without roots. Give me an example of this, let's say, not just in Ireland, but in the States, in Australia. How is it all measured? You know, how does it show up? This is a great question because it's typically not measured, right? So this goes back to what's measured gets managed, is that, you know, just to go to Eurostat, right? Eurostat had a 20-year project to try and align how different countries in Europe measure property prices. And I actually, I do this kind of work. I go to countries and I help them measure property prices.

17:10RPPIs are what they say, residential property price indices. There's a whole sector of people out there trying to get property price indices working. But until this Eurofound study, and that in turn is based on the Irish Housing Commission work, there was nowhere you could go to say, okay, well, actually, where are we on the quantities? So the Irish Housing Commission, this is the body that the government set up, and then the report came in, and the government seemed less enthused by the answers, to put it politely.

17:39David McWilliams: But actually, I don't want to follow that off. I want to focus on that as well, because there's a commission for this, that, and the other, and lots of people listening will say there's a task force for this, that, and the other. People like yourself sit down, you do all this work, you think, okay, hold on a second, we've got a structure, we've got a framework, we have a set of problems, we have a set of solutions. we recommend these solutions and the political class the politicians just say yeah yeah that's nice just go off and do another one i want to come back to that because one of my issues ronan is that this is an emergency here in ireland and everywhere it's a societal emergency it's a capital stroke wealth accumulation emergency.

18:21David McWilliams: It is a day-to-day dignity emergency. And yet, it's not been treated like an emergency. When I say an emergency, I mean, a state gets invaded. It galvanizes all its resources to repel the invader. That is an emergency. It requires and brings all the best brains. It does things it would never do before. It breaks the rules in order to achieve the objective survival. I don't get this feeling in Ireland at all. And it's not just Ireland, right? And this goes back to the brittle versus bubble idea, right? So that if this is something that emerges gradually over time, right? So I would date Ireland's housing woes to the 1970s or 1980s, right?

19:06And the Celtic tiger bubbling crashes, this kind of little roller coaster distraction. Sorry, not little, it's an important distraction on the journey, but it doesn't fundamentally change that Ireland went from having an inability to create jobs to an inability to create homes, right? All of a sudden, Ireland's able to create jobs kind of like nowhere else at the moment and has been for the last, most of the last 30 years. The number of employed has gone up a huge amount, but it hasn't been able to grow alongside that. And I think other countries are a slightly less extreme version of that, but it's the same pressure that if this is something that builds up decade on decade rather than month on month or even day on day in the case of COVID.

19:47That the COVID response, right, by policymakers everywhere was, you know, we need to do absolutely everything. Do we need ventilators? Do we need masks? What do we need, right? And let's get it done, right? And the system at a global level was able to respond. But exactly as you're saying, David, that this is not happening for housing. And I think it's because this is like a decade on decade, things get worse and worse. And you sort of, like the frog that's getting boiled in the water, you don't notice until all of a sudden, hang on a second, am I getting boiled here? And society is getting eaten from the inside out by its traditional reliance on housing for all sorts of things, including your retirement.

20:22And then you've got a generation that's being effectively frozen out.

20:26David McWilliams: And so what you're saying is it's not just, therefore, when you look at your various different generations that are being affected, so you've got your older, let's say, trading down empty nesters, you've got your first-time buyers, then you've got a whole chunk in the middle who who may or may not, for a variety of reasons, have more kids, less kids. Are you saying that it's not a supply problem? It's not an actual figure of homes that should be built. It's a figure, it's a mix of all sorts of homes that have to be built. Yeah, I mean, I think I would be reluctant to throw out the top-level figure, right, because I think it gives politicians and policymakers an excuse not to set ambitious targets.

21:07And you were talking earlier about kind of politicians, you know these reports happen and the politicians just go that was great put it on the shelf beside all the others and off we go with whatever we were doing anyway yeah being being fair to the politicians in Ireland I do think genuinely they want to solve it but I worry about the administrative class as in that the politicians come in and they say we're gonna have we'll do whatever it takes we believe this is an emergency we'll do whatever it takes and then the administration say well is it really an emergency because you know everyone finds some way to balance things out.

21:37And you've, oh, sure, you've got some young folk living with their parents, but, you know, everyone had to live with their parents for a bit. And they talked the politicians down from taking the radical actions that are required.

