Law & Liberty has a very informative article on the housing shortage in the Netherlands. There’s a great deal of detail about things like “social housing”. I worry, however, that some readers might get lost in the weeds. So here I will provide a shorter version of not only this article, but any article on dysfunctional housing markets. But first a few comments on terminology:
There are two primary housing problems, shortages and excessive scarcity. A shortage occurs when quantity demanded exceeds quantity supplied at the current price. In contrast, excessive scarcity can occur even when markets are in equilibrium. It occurs when the price of housing is excessively high relative to the country’s level of development. In that case, people are able to purchase housing in the marketplace, but the price is so high they end up consuming less housing than one might expect given their income level.
Here are two key points to remember:
1. Housing shortages are caused by government price controls, which put a legal ceiling on rents at a level below market equilibrium. AFAIK, rent controls are always the cause of housing shortages.
2. Excessive housing scarcity is caused by government regulations and taxes that restrict building, or increase the cost of building. AFAIK, regulations (such as zoning) are always the cause of excessive housing scarcity (excessively high prices.)
So why can we be so confident in these two explanations of housing market problems? The key is the competitive nature of free markets in housing. Because there are many providers, we don’t have to worry about monopoly models of the housing market, or nefarious “speculators”. The supply and demand model works fine.
It is theoretically possible that there might be other causes of housing scarcity. For instance, the Netherlands is one of the world’s most densely populated countries. Perhaps Dutch housing is very expensive due to a shortage of land. In fact, the Netherlands has plenty of land for housing. Indeed this country is actually the world’s second largest exporter of agricultural products. The problem in the Netherlands is the same as the problem in California—rent controls and restrictions on the building of new housing. Even in ultra-dense Hong Kong, government controls on land substantially inflate property prices.
There’s no need to look further—it’s the government.
PS. Auckland, New Zealand recently changed their zoning laws to make it easier to build housing. This tweet discusses the effect:
