Okay welcome back to Gary's Economics

today we are

gonna explain

one of the biggest and most misunderstood

economic questions of our time.

Why is housing so expensive?

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 wanna 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

cause nobody knew who I was at the time

So now we are gonna 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 wanna explain in some quite simple ways, why the

the way that you think about housing

and the way that you think about the expensiveness

of housing is wrong.

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 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

I could just keep listing cities and cities

and I was in Portugal

in Lisbon and Porto, I was in Milan

basically everywhere you go

people think that there is a housing crisis 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

get a bit of distance and look at it

this is quite obviously 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

it's global it's everywhere.

So it doesn't make any logical sense

to look specifically for the cause of the problem

to something that's happening specifically in

your town or your city

because it's not happening just there.

So then next we can take a step back further

and I think this is probably the most

interesting point I'm gonna make in the whole video

so if you only take one thing away

listen to this.

So I'll explain to you

that the problem is not just in your city

the next thing that I'm gonna explain

and I think

this really helps us to understand

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 acculate a lot of money

and I knew for like relatively obvious reasons

that that was gonna 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

I put that on something like 1400 dollars

1450 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

let me check actually we can cut it in because

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, 2020

you've seen in five years

the gold price go up about two and a half times

so 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 its misunderstood

right 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 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 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 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

and this by the way

is exactly what happened during Covid

so at the beginning of Covid

it was very clear

there was gonna 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 has happened to coffee

and the price of a sugar has gone up

because something weird has happened to sugar and

and the rents have gone up

because something weird has happened to the rent market

and holidays have got more expensive

because something

weird has 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 happened 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 an asset price crisis

but economists just just never look at this basically

and you end up with

with these basically wrong explanations

which which is the

the problem is we're not building enough houses

the problem is

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 gonna explain why.

So to explain why it 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 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 a hundred grand