21:47David McWilliams: And the administrative classes is who exactly? I'm not going to name names, but I will name departments. I think the Department of Housing has to take a lot of responsibility for this. And I, you know, on a personal level, I get it. Wait, wait, wait, Ronan, can I just stop you? If the Department of Housing is not taking housing seriously, what the fuck do they do? I mean, you could invite them on and here's what I'd say. It's a very simple question. Here's what I'd say they do. This is the man on the top of the 46A which I know is now the E2, right? Like if the Department of Housing is not taking this seriously there is a WTF.

22:22They would point to a whole host of measures that have been taken over the last 10 years. They say we did this, we did this, we did this, we did this, we did this. And to be honest that's kind of part of the problem in the Irish context. if you keep fiddling with the system without any clear vision as to what it should look like as a system. How does the system operate? What levers do you as policymakers have to improve or make things worse in terms of outcomes? And that was the role of the Housing Commission, was to take a step back and say, how does the housing system work? How do we make the Irish housing system healthy?

22:55And there was a series, I think, 84 recommendations. I think 83 were fully agreed by the Commission in 84 was kind of, was the one with a majority vote or whatever. But basically the experts are pretty much unanimous about these are the things need to happen. But unfortunately, page one was, this is a national emergency, exactly as you said, David, this is a national emergency and requires an emergency response. And if you've been working in the Department of Housing for the last 15 years or longer, whatever it is, and somebody comes along and says, everything you've been doing has made things worse, not better.

23:27Just at a human level, you're like, well, hang on a sec. I've been trying my best. How could I have been making things worse? And I think the problem is that they don't see this as help. They see this as outside interference from a department that's trying to do the best.

23:39David McWilliams: But do the results not speak for themselves? You know, they can tinker around all they like, but at the end of the day, you know, it's there in front of you. There is a lack of housing and we have a big problem. So no matter how much tinkering you do, the results are not there. Well, I mean, this is, again, at the risk of being local on this one. So the Housing Commission in Ireland produced an estimate of how many homes were missing based on what we were talking about earlier, kind of missing households, younger people not being able to set their own household and so on. And that number, as of early 2022, nearly four years ago now, was between 220 ,000 and 250 ,000.

24:15And under buildings in Sen means you're probably up to about 300 ,000 homes. This, by the way, especially for international listeners, this is in a country with about 2 million homes. We're missing 300 ,000. That's a 15 % shortfall in your housing stock. but see how often that number has been used by department of housing officials or by the minister for housing since report i would say i'm not going to say never but i'd say almost never right so that number i would say the department disputes that they're in one of the parliamentary committees is saying oh these are just assumptions that the commission made we don't agree with these assumptions okay if you don't agree with the numbers go into the weeds and tell us which bit you think is wrong all right where where did we go wrong in these numbers that's why i think David, going to your, it might have been three or four questions ago.

24:57Yeah, ask me this. But we'll get there eventually. You know, that it is about mix, absolutely about the mix of homes. But you have to keep that top level, you know, you have to have some overall target in here. Like that 300 ,000 number, I think, is a powerful number in the Irish context because it says, okay, if you're a country that's building 30 ,000 homes a year, you're 10 years short, right? And then you've got to build, you know, at current rates, but actually you've got to try and meet future needs as well. So we estimated that Ireland, which is, as I say, about 2 million homes, needs to build, depending on your assumptions, somewhere between 1.3 and 1.8 million homes over the next generation, over the next three decades, say.

25:39And that scale, once you've accepted that, going to your point, David, about do they accept it or not, but once you've accepted that, things become clearer to see that this is a national emergency. But I believe there's a sort of a defensiveness on the part of policymakers that it couldn't be that bad because we've been trying really hard over the last while. And I don't doubt that they've been trying, but it's the systemic view that's missing.

26:07Parles-tu français?

26:08David McWilliams: Hablas espanol? Parli italiano? If you've used Babbel, you would. Babbel's conversation-based technique teaches you useful words and phrases to get you speaking quickly about the things you actually talk about in the real world. With lessons handcrafted by over 200 language experts and voiced by real native speakers, Babbel is like having a private tutor in your pocket. Start speaking with Babbel today. Get up to 55 % off your Babbel subscription right now at babbel.com slash acast. Spelled B-A-B-B-E-L dot com slash acast. Rules and restrictions may apply. If your eyes are the windows to your soul and your glasses are the windows to your eyes, then it's pretty important to find your perfect frames.

