Not surprised, just disappointed: Norwegian Semi-Georgism

You are facing a problem and you have two options available. Option A is to rely on proven and quite simple economic principles. Option B is an implementation of a centralized tool of social control, in the form of taxation, to maybe get the result you want. Erlend Eide Bø, with Statistics Norway, is heavily leaning on option B in his opinion piece in Dagens Næringsliv and his research paper Taxation of Housing: Killing Several Birds with One Stone.


Housing prices and rent is steep the Norwegian capital, Oslo. It grows faster in population than buildings are getting built[1] and as a result increases in price for available space is expected to rise. Already topping plenty of lists as one of the worlds most expensive places to live, somethings got to give. It isn’t a unique problem to my small part of the planet, it’s happening all over the developed world.

This is where Mr. Bø and I agree: the problem itself and its many negative consequences:

House prices have risen sharply in recent decades. In the big cities, prices have become very high, which in particular affects first-time buyers who lack sufficient equity.

While Mr. Bø is looking more carefully on first-time buyers in the quote above[2] it affects everyone – If prices are high for the buyer, it is going to be high for the renter that is renting from those buyers by the symmetry of how the housing market works.

We could go deeper into the weeds of the symmetry of the housing market if we want to, by comparing the effect a (so-called) progressive tax would have on the multi-building owning corporation that use their houses to rent out, to the middle-class family that owns their home – It would be night and day for these two different units of house-owners.

The middle-class family is much more vulnerable to new taxations than the for-profit-owner. Mr. Bø suggests to fiddle around with the system in certain ways so the proposed tax-increase on housing isn’t hitting elderly that happen to sit on valuable housing won’t get taxed out of their homes and there is a slight nod towards compensation in other areas, via tax lowerings.

This much is certain: You will hit 100% of the house owners with an air-tight tax, but not everyone will benefit from tax-reduction in other areas since consumer patterns aren’t identical. What you will have done is a sweeping change that crashes some, semi-benefit others and some get the best of both worlds (ie. no additional taxation and lowering cost of public services). Is this really desirable?

Here is the thing: It is a grand design project that will affect the whole of society in different ways and it is so delicate that I wouldn’t trust an army of economists and politicians to implement it correctly and without hiccups. The track record of the Norwegian parliament to hold a budget is subpar, to put it mildly, and this proposal is a very intricate scheme. If it was a cardboard box it would probably have a label with the text “Fragile” on it.

Is the error on the supply-side?

I am looking at this sort of things in a more practical way: If it is true there is a severe lack of low-cost (or affordable, if you want to use that kind of language) homes and there is, in fact, a market for that kind of buildings, it is much easier to add those on the supply side than some complicated tax-plan (which itself needs exceptions and tinkering with) that you can’t account for all secondary consequences of.

Are all building companies out there, both foreign and national, just plain stupid? Are they ignoring a large chunk of cash they could make?  If it is in their interest to build and sell houses for profit, why aren’t they filling this corner of the market?

I think the simple answer to that is: Building cheap is very, very hard in the current Norwegian administrative landscape. Layers upon layers of regulation, taxation, an almost fully unionized work-force and so forth make it hard to construct anything without spending a lot of money, time and energy first. This can be viewed as the baseline for the housing prices.

There is no political will to change this in the mainstream world of politics and the ones that own houses don’t necessarily want competition that could drive down the price (and demand) on their own property. Everyone left is sandwiched somewhere in between. This is a pattern that we can observe in markets all over the world.

Are we really looking at the lowest prices we could possibly get? Of course not. That would be an absurd claim. To make housing more expensive through taxation, as Mr. Bø proposes, is a very convoluted way to make it more accessible. Not impossible, mind, but highly unlikely.

Is the error on the demand-side?

82,2% of Norwegians owns housing in some form. That is an amazing number. It is even a small increase since I looked at this number last time when I was writing my short “Home, Socialist Home” blog entry. I think a goal of 100% is unrealistic, as many enjoy the flexibility or don’t want to own a house.

It might very well be that many of those last percentages prioritize other forms of investments, or even consumption, over housing. Its only eleven years after the 2008 crash, so that is surely fresh in peoples minds.[3]

We can not forget the aspect of inflation and its effect on the purchasing power of any first-time buyer. Norway has seen absurd inflation in its national currency compared to, for example, the United States. This is out of the hand of the regular person on the demand-side and is a fault of the central bank and political elites. Basically the same people Mr. Bø now supplies with ideas.

It’s not out of the question that part of the problem can be on the demand-side. If we zoom in hard enough and go on the level of the individual, we will find a mismatch between desire and action. It is very easy to say “I want an apartment”, but saving and acting towards that goal is a completely different thing.

Tieing it all together.

 To own your own place is one way to make yourself and your family more resilient to big economic changes. Having a stable home in uncertain times represents safety and a foundation. Increasing taxation on that safety is, to me, predatory.

Even “progressive” taxation will sooner or later hit the poorest the worst. If you think the factory owner will soak the costs herself, just a quick look on history will change your mind. The price will be added to the products and services people buy. If your local store needs to pay more in rent because of taxes, you will share this burden with the store-owner, trust me.

“Some experts have declared that it is necessary to tax the people until it hurts. I disagree with these sadists.” – Ludwig Von Mises

 

 


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[1] This is a controversial point and depending on who you ask you’ll get severely different answers. The Norwegian Student associations claimed a lack of 13,200 apartments back in 2016. Meanwhile, OBOS (Oslo Housing and Savings group) was proposing there are enough buildings being made just not affordable ones, sharing data from Statistics Norway showing there was a discrepancy between housing made and households gained. Mr. Bø ignores the question of how many affordable housing units is needed and how affordable they need to be to match the wallets of interested parties.

[2] We will also note that the author doesn’t give us any data about this specific point: How many are these first-time buyers? Are we talking about a handful of people or thousands of people? Are the first time buyers expecting to live in Norway for just a few years or the rest of their lives? We never really get to familiarize with answers to questions like this, it is all abstractions.

[3] Although, the effects of the 2008 crash wasn’t as severe here in Norway, very much thanks to good prospects on the oil market.

5 comments

  1. Great article, Alex!

    I work for a home builder in Western Montana and know exactly what you are describing. Missoula has just passed an ordinance requiring that large residential developments (10 units or more) build one low cost unit for every ten units built. I don’t know all the particulars about this, but it boils down to the fact that the price on nine of these homes will be driven up so that the price on one of them can be driven down. It is certain that the builder will not absorb the cost, but rather pass it on to the home buyers who can afford to pay. How does that benefit anyone other than those who are buying at a cut-rate and those who are forcing everyone else into the box?

    BTW, I love your comment that “If it was a cardboard box it would probably have a label with the text “Fragile” on it.” This is a succinct commentary on our entire economy today. If you don’t mind, I will use it whenever I find it applicable, linking back to you, of course.

    Like

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