Housing and “production”

So, a while back a post on housing and production got criticised, but I didn’t notice.  I shall respond now, as I need something to post on. (I would also note that there are 1 million brilliant comments in the initial post – good stuff guys.)

In a strict sense building a house doesn’t increase measured productivity – however, when making my statement that was never my claim.  My claim was that housing was productive – my intent was to show that a house could be seen as investment as it creates a stream of value.

Now, I was obviously far too unclear, and I’ll admit that for sure – so slap me down and take a point off me.

However, I was so loose with my terminology because I’m lazy … but also because I see the “focus on productivity” as inherently silly.  We don’t value the “productivity”, we don’t go around doing things with “productivity” per see – I would love higher productivity, as it means I get more stuff for the same inputs.  But I would love it because I get more stuff, not because I get more productivity statistic.

And this is the essential issue that is missed when looking at housing.

We say “build a productive asset instead of a house as it will provide a stream of production”.  That is nice – and it is nice because we can consume that production, or invest some of it so we can consume a bit more later.  A house also produces a stream “living in it” services – these have value and so we can’t just walk around saying “no houses, they aren’t productive”.

Any debate on housing should be with regards to whether the private return on housing is equivalent to the social return – or do we have some sort of market/government failure going on.

Any debate on productivity should be with regards to the actual cost of the inputs and the benefit of the outputs involved – and the implicit sacrifice we make as a society if we decide to introduce more “equitable” policies.

Stating that a built house doesn’t increase GDP (which I guess assumes that imputed rent isn’t going to capture the increasing value of a housing service – something I am not saying I believe) and that we should focus on things that will see the GDP stat go up is just a very weird, central planner, type way to view the economy.

When you hang around in a small open economy you realise that GDP can be a pretty loose measure of income, a very loose measure of actual activity, and an extremely loose measure of welfare.  As a result, lets not beat up on people who are making houses instead of building washing machine factories – they are simply responding to their incentives.