We wrote in this article about the factors that make housing affordable. Now we will look at some of the factors that make unaffordable housing.
All housing was affordable once because people just built what they needed themselves, with the help of family, friends and their wider community. When humans started constructing shelters the techniques and skills were obviously very primitive, but over the millennia their abilities developed, and building new dwellings became a craft. In time the craft of construction split into the design discipline (architecture) and the construction process.
As technical know-how became more sophisticated, construction techniques became more complex, but also more standardised. Ultimately, the design and construction of permanent houses went from being a skill that all people knew and practised to becoming a collection of diverse specialist skills that you pay someone else to know and practice.
Indeed, the construction of a modern house has become an excessively complex undertaking. It relies on an industrial-scale supply chain of specialist manufacturers, suppliers and contractors.
The unaffordable housing trap
One of the problems is that houses are very complex systems that comprise a myriad of complex systems such as wiring, plumbing, central heating, ventilation, air conditioning, water heating, sewerage, flooring, windows and doors. Obviously, in the past, before the 20th Century a lot of these systems didn’t exist. The more complex a system is the harder it is for a non-specialist, i.e. nearly everyone, to understand it let alone design, build and maintain it .
Consider that groundwork, foundations, framing, roof trusses, roofing, exterior cladding, interior lining, insulation, joinery, windows and doors, electrical, plumbing, flooring, HVAC, tiling, plastering, painting, and so on, could all conceivably be done by different contractors and tradespeople. This scenario necessitates a project manager to coordinate everything as well as the input of the architect, interior designer, landscape architect, engineers and quantity surveyors.
There are also all of the manufacturers and suppliers of materials, building products, components, fittings, furnishings and tools. To this mix add a variety of transport and logistics businesses and various middlemen in the chain who are supposedly adding value, although it might not be clear as to whom the value is benefitting. There are infrastructure costs to connect water, sewerage, electricity, gas and communications, which can sometimes be very high. Local government adds another large cost with the requirement for building consents, inspections and sign-offs. In addition to all this, there are lawyers, insurance companies and bankers involved. Each one of these businesses has its own overheads and each of them is trying to make a profit.
Cost of land
The cost of land is a major component of the overall cost. The cost of a section is affected by supply and demand, but also by the effect of regulators, banks, investors, speculators, developers and other commercial activities. Read more about the issue of land cost in this article.
All of these layers of costs compound each other to the point that a so-called ‘affordable house’ in Wellington, New Zealand is $550,000, that’s approximately 11 times the average wage. That is defined as unaffordable housing.
Bureaucracy and regulations
To build a house you must follow an enormous number of regulations. These regulations are ostensibly for the house builder/owner’s benefit in terms of health and safety and the like. But the cynic in me says they are more for the bureaucrats to create and justify their jobs, for the whole building supply chain to cover their arses, for insurers to insure themselves, and for everyone to make money. Of course, the person who loses out is the home builder who is hamstrung by all the regulations and costs.
The red-tape is so complex the average person cannot know it all. Even if the average person wanted to build themselves, they must have advisers and supervisors for nearly everything they do, not to mention council inspections. Bureaucracy is the disease of civilisations whose complexity is too great to manage by self-regulating means. It requires a large class of people who exist to ensure that the complex system doesn’t get out of control.
The more complex things are, the more controls are needed. Our civilisation has become too complex already and is becoming more so every year. Too much complexity is unnecessary and therefore wasteful. We need to simplify everything so that the system is self-regulating and doesn’t need external control.