[0:00]Okay, welcome back to the Gary's Economics. Today, we are going to explain one of the biggest and most misunderstood economic questions of our time, why is housing so expensive?
[0:12]Okay, so this is obviously, pretty much the biggest economic question everybody wants to know. You might be asking why we've not covered it on the channel before, and the answer is that we did cover it because it was obviously such a big issue. This was one of the first videos we ever shot on this channel, maybe four or five years ago. If you want to see me back when I used to shoot my videos walking around East London, looking younger and fresher, we'll put the old one in the description. But it only got about 5,000 views because nobody knew who I was at the time. So now we are going to explain why housing is so expensive. And when I realized nobody had seen that old video, I was quite excited to do one, because I think we can really learn a lot about some of the really common ways in which the way that we talk about and think about economics is is kind of dumb and is kind of wrong. And also I just think that this really, really important question is really, really commonly misunderstood basically. So I want to explain in some quite simple ways why the way that you think about housing and the way that you think about the expensiveness of housing is wrong. Okay, so the first thing you need to understand about the expensiveness of housing is that it is a global issue. And what you often see with with housing and the expensiveness of housing is that people seem to think that it is something that is happening specifically in their city. And when you as I have done, you study and work with people from all over the world and you travel around, and when I travel around I always like to speak to people about the economy. Basically, everyone in pretty much every big city in the world thinks that there is a massive housing affordability problem specifically in their city. So this is true in London and in New York and in Los Angeles and in Tokyo and in Shanghai and in Rio de Janeiro and in Mumbai and in Melbourne and Sydney and Vancouver and Toronto. Like I I could just keep listing cities and cities, and I was in, I was in Portugal in Lisbon and Porto, I was in Milan. Yeah it's, basically, everywhere you go, people think that there is a housing crisis in in just their city. And I think that is the first thing that can teach us something, which is that this is quite obviously once you step back and and get a bit of distance and look at it, this is quite obviously a a global problem which must therefore have a a global cause. So for all the guys out there who think this is specifically Sadiq Khan's fault, for those of you who don't know Sadiq Khan is the mayor of London, I hate to break it to you, but this is happening everywhere. And if it's Sadiq Khan's fault, he must be a really powerful guy because this is happening in every city across the world. And there is a real tendency for people to think that the low affordability of housing in the city or the region that they live is being caused by their local mayor, is being caused by their local planning policy. That basically can't be true, if that was true, it wouldn't be happening in like pretty much every major city in the world. So that's your first clue that this is misunderstood, um, is global, is everywhere. So it doesn't make any logical sense to to look specifically for the cause of the problem to something that's happening specifically in your your town or your city, because it's not happening just there. So, the next we can take a step back further. And I think this is probably the most interesting point I'm going to make in the whole video. So if you only take one thing away, listen to this. So first I've explained to you that the problem is not just in your city. The next thing that I'm going to explain, and I think this really helps us to understand what what is going on here, is it's not happening just in houses. Maybe that isn't immediately clear what I mean. So at at the beginning of Covid, and I've spoken about this a few times on the channel, I realized very quickly that the rich would accumulate a lot of money. And I knew for like relatively obvious reasons that that was going to push asset prices up because rich people when given money, tend to spend almost all of it on assets. So I went and put a massive bet on on the gold price going up. And since the beginning of the gold price, so I put that on something like $1,400, 1,450 or something like that. And now I don't even know, I think it's $2,500, I think it's it could be way more than that, I think it's uh, let me check actually. We can cut it in because um, I think it's, I think it's something crazy now, 3,400. Yeah, so I put that on at 1450, something like that, and now it's more than $3,300. So just just since the beginning of Covid, 2000, um, sorry 2020, you've seen in five years, the gold price go up about two and a half times. So a massive, massive increase in gold price, but it's not just gold, right? Like at the moment, basically every stock market in the entire world is at an all time high. If you look at the US stock market, massive, massive all time high, if you look at the German stock market, but also the gold price, land prices, you look at the price of of farmland, it's gone through the roof. If you look at the price of even things like luxury art, luxury cars, like basically every asset in the world, obviously with some exceptions, but every sort of hard long term asset, has massively increased in price, not just in the last five years since Covid, but the last 15 years since since the great recession, the last 30 years. So when you step back and you get a bit of distance, what you see is what has happened to to house prices and in housing is not at all unique to house prices and to housing. Like, just like it's not unique to your city, it's happening everywhere, it's not unique to housing, it's happening in basically every asset. What you have seen in the short term, the medium term and the long term now, is just a massive increase in the price of basically all assets when compared to things like wages. And I think this is the main way that it's misunderstood, right?