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28:22David McWilliams: So let's just look at where we are. So we're talking about, because the first episode of this trilogy is to say, where are we at? Not really, how do we get here? Because we can come back to that. But where are we at? So, Ronan, you think in a country like Ireland, which may be extreme, but again, we're talking mostly the Anglosphere, there's a deficit of about 15 % of the housing stock. So in that case in Ireland, it's 300 ,000. I'm not too sure what the equivalent figure in the UK would be or America would be. You might have those figures, not even off the top of your head, but even if you have, or Canada.

28:58The UK, it's estimated to be something similar. So Sam Bowman and others have kind of used similar methods to try and get at, the idea here is kind of household size. If you think going back to the 1950s versus what we think life might be like in the 2050s, 1950s you've got households of four or five. In the 2050s it's households of one or two and some households of three or four. The average household is going to half in size. If you think about with a fixed population, that means twice as many homes for the same population. and then if you do what Ireland is doing and double your population as well you need four times as many homes at the end of the process as you did at the start I think this is where Ireland has both important differences and similarities to elsewhere every other high-income country in the world is on the same journey in terms of household size right it needs to effectively double the number of homes even with the same population Ireland's the only place we all know why everyone in Ireland knows why anyway with a smaller population in the 2020s than in the 1820s right so we're kind of catching up on the population front and we've got this additional pressure which everyone else has on falling household size and that's why Ireland's a little bit different but really as you say this is a common issue.

30:08David McWilliams: Okay so we have we're building 30 ,000 homes a year we have a deficit of 300 ,000 we have a rising population which is going to add to this. And then there will be bits that fall out that require more homes, etc. Now, if you talk to builders, I just want to switch a little bit. A lot of builders say, look, just get out of our way, right? If there is a demand for, let's say, trading down, and you think there's, you know, 50 ,000 people who are trading down over the next, let's say, four or five years, is there a sense that not only has the system not identified the quantities, but the system makes those quantities even more difficult to achieve?

31:05David McWilliams: Because there's a lot of people who are in the business who say, look, in the Celtic Tiger, we built 90 ,000 odd homes, it can be done, and just get out of our way. yeah and look we can get into some of how ireland built 90 000 in episode two of the star wars trilogy yeah but like it's this is not ultimately no matter how much a libertarian might want the government to just feck off to put it sort of politely and let them do what they're doing there's there's no housing system in the world that works that way and there's a very important reason for that which is that land can only be used once at any particular point in time it can be reused later on but at any particular point in time a specific plot of land can only be used ones.

31:43Now you can decide that it's a sort of a whoever wants it most gets it. Some parts of Japan are kind of like that where it's like, look, if this is going to go commercial, if commercial is going to bid highest on this land, then that's obviously what we need. Or if residential bids highest, and that's what we need. And they sort of go, now the Japanese system is not quite that libertarian. But pretty much everywhere says, okay, we're going to have some opinions, more than opinions, we're going to have some rules around how land gets used. And once you're in that space, then the government has to take some responsibility for how many homes get built.

32:15And I think that's the critical distinction, right? So we will get into potential solutions later on, but I'm not here to make a case for deregulation or libertarianism in that sense. You can absolutely have rules. What matters more than the volume of rules is the level of minimum specifications. What matters is the certainty, right? the clarity that if you buy a site, how clear is it when you've bought the site, what you can do with that site, and when you can build homes, if you're going to build homes in that site? Because one thing Ireland does have, compared to other jurisdictions, is a lot of uncertainty around, if you buy a site, how many homes can you build, and when will you get to build them?

32:56David McWilliams: Well, we will look at that, and we're going to look at that in part two, but let's conclude part one by just saying, okay, we've identified that there is a mixed problem. a quantity problem, which is all reflected in the price. There's a demographic uniqueness in Ireland that might not necessarily be there in other countries, but clearly other countries have similar, if not carbon copy problems. What does success, Ronan, look like? So think of everyone in the population organized into three groups. right three or two groups this is this will be the this will be kind of the punchline right on the one hand this is your abcs right you've got the assisted right those on lower incomes are always in any system they're always going to need some support to meet their housing needs otherwise they're going to live in substandard conditions right so that could be if you're if you're a um some sort of right-wing neocon like we'll only do this for the you know the poorest five or ten percent you could argue well actually it's the the poorest 35 or 40 percent that's a political decision, right?

