Wednesday, October 27

Correct train prices give correct (re) housing prices

The menu for the new government is ready: build houses or get more seats on trains, writes Erling Røed Larsen.

There is not much in the economy that is clear, but here we have a candidate.

This is a chronicle. Opinions in the text are the responsibility of the writer.

The housing market is the second most important market in the economy. The most important market is the labor market, because it provides what we enjoy. But the housing market helps the labor market, and a prerequisite for a well-functioning labor market is a well-functioning housing market.

Also remember that the housing market is important under the values: NOK 4.3 million per. housing multiplied by 2.6 million houses provide 11,000 billion. It is almost the same size as the Oil Fund.

Therefore, we suspect that Norway should reflect on the housing stock. And what is the most important thing? That the right houses are in the right place.

The housing market generates inequality

That is easy to say. Not only is it difficult to figure out which are the right houses in the right places, but it is even harder to figure out after you have the answer. Block of neighbors. Case processing, funding, and construction take time. The infrastructure must be in place.

Meanwhile, it is the prices that classify who gets what. Those with a lot of money get the best-located houses, while many have to commute. Therefore, the housing market is a generator of inequality.

Erling Røed Larsen.

I a new research project Housing Lab and Eiendomsverdi have followed 77,554 people for 12 years and seen what kind of value increases people’s experience. We divided people into 20 groups based on house value in 2007. The richest group had one capital gain (in crowns) which was 61 percent larger than the second richest group, which in turn had a capital gain that was 84 percent larger than the middle group.

There! It was the sound of people falling from their chairs. But wait, there is more.

Houses built in the wrong place

The capital gain (in crowns) of the Oslo owner who was behind them with the top 10 percent (90th percentile), was 80 times higher than the average monthly salary.

Read that number again. Some earn more while sleeping at night than others at the office during the day.

The main reason is that parts of the Norwegian housing stock are out of place. When it is out of place, homes that are properly located are priced high, since the demand is greater than the supply.

Norway has moved from the agricultural economy to the industrial economy and is now adapting to the knowledge economy. In such settings, it is appropriate for the houses to be located elsewhere than before. In the knowledge economy, people want to be close to each other, because that’s where ideas emerge. So it is advisable that the houses are not so far from each other.

Solutions have been suggested, but several do not address the main problem.

Build more houses where people will live

Let’s say you invite ten people to a party, but you only have six chairs. Is it a good solution to put labels on the chairs or to let the guests borrow the chairs in turn? No. The solution is more chairs. Find four more.

For the housing market, the solution is more homes where people want to live. Housing Labs’ analysis indicates that if we build 10,000 homes in Oslo, prices will drop by 10 percent. Imagine if we built 30,000.

Some earn more while sleeping at night than others at the office during the day.

Meanwhile, Norway is losing well-being. Hsieh and Moretti (2019) has shown that strict regulation in three major American cities makes the gross domestic product of the United States 3.7 percent lower. This is a very high number and it means fewer cures for cancer, school buildings and sports halls.

That may also be the case in Norway.

Now we can possibly get some amazing help. Because with covid-19, employees and employers have learned that in some cases, productivity is higher with a home office. So we can let someone work digitally, at least part of the time. And since they can later live further from the city center, the demand pressure on the city center will be less. We already see traces of this.

But here we also have points to improve.

Let “Anders” take the train

Let’s look at an example. Let’s say that “Anders” wants to settle in Porsgrunn, because there he gets a big house with a view of the sea. For him, the employer and his colleagues, it is beneficial if he is still physically in the office at times. How much does it cost the country in terms of resources to transport a person to and from Porsgrunn-Oslo?

Well. In this case, the engineers can probably give more precise answers, but let’s consider approximate. With an electric car, it can be 60 kWh round trip, and with the price of electricity of 1.5 NOK / kWh, the price will be 90 NOK. If four drive together, it will be NOK 22.50. More wear, of course.

High travel costs result in high house prices in the center, and queues on the roads cause queues in projections.

If, instead, you allow 300 people to travel together, the mode of transportation will be heavier, but you will get less metal per. passenger. We already have this and we call it trains. Trains have a low marginal cost per. travelers, because all the metal in the cargo is shared by many passengers.

The marginal cost of resources is probably much lower than NOK 22.50. But “Anders” is surprised when he sees that the price of a train ticket is several hundred crowns.

Wrong prices give wrong options

There is not much in economics that is clear, but here we have a candidate:

The price of the ticket is well above the marginal cost for the train company and for Norway. We understand that the company must put the price above the marginal cost, otherwise it goes bankrupt on fixed costs. Fair enough. But there must be room for improvement here.

People respond to pricing information, and wrong prices give wrong options. High travel costs result in high house prices in the center, and queues on the roads cause queues in projections.

The menu of the new government is ready: build houses or get more seats on trains.

Train bets are perhaps the easiest. It will give a multiplier profit:

  1. Lower house prices and minor differences.
  2. Increased productivity.
  3. Nurses and police can relocate to Oslo.
  4. Environmental benefit.

It’s just driving.

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