Si, I find the negative externality argument more compelling.

I’m sure multiple family homes would go down pretty well with policy makers. Given the intrinsic cost of “putting up with another family” I think we would require a pretty sizable market failure to get there. That would provide an “upper bound” I suspect.

I drive through enough parts of town where the neighbours seem to be out-doing each other in not cleaning up graffitti, not mowing lawns, not removing derelict vehicles from their yards….

Even if we granted the story, surely those trading up on Veblen grounds to even larger houses would be leaving somewhat larger houses for others to buy; those folks might well decide to house two families in the larger space….

I think the key thing here is you are solving a sort of co-ordination issue – but taking away peoples ability to determine what a “house is” in specific areas you are making a pareto improvement due to the existence of a prisoner’s dilemma.

I hardly find it a compelling argument, but it was something I wanted to think through.

I believe that implicitly this is the view of many people who feel that we are borrowing to much to invest in housing – there is an element of the positional good argument in the things journalists such as Bernard Hickey mention.

I was just keen, as a starting point, to figure out exactly what such an argument entails. As I mentioned, I don’t find it compelling – but that doesn’t stop it from potentially being true.

What might happen instead is the new houses become some sort of trading commodity taking advantage of a housing shortage and rising prices.. hardly what was intended.

JC