34:05How much of the income distribution do we want to support in terms of meeting their housing needs? So that's fine. There's a group there called the assisted, right? At the other end of the spectrum, you've got the coverage, right? They're covered by the market, but they have enough income to meet their housing needs. The problem happens is when you've got a group in the middle, right? So you've got your A's and your C's. Who's in the middle? The B's, the block. Who are the B's? Who are the poor old B's? they're the blocks, right? They're neither poor enough to get assistance nor are they rich enough to be covered by the markets.

34:35And being honest, pretty much everywhere has this group. The question is how big this group is. Now, success looks like eliminating that group, not by getting rid of them, but by moving them either into assisted or covered by the markets, right? So that if you think of this as, where is the cutoff for the market? What is the lowest income point which the market will provide housing? And therefore, whatever that is, then you kind of got to assist below that or else move that threshold down a little bit if you don't like the answer. So visualizing, is the blocked,

35:06David McWilliams: the young couple living still in the box room of one or of their parents' home? Is the blocked people who are still living at home, not in couples, who are the blocked? Give me a picture. As you know, Roland, I've always liked to visualize economics, like to personalize it. Who are these? Give me a picture of these people. You don't like my cumulative distribution function approach to thinking about it? No, no, I mean, you're absolutely right. Like I would define anyone to be blocked if their current housing arrangement doesn't match their preferred housing arrangement. What I mean by that is, I don't think it's an unreasonable thing for someone to say, do you know what, I'm a, whatever, a 42-year-old woman, I just want to live alone by myself.

35:50I'm not attached. Yes, exactly. That seems like a reasonable thing. Or for a 22-year-old student to say, do you know what? I'd like to live with two other students rather than my parents. That seems to me a reasonable... A 22-year-old is a fully voting member of society, right? They could get a mortgage. Back in the good old days, anyway, they could get a mortgage. So I think anyone whose current housing arrangements don't match their preferred housing arrangements to me is in that blocked group. And that's why those surveys become so important. I appreciate that surveys, ultimately, you could see it as cheap talk, right?

36:20That people can say, oh yeah, of course I want a home of my own. But that's not really the way the question was set up. And actually, the answers look kind of reasonable, that 18 to 22-year-olds were the least likely to go, I want to live by myself, because they know they're actually quite young. A bigger share of those wanted to live with their parents than 30 to 34-year-olds. So I actually think you can get pretty good answers out of surveys. It's one of the reasons economists like prices. It's because it's people speaking with their wallets, right? They're speaking with their scarce income.

36:47This is what I prioritize. But I do think in this case, with the policies to other economists, that this is one where quantities really matters.

36:54David McWilliams: So just lastly, before we go on to not just where we are, but how do we get it, how do we mix the whole thing up? You know, you spoke about prices there. If, for example, I'm listening to the radio or, you know, reading paper or whatever, listening to politicians, if there's a period when prices stabilize, let's say for three or four months, suddenly you'll get the Minister for Housing come out and say, look, not quite George Bush declaring victory on the USS, whatever. The flags going in the background, yeah. But there is an element of, okay, job done, right? If prices stabilize, that doesn't seem to me to be what you're saying.

37:37Exactly. And actually, this came up relatively recently. There's another commentator. There's not a monopoly of housing, or even an oligopoly of housing commentators in Ireland. There was another guy who came out recently with a piece in the Irish Times, and he said something like, you know, exactly that, that prices are no longer going up in Dublin, therefore supply and demand are in balance. And I think this is where econ 101, what some people call economism, right? You use the basics of economics to make whatever point you believe anyway, you just happen to be using supply and demand to back it up.

38:04We'd never do that. That's why prices fail as a signal, or at least price changes fail as a signal. If you're just looking at increases in rents or increases in prices, then precisely that at some point you'll reach a breaking point and prices will stop going up and people will leave the country and you go, ah, there we go. Prices have stopped rising. Clearly supply and demand are now in balance and we're fine, which is why levels matter too. And to get the level of prices of rent back down to everyday incomes, that's where the quantities, what's the actual solution look like here?

38:35David McWilliams: Okay, so we've established we have, I like this expression, the brittle housing market as opposed to the bubble housing market. We've identified the various quantities to block the ABCs again, which I think is a very, very instructive way of elucidating what's going on. Question now for the second part of the trilogies. Excuse my French, but how the fuck did we get here? We'll talk to you on Thursday.

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