The visible hand in economics

Housing and the value of individuality

Posted on: March 25, 2008

The government is introducing ways to reduce the compliance costs associated with building homes. By doing this, the government can increase the supply of properties, lowering the price of houses, and thereby increasing housing affordability.

No doubt this will be an interesting policy to look over, however this is not what I am going to do right now. Instead I am interested in Professor Roy Fleetwood’s (of Victoria University’s Architecture and Design Faculty) dual claims that”the plan risked creating cardboard cut-out houses” and that “the Kiwi dream was to build your own home, but individuality was highly prized”.

This is an interesting set of claims. Dr Fleetwood is fundamentally saying that we will end up with sets of cardboard cut-out houses , even though individuals in New Zealand truly value the individuality of their house – and this is a bad thing. I assume that the reason this will occur is because of new regulation allowing builders to create 50 houses off one consent. As the article says, the cost of a consent can be up to $30,000, implying that the cost of making these 50 houses is only $30,000 if they are all the same compared to $1.5m if they are given some individuality.

However, I think that this only covers half the story. Notice that Dr Fleetwood says that New Zealanders value the individuality of their house. If New Zealanders value the individuality of the house by more than $30,000 it would be in the builders best interest to continue making individual houses for the given consent fee. If New Zealanders value individuality at less than $30,000 then the reduction in cost to the firm will exceed the customers willingness to pay for the higher quality good – surely a good thing. As a result, complaining about the sameness of the properties given the fact that people value individuality does not seem to make sense – in this regard.

Does anyone have any funky models in mind where Dr Fleetwood’s story would hold up?


6 Responses to "Housing and the value of individuality"

Nope, I’d say that Dr Fleetwood’s theory is complete BS. From what I read in the newspaper it seems that builders will be able to get a consent for a house design and that design can then be used anywhere. This means that people can go to the builder and select from a list of pre-approved house plans or spend the extra cash and hire an architect. I’m fairly sure that any good builder or architect will build up a large stock of pre-approved plans which should bring down the cost even further.

As for suburbs made of all the same ‘cardboard cutouts’? Well, I’m sure the free-market will reward any developer who tried that with a large loss (Of course – I can’t be sure of that as I remember such developments from back in the 1970s).

Maybe people feel depressed or bored about living in a suburb where every house is identical. But when each individual chooses the design of her house, she only takes account of her private benefits. I guess under some assumptions you could get a prisoners’ dilemma where everyone chooses the cardboard cutout but this is not the socially optimal outcome. Then the government’s proposal could reduce welfare because the current regime actually prevents the prisoners’ dilemma from occurring.

However this result depends on strong assumptions about people’s preferences. And Dr Fleetwood seems to be saying that people value individuality so much that it wouldn’t happen anyway. As you said it seems that at least one of his two hypotheses has got to be wrong.

“Of course – I can’t be sure of that as I remember such developments from back in the 1970s”

“I guess under some assumptions you could get a prisoners’ dilemma where everyone chooses the cardboard cutout but this is not the socially optimal outcome”

I think both of you guys have a point here – namely that the individual does not internalise the impact of their house choice on their neighbours.

If the developer builds the house before selling them, then I don’t think this matters, as the developer will have to take this into account when selling the houses.

However, if the developer builds the houses after selling them to a set of individuals, individuals who lack information on the choice of their neighbours (or namely the value of individuality that there neighbours will have), we may have a problem.

Dr fleetwood’s comments are a typical dressing up of elitist preferences as a mainstream reality. A bit like the anti-globalists saying most people prefer local products; locally roasted coffee and bacon cured at the local butcher rather than Lavassa and Kiwi bacon.

You don’t need to go to many subdivisions to see that many people don’t seem to mind having a house like the next door. Actually much of Mt Vic looks like a 1920s cookie cutter subdivision.

“many people don’t seem to mind having a house like the next door”

True – personally I wouldn’t care too much if my house looked the same as other peoples, of course I’m an economist not an individual 😉

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