The increase in the relative price of housing (relative to the prices of other goods and services) is the consequence of supply increasing less than demand. Many economic factors are at play, such as a growing population, land prices, and construction costs. Many political mandates and prohibitions play a role in limiting the supply of new housing units. Zoning regulation is a major factor. Import tariffs on Canadian lumber impose a special tax on the construction of houses. Over the last two years, the Fed has pushed up interest rates–and thus, indirectly, mortgage rates–in order to control the inflation generated by the money it created to accommodate higher government expenditures.

Other interventions work the other way. The federal government’s role in the supply of mortgages probably reduces their prices. On the demand side, the deductibility of mortgage interest from income taxes (as any subsidization of house purchases) pushes up housing demand and prices. The net effect of the multitude of government interventions on specific markets is often obscure.

Contradictions in government policies are not unusual, but a more basic question goes unnoticed: Why should governments take sides in favor of or against some homeowners? Why should governments be concerned at all about the issue (except to question their extant interventions)? Consider the simple case of owner-occupied housing units (houses or condos) and their increasing prices.

When house prices are on the rise, a new buyer has to pay more while an existing owner sees the value of his asset increase and can obtain more from its sale. Heirs of a deceased homeowner or any homeowner who wants to downsize are advantaged. A homeowner who sells at a higher price obviously figures out that the extra money is worth more for him (or her, of course) than the advantage of staying put. If a homeowner is upsizing, the price difference between his old and his new house may go up, but this is not necessarily true in a diversified market where house prices don’t increase in the same proportion. To repeat the question: Why would governments—by favoring lower house prices—discriminate between one group of citizens and another, like between new and current homeowners?

Most if not all government policies consist in, and are only effective by, arbitrarily taking sides and discriminating among citizens. It is largely a political fairy tale that governments produce “public goods” that all citizens want, thereby benefiting everybody. When they do produce goods or services that can be called “public,” it is most often for a specific group of citizens. And nothing guarantees that most citizens will come out as net beneficiaries of the sum of government interventions. Governments are essentially, or at least mostly, redistributive machines. The underlying justification for redistribution is the utilitarian fiction that the favored citizens gain more than the ones discriminated against lose, that the former are more helped than the latter harmed.

It is this danger of exploitation of some citizens to help others that led James Buchanan and the school of constitutional political economy to emphasize a “generality” requirement for government intervention: no discriminatory taxes, no unequal subsidies, and no regulation meant to distribute benefits and costs among groups (indeed, like zoning). The same observations led Anthony de Jasay to dismiss all moral arguments in favor of the state. Both approaches—Buchanan’s and de Jasay’s—can be seriously defended. (Friedrich Hayek provides another approach, which is less neatly contoured and can be left aside here.)

The political function of government interventions that, in some cases, push up house prices and, in other cases, push them down is probably to appear to respond positively to the demands of different electoral clientèles and special interests.

Provided certain general conditions of formal equality obtain, the beauty of the market is that a voluntary exchange without fraud between two adults takes care of itself: each one benefits or thinks he will according to his own lights. Trying to find out who benefits most in a free exchange, who gains more “utility,” is a fool’s errand: it is impossible to calculate, even conceptually. Using coercive means including special taxes to bring an individual to make a choice different than he would otherwise have made is arbitrary authoritarianism.

We may repeat the injunction to governments that the Marquis d’Argenson, who was a friend of Voltaire and a former minister of Louis XV, immortalized in his memoirs: “Laissez faire, morbleu! Laissez faire!” (Laissez faire, for God’s sake! Laissez faire!).

******************************

The goddess of housing is coming to grab some, by DALL-E and your humble blogger