I could tell you exactly I would go that day

and buy 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 gonna accumulate

trillions of dollars, pounds

euros, it should have immediately been extremely obvious

that house prices would go up

like nothing could be more obvious right

If we give £1 trillion

to the richest people in the country

obviously of course

house prices and stock prices

and the gold price will go up

this is nothing, nothing could be more obvious

and for the basic simple reason

you are competing with billionaires

and multimillionaires for ownership of the assets

so if these guys start to accumulate

enormous amounts of money

the asset prices will go up and

you will get less and they will get more

and this is what is happening in housing

this is what is happening in housing

the rich accumulated a ton of money during Covid

but that is just

a continuation of a pre existing trend

which was the rich are getting richer and richer

and richer and richer

as they accumulate larger and larger and larger

ownership of wealth that generates for them

more and more and more passive income

and there's basically

nothing they can do with that passive income

other than to buy the rest of the wealth

and that is why you're seeing house prices going up

that is why you're seeing stock prices going up

that is why you're seeing land prices going up

that is why you're basically

seeing all prices going up

these guys have tons of money

that they need to do something with

and they're using that to buy assets

and that is really why housing is expensive

but one thing

I think that kind of obscures this a little bit

is if we were to talk about gold or housing

it will kind of be obviously true

if you give rich people a ton of money

they're gonna go and buy gold

they're gonna go and buy,

if you talk about gold or stock market

it's gonna be obviously true

they're gonna buy gold and stocks

but when you look at housing

housing is actually quite a special asset

in the context of western economies

especially here in the UK

especially in in the US for example

Housing is the asset

which is most likely to be owned by ordinary people

so most people don't have enormous

stock market portfolios

but a lot of ordinary people still in this country

in the US

in a lot of western countries own their own house

which may

in many cases nowadays be worth half million pounds

£1 million

So that what you have here

is the fact that there seems to be a kind of conflict

right because

even though we know

rich people buy tons and tons of stocks

rich people don't appear to directly buy

tons and tons of housing

and what you're seeing here is basically,

I did a video on on mortgages

earlier this year

and I really wanted to do that video because basically

mortgages are the way in which rich people

buy and own your house, so

I've got a whole video on that

so if you want to go and watch the mortgage video now

after you can watch that

but mortgages is a balanced system

the amount of money lent in society

equals the amount of money borrowed

so we've clearly seen

that the average size of a mortgage has massively

massively increased which means your average person

your average family here in the UK

in the US

across the world has this massive mortgage debt

something people don't realize is

if one group of society has a massive debt

then somebody else has to accumulate a ton of money

this is the way that debt works

you cannot be in debt to nobody

so it is only possible

for ordinary people to suddenly have these massive

massive massive mortgages

if there is a group in society

that is suddenly

accumulating this massive amount of money

this massive amount of credit

probably the easiest way I think to visualize that is,

say I'm a rich person

I've got a million pound cash spare

I can do two things with that

I can either go and buy the house

or I can lend it to my sister who buys the house

the end result on the price of houses

is exactly the same so

rich people are pushing up the price of all assets

including housing

but when they push up the price of housing

it often comes through this channel of mortgage lending

and the reason you are seeing mortgages get much

much much bigger

is because rich people are pushing up the house prices

but they are also

simultaneously offering large amounts of

of mortgage lending

so it gets a bit obscured by mortgages

but the

simple truth of the matter

is really simple right

you know if you are Rishi Sunak

if you are Jeff Bezos, Elon Musk

Donald Trump, you know

you can only live in five or six

or seven or eight houses but you can own

especially by the channel

of mortgage lending and owning credit

you can own 1,000 houses you can own 10,000 houses

and it's the same with the government you know

they're lending money to the government

that's the way they're taking possession essentially

of government assets

they're lending money to mortgage borrowers

that's the way they're taking possession of

housing assets

and in things like stocks and shares and land and gold

they directly buy these things. If you look

this is another point I wanna make

people often

look at the current level of unaffordability

of housing and they look at graphs

such as house price versus average wage

and they see that in the last 10

20 30 years

the average house price in the UK for example

has become extremely expensive relative to wages

compared to what it was 30 40

50 60 years ago and they often then say

oh well

that means housing now is unsustainably expensive

it is unaffordable for ordinary people

and house prices will have to come down.

Go and look at what housing affordability is like

in the west in London

in New York

compared to extremely unequal places in the world

like Mumbai, like Shanghai

like Hong Kong

like Rio de Janeiro like Sao Paolo

or compared to what housing affordability was like

here in the UK 100 or 200 years ago

when things were unequal, what you will find is

the historic outlier is actually not now

when housing is very unaffordable.

The historic

outlier is that period after the Second World War

when housing was affordable.

If you read about the history of of the UK or Europe

you know if you read your Dickens

and you will see that for most of history

housing was not affordable

and that was because for most of history

we had very high levels of inequality

we had this dipping inequality in the post war period

and what that literally means

is that dipping wealth

inequality means assets being owned by ordinary people

now we've moved towards a much more unequal society

the rich are much richer

ordinary people are much poorer

what that means is

you are increasingly competing with billionaires

and multi millionaires

with enormous amounts of passive income

for ownership of the houses

and you can't compete with them,

and housing

will continue to get more and more unaffordable

as long as inequality increases

which its doing and which will continue to do

so the reason house prices are expensive

is because the rich are really

really really really

really rich now and

you can't compete with them

and unless you do something about that

you won't be able to.

So this is the untold story of housing

the untold story of affordability of housing

which is the real truth

is what you're simply seeing is

a change in distribution

a change in equality, a change in relative power

You're losing, they're winning.

So what does that mean about the kind of commonly given

stories about housing.

The biggest one in this country is definitely

just build more just build more just build more

this idea that housing is expensive

you should just build more houses

so let's discuss that.

So before we shot this video

I just quickly went out onto my balcony over there

and I did a little count

of how many cranes I could see

I counted 13 cranes out there

just what I can see from from my balcony

so we are building more you know

we are building more

and if you go out to Ilford where I grew up

which is

a very poor, central Ilford is a very very poor low wage

low rent

area of outer east London

they are just building and building and building

there's like a 40 floor skyscraper of flats in

in one of the poorest parts of London

and they're just everywhere, we are building them

we are building them but

if you exist in a world

where all asset prices are increasing aggressively

quickly and that is what is driving house prices

how many houses do you think you need to build

here in London to stop or reverse a global

massive increase in the cost of all assets

you know it's not possible

you know if your town is being flooded

you are not gonna save your house

by just bailing your bucket out

you need to deal with

the massive increase here

and I think what you are seeing

and I see this all the time in economics and politics

is this aggressive focus on small scale issues

with this increasingly absurd

refusal to deal with what is driving it

inequality is increasing

inequality is increasing rapidly

what that means is you get less

they get more and

it means your house will be unaffordable

you're not gonna deal with that

by building more houses

you need to deal with that by stopping inequality

growth okay

but what if you do build more

because we are building more

we will build more.

