I have been seriously thinking about the rent vs. own debate. I currently live in a rented house. I visit people who enjoy their rented lives and am happy that I also rent. I also visit people who own their own homes and feel I had the freedom to do the things in my house that they can do at their own home.
One of the reasons that this is a debate is because of the cost of housing.
I read a blog post by Ashish on his blog, Econ for Everybody, called Not Quite As Simple As One Would Like It To Be. He begins by arguing that optimal regulation, although difficult, is the best solution to the problem of regulation. He says:
You’ll meet economists who tell you that housing can only be solved by removing as much regulation as possible. You’ll meet other economists who tell you that public housing is the only solution to the problem. And you’ll get bloggers like me, who will tell you that the truth lies somewhere in the middle.
Ashish, Not Quite as Simple as one would Like it to be, Econ for Everybody
I read an article by Zachary Carter in the New Yorker called What if We’re Thinking About Inflation all Wrong? The article is a profile of the economist, Isabella Weber.
The pandemic created a situation where the people expected an increase in prices as supply chains were disrupted. Weber says that the pandemic created a temporary monopoly, that allowed corporates to raise prices higher than the rise in cost of raw materials, without fear of losing market share. Weber calls this seller’s inflation. She suggests regulation of prices as a way to control this inflation.
One of the places she applied this theory was to regulate the price of natural gas in Germany:
She presented a detailed scheme for regulating the price of natural gas in Germany: households and businesses would be guaranteed a limited supply at an affordable, government-controlled price. Anything they burned in excess of that quota would be subject to the soaring market price. (Producers of natural gas would receive government subsidies to make up for the lost profits.)
Zachary Carter, The New Yorker, What if we’re Thinking about Inflation all Wrong?
I think what we’re seeing in the real estate market in India could be the result of seller’s inflation. Although, too much regulation in India runs into trouble with issues of state capacity and ego-maniacal regulators, I think it could be done to help first time home owners. I am not an economist and would not venture to suggest a detailed policy proposal. I am only suggesting this as a possible solution.
The Pradhan Mantri Awas Yojana does do part of this by providing a government subsidy to first time home-owners. But, it does not feel like enough because it does not regulate the price of the sold unit, which keeps on soaring.
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