It is encouraging to see an emerging public understanding of why housing has become so expensive.

Economists have always assured us that the problem is one of simple supply and demand. For those of us who have been following this issue for decades, investment syndrome is a more accurate explanation. The public is beginning to agree.

The housing bubble, its collapse and ensuing Great Recession were largely driven by the transformation of residential housing into an alternative stock market. It is an easily documented progression. As early as the late 1970s and early 1980s, there began a disproportionate rise in the number of households whose 30 percent of income enabled much larger and more expensive homes.

Data collected by the real estate and mortgage industries encouraged new construction to shift almost entirely to large and luxury homes. At the same time, new productive investment opportunities were drying up as we moved out of the industrial era.

As housing prices began to trend upward at rates exceeding the rise in stock market valuations, existing owners began to upgrade and enlarge their own homes to cash in on the phenomenon. Professional flippers scoured neighborhoods for properties that could be upgraded and sold at a higher price. Meanwhile, every acre of waterfront property, ski area properties, country view lots, college and university environs was targeted for second homes and their investment potential.

Trendy urban pied-à-terre’s and the extensive “ghost” properties of foreign investors in coastal cities were bought up, often to stand empty and unoccupied. Following the 2008 collapse, corporate syndicates and hedge funds loaded up on the casualties and turned them into expensive rentals, a phenomenon aided and abetted by the various manifestations of the short-term rental business and the power of corporate law firms.

For nearly half a century, new construction has been limited to luxury and second homes. Anything with upgrade potential has been upgraded. On most of the East and West coasts, the entire residential housing market has been ratcheted upward in price.

The small, affordable entry home, the fixer-upper waiting for the application of youthful energy, the ma-and-pa rental market have simply disappeared. Attempts to counter this with tiny homes and wheeled domiciles generally invite prohibition from the authorities or the neighbors. In most of the country, permission to build your own home is severely limited.

Vermont, fortunately, is one of the few places left where this is still possible.

As in so many other structural changes in our evolved economy, the official explanation — still adhering to obsolete models — gets it wrong. Now that the public is catching on, it is natural to choose from among the culprits, based on one’s politics.

The truth is that a basic human need — shelter — has been turned into a volatile casino by an unheeded and ignored syndrome — housing as a financial product — raising prices, raising rents and greatly reducing available supply.

It is perpetrated by both bad guys andgood” guys, the clueless and the indifferent. Almost everyone in a position with the potential to do something about it is tacitly vested in a home of their own. Imagine if food — another basic need — got caught up in a similar phenomenon.

Supply is not the problem. Appropriation and upgrading so much of that supply for its investment potential is the problem. That means that increasing the construction of affordable homes is not likely to help.

The size of the investment market looking to upgrade and enhance is huge. Unless armored with ironclad protections, new construction will simply be sucked into the maw. Meanwhile, with demand for expensive homes continuing to rise, no commercial builder is going to waste their time building affordable homes.

It is left only to the nonprofits, which are woefully incapable of meeting the need.

The syndrome itself must be challenged. It is a product of lopsided wealth coupled with indifference among those with sufficient clout to attempt reform.

There is a precedent for this. Recall the relentless double-digit inflation in health care that ran up — and still runs up — the monster we call our health care system. During the worst of those times, the 1980s and 1990s, the movers and shakers were generally unaware there was a problem. Fully insured themselves, there was little direct experience or personal motivation to understand the need for change.

We need to step out of our comfort zones if we are going to create affordability in housing.


Fred Jagels of Evergreen Economic Research conducts independent analysis of structural change in the economy, especially involving health care, higher education, housing, inequality and post-job prospects. He lives in Cabot.

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