Amazingly, Economics Works – Below Market Prices Produce Shortages And Queues


We should add the housing charity Shelter to the list of dunderheads failing to understand the most basic things about our universe. If you fix the price of something below the market clearing price then the market will not clear. That’s obvious enough, isn’t it? But it’s apparently too, too, complex for the snowflakes over at Shelter:

One year on from the tragic Grenfell fire and many survivors are still waiting for a new home but new analysis from Shelter reveals the situation is similarly stark right across the country.

Over 1 million households in need of a social home are stuck on long waiting lists, often for years on end. Yet the number of social homes becoming available is extremely low leading to a huge gap.

Shelter’s analysis shows there are 1.15m households on waiting lists but only 290,000 social homes were made available last year, a difference of more than 800,000 homes.

The gap is caused by a lack of new social homes being built and the fact many existing homes are sold off through right-to-buy without the receipts being used to replace these homes, like-for-like.

No, this isn’t being caused by selling stuff off. It’s caused by setting the price of social housing below the market clearing price. This means that more people want one than there is supply to offer them. This is what always happens when prices are below the market clearing ones. This also isn’t some oddity, it’s definitional.

Think back to those first couple of pages of any and every economics book. Those two little curves, supply and demand. With the market price being determined by where they cross. Now, decide that you’re going to fix that price below that market clearing price, the one where everyone who wants one at that price can get one. What happens? We’ve just reduced the number of people who wish to supply whatever it is and increased the number who desire one, haven’t we? That is, we’ve created a shortage.

What is it we do with social housing? We fix the price below the market clearing price. That’s rather the point of them in the first place, social houses, that they be cheaper than the market. So, what does that mean? It means we’ve just increased the demand for those social houses and we’ve created a queue of people who want one. If social rents were market rents then no one would be lining up to get such a tenancy, would they?

Again, note that this happens whenever we set a price below the market clearing price. What are we specifically and deliberately doing with social housing? Setting the price below the market one. Thus queues for social housing are normal, they’re part of the very system we’re using.

If only the people trying to rule our world understood how it worked, eh?