11 July 2021

Is Renting the Key to Solving Housing Unaffordability?

I have been watching a video (see further below) that suggests that the problem with housing affordability is that there is too much focus on buying and owning property, which encourages speculation, which causes unaffordable housing. The solution should be to focus on renting. When watching this video, I think it makes a lot of sense. 

Property developers have two choices. They either build to sell or build to rent.

If they build to sell, they typically build low density housing because buyers want more land so they can engage in land speculation with the hope of making more money. However, if a developer builds and rents the property out, the buyer typically focuses on low rents, which incentivises the developer to build more high density buildings, which increases supply, which leads to lower rent.

All this can be achieved by providing more incentives (e.g. tax benefits) to private develops to create "build to rent" projects. There should be more high rise apartments, which will push down rent and reduce housing affordability problems.

It is true that buying and owning a house and owning land allows you to speculate on land, but more should be done to encourage people to speculate instead in others areas e.g. the stock market or crypto market. For example, rather than buy an $800 detached house made up of $400k house and $400k land, instead rent or buy a $400k apartment and invest in $400k worth of diversified speculative cryptos and stocks. This would improve housing affordability by moving speculative money away from land.

The video above states that one of the downsides of focusing on renting is that it can increase wealth inequality beacuse home ownership is often used to build wealth. However, as I mentioned before, the wealth is built through land ownership. If the renter also invests then in theory they shouldn't be disadvantaged. Perhaps a forced investing system for renters similar to superannuation is the answer, but I'm not sure.

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