[6:14]Because the housing crisis for very obvious, understandable reasons, the crisis of housing affordability is always thought about as a crisis of housing. And then the the solutions and and the the causes and the reasons are always spoken about as if they are specific to the housing market. People always love to talk about they're not building enough houses. People like to say it's because of immigration. But if if it's because of us not building enough houses, why is the gold price trebled? Why why are the stock prices trebling? Why are land prices, you know, quadrupling? This is this is a global asset price crisis. It doesn't make any sense, if you walk into the supermarket and the price of everything has trebled, and then you you pick up the coffee and you say why is coffee trebled? And I say to you, that's because something crazy happened in the coffee market, this, by the way is exactly what happened during Covid. So at the beginning of Covid, it was very clear there was going to be a big increase in inequality, a big cash accumulation by the rich. And I was able to predict, if you don't believe me, go and watch the first video on the channel, I was able to predict as early as March 2020 that there would be a massive inflation crisis and that prices of everything would go up. And yet when the inflation crisis actually happened, people had a real tendency to be like, well the coffee price has gone up because something weird's happened to coffee and the price of a sugar's gone up because something weird has happened to sugar, and the rents have gone up because something weird has happened to the rent market, and holidays have got more expensive because something weird's happened in the holiday market. And I think this is a really classic example of a very, very common way in which economists and journalists who talk about economics understand poorly and explain poorly the economy. Which is they love to look at kind of small picture explanations, for example, if something's happens to house prices, it must come from the housing market. And they're very generally unable to see like big picture causes, because it's not that hard to recognize, well, house prices have gone up, but so have all other assets. So really what's actually happened is is is an asset price crisis. But economists just just never look at this basically, and and you end up with the with these basically wrong explanations, which is the the problem is we're not building enough houses, the problem is, um, the problem is immigrants. The housing crisis is not a housing crisis, the housing crisis is a crisis of asset affordability. All asset prices have gone up enormously and that means you can't afford them, and now we're going to explain why. So to explain why is is very, very simple really, I can do it in one sentence. When you give rich people money, they buy assets. Okay, I'm not a Jeff Bezos, I'm not a billionaire, I'm like a, I suppose you could say, like moderately rich person. If you were to give me 100 grand, I could tell you exactly, I would go that day and buy at 100 grand of assets. That is what I would do, because I have enough money to live my life, I don't need any more money, I don't need to spend any more money, because I'm relatively rich, I have everything that I need. If you give me 100 grand, I will buy 100 grand of assets, and that is true for the vast majority of rich people. If you give rich people a ton of money, they buy assets, that's where it goes. So when we saw at the beginning of Covid, what should have been relatively clear, it is still not often spoken about, when we saw that rich people were going to accumulate trillions of dollars, pounds, euros, it should have immediately been extremely obvious that house prices would go up, nothing could be more obvious, right? If we give a trillion pounds to the richest people in the country, obviously, of course, house prices and stock prices, and the gold price will will go up. This is, it's as simple as that. Build, build, build, um, it's not going to work.
[24:37]I often think when I hear politicians say build, build, build, when I go back to the house I grew up in, there's a massive, massive, massive block of flats now. I grew up in sort of a traditional terraced, small terraced houses. There's a massive block of flats there now, blocking out the sun, and the, you know, the street I grew up in is basically a slum now. I always wonder when they say build, build, build, these politicians, are they going to build massive blocks of flats overlooking their houses? Or are they going to build massive blocks of flats of extremely low quality housing overlooking your house? And that brings me to my final point I want to make, which is, um, the idea that we just need to to slash red tape, we just need to let them build, we just need to let them build. So, for those who are not watching in the UK, everyone in the UK will know, we had the massive disaster in this in this city eight years ago, which was when, um, a block of flats, uh, burnt down, it's known as the Grenfell disaster and 72 people died. And it turned out that not just that block of flats, but flats all over the country, including the building that I'm talking to you from, had basically unsafe, um, materials used in the building construction and that buildings all over the country were not safe from fire. Listen, I'm not, I'm not a red tape guy. Do you really think that that the best way to improve housing affordability is to slash safety standards? I think it's probably not the right way to do it. All right, so that brings us to an end of this first video on, um, on housing. Um, I can't believe I've not done one for so long. Listen, build, build, build, grow, grow, grow, always begs the question, with whose money? Because the rich own those resources that you need to build. Why on earth would they give those resources to you? They have a choice over what to build, they have a choice over how to use those resources, um, and you have a choice as well, you know, you can try to borrow it from them at rates of interest which have to compete with financial markets that that want to build shit for the rich. You'll lose money, you'll run a loss, governments will be bankrupted. If you're losing your resources, every single day, every single year, you will get poorer. And that means less housing, it also means less health care, it means less education. If you want to stop that, the only way to realistically do it is to deal with the fact that you are losing resources. You cannot live in a country in an economy which is not growing, where the rich get richer and richer and richer, and not expect to get poorer and poorer and poorer. The reason you're losing your housing is the same reason you're losing your health care, it's the same reason you're losing your education, it's the same reason that you're unable to get good jobs, it's because you are being squeezed out by that rapid, unbelievably rapid growth in wealth and luxury and living standards of the rich. You don't fight that fight, you lose your wealth, you lose your resources, you lose your living standards, you lose your housing. So, in answer to our opening question, why is housing expensive? It's because the richer buying it all, and you can't compete with them. The way to deal with that is to tax the rich more, to tax working people less. That is why we campaign here to tax wealth not work. Support us, send this video to your friends, send it to your mom, doesn't have to get worse, it can get better, but you're going to have to make it happen yourself.