I wanna talk a little bit

and I have mentioned it before on the channel

about what inequality does to the physical

shape of cities and to the physical shape of countries

When you live in a relatively equal country

everybody's got some money everybody's got some wealth

everybody is a worker everybody is a producer

and everybody is also a consumer

and that means wherever you have a village or a city or

or a town you have workers and consumers

because everybody is a worker

and everybody is a consumer

but once you move towards very unequal economies

then you get like a splitting of workers and consumers

all of the wealth

all of the the economic power

all of the spending power starts to be concentrated in

a small elite and and they are the

people who can spend and everybody else has nothing

and that creates an imbalance right

because if everybody's a worker

and everybody's a spender then any

town any city is

balanced it has both workers and spenders

once you split those people

then suddenly you don't own your own home

you're kind of poor there's only a small amount of

people have money you need to live near them

because that's the only place to get a job

and that's how you see a kind of shape of country

and a shape of city which is really

really common in poor countries in

you know anywhere really Latin America

most of Africa, Southeast Asia

where you have these cities

which have unbelievably luxurious centers

surrounded by massive massive slums basically

that is the shape that an unequal economy wants to be

right because if the rich have all the spending power

then of course they want a super

like luxury place to live

so that they will build that

and everybody else needs to sort of swarm around them

that is what our economy wants to look like

because here in Europe we

have moved from that relatively equal 60s

70s 80s period towards a very unequal

a very unequal economy now

and it is becoming more unequal

so you're starting to see this economic drive

to build these very unequal countries

to very these very unequal cities

and that is why people are saying build more

build more build more

I think we should be very careful

you know I live well

I grew up in one of these areas outside the big city

these places are being very

very aggressively very rapidly slumified

there's lots of

enormously low quality housing being built up

I think you should be careful supporting

these build build

build policies that are not addressing the

growing inequality because if you do that

you will make places like London and places like

all of the big cities across Europe

you will make them start to look more like Mumbai

and like Rio de Janeiro and Sao Paolo

with massive slums. I would like to protect more

the ability of people to live where they want

I don't think people should be forced

to all live in the city

and all live in the massive cities

and to do that

you need to address the growing inequality

not just build more more

more but beyond that

I think there is a really phenomenal

and quite interesting like naivety to this build build

build approach which really mirrors the phenomenal

naivety that we're seeing in a lot of mainstream

economic discourse at the moment

about the weakness of the economy overall

so you know

we have this New Labour government in

in this country and

their approach is

growth growth growth you know

they've got these posters out there to say growth

growth growth and and it mirrors this

this commonly popular idea about the housing market

which is build build build

and it kind of it seems

is based on this Assumption that you can just go and

you can just build a house

or you can just go and you can grow the economy

as if there's a bunch of resources lying around

as if there's like

a million builders sitting on the side

twiddling their thumbs with a bunch of concrete

and you can just bring them in

and get them to start building.

We do not live in

economies full of unused resources

we live in very efficient economies

where basically all resources are used

and the vast majority of those resources

are owned by the rich

and the vast majority of those resources

are used by the rich and if you are a rich person

you control the resources we need to build more houses

and you get to choose

what you’re gonna do with those resources.

Are you gonna build affordable housing

for ordinary people

you're in this economy

where you can rapidly see the shifting

power dynamics in the economy

the government is dying on its arse right

and that's not just the UK

governments are dying on their arse all over the world

right government is collapsing

the working class is just devastated

the middle class is increasingly impoverished

and you have this small group of super wealthy people

who are just aggressively getting richer and richer

and richer and richer and richer

and you are a rich guy with some resources

that you get to choose what to do with

and you know, you're running a company

if you were running a company now, building company

construction company

in this economic context of a collapsing middle

collapsing government collapsing poor

absolutely skyrocketing wealth of the rich

what kind of housing are you gonna build?

You are gonna build super

luxury housing for super rich people

because they are obviously the guys with the money

right, it'sobviously...

and then when it comes to ordinary people's housing

you're gonna give them the cheapest possible thing

because you know that they have very

very little money

and they basically have to buy whatever they can

whatever they can give you

we we need to deal with this absurdly

simplistic view of economics

which says things like build build

grow grow as if that is not what every government

for the last 30 35 years

all over the world has been constantly trying to do

and failing

the problem here is not not enough building

the problem here is not not enough growth

the problem here is rapid and aggressive

changing in distribution

and changing in your relative power position

if you are not a super rich person

you are the group that is losing

and that means you get less housing

it's as simple as that, build

build build, it's not gonna work

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 row terraced houses

there's a massive block of flats there

now blocking out the sun and the

you know,

that the street I grew up in is basically a slum

now. I always wonder when they say build

build build, these politicians

are they gonna build massive blocks of flats

overlooking their houses?

Or are they gonna build massive blocks of flats

of extremely low quality housing

overlooking your house?

and that brings me to my final point I wanna make

which is

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 country in this city eight years ago

which was when a block of flats 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

materials used in the building construction

and that buildings all over the country

we're not safe from fire. Listen

I'm not a red tape guy

do you really think that

the best way to improve housing affordability

it is to slash

safety standards

I think it's probably not the right way to do it.

So that brings us to an end of this first video

on housing.

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 their resources

and you have a choice as well you know

you can try to borrow from them at rates of interest

which have to compete with financial markets that

that wanna 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 healthcare it means less education

if you wanna 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 and economy

which is not growing

where the rich get richer and richer

and richer and richer

and not expect to get poorer and poorer

and poorer and poorer

the reason you're losing your housing

is the same reason you're losing your healthcare

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.

If 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 rich are 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 mum.

It doesn't have to get worse

it can get better

but you're gonna have to make it happen yourself, good luck.