Big Houses and the Market


This David Leonhardt article is long, important, and a bit difficult to digest so I’ll hold off commenting on the substance of the thing. This offhand choice of example on page four, however, raised a pet concern of mine:

As Lawrence Summers, the former Treasury secretary and Rubin ally from the Clinton administration, says: “We’ve probably done a better job of the last 20 years on the problems the market can solve than the problems the market can’t solve. We’re doing pretty well on the size of people’s houses and televisions and the like. We’re not looking so good on infrastructure and education.”

I know what Summers is getting at here and I agree with him, but the housing market is about the furthest thing in the world from a free market imaginable. Specifically on the question of home size, we have various policies in the tax code that encourage people to take a large chunk of their savings in the form of housing, which encourages people to buy bigger homes than would otherwise be the case. And then on top of that, rules against “accessory dwellings” and/or “overcrowding” and minimum lot size requirements all discourage the construction of small homes. All things considered, in other words, we have a lot of public policy that pushes the size of our houses bigger than pure market considerations would dictate.

This is a pretty bad idea for a number of reasons, most notably energy efficiency but also because of positional arms race considerations. Nevertheless, I think a lot of folks would be resistant (for good and bad reasons) to the idea of market interventions aimed at encouraging small homes. Thus it’s important to get people to understand that the status quo isn’t a market-dictated one at all. This is just one of several aspects of American reality that people tend to think of as “natural” but that actually reflect deliberate and poorly understood policy choices.