of the government intervention and free market.
There are three main types of economies,
Free, Command and Mixed. Most economies are mixed where they have private and
government ownership and control of assets.
A free market economy is often described as
one in which the government reframes from interfering in any way at all. This
means in such an economy there is no government intervention as suggested by
Kates (2011). Government intervention
can range from introducing TAX breaks or TAX increases. This can happen by
manipulating the market to encourage competition or growth in the market, as
stated by the UK Office Of Fair Trading (2009).
This for some economists such as Caron et al
(2015) is argued to create problems of inflation, deflation, unemployment and
even led to depressions. Therefore, it is widely debated that government
intervention can cause a huge negative impact on the economy.
However, Rothbard (2009), has suggested that “the free market without any changes or
support from the government could exist without the danger of suffering
inflation, deflation, depression, or unemployment.” Further claiming that government
intervention can at times create long lasting future problems.
It is very difficult to find
a pure example of a free market economy due to most economies being mixed.
However, Economy Watch (2010) argues the closest example to free is America. This is due to most
of their enterprises being privately owned. In this economy there has been widespread
issues regarding the shortage of affordable available housing with many living
homeless. However, government intervention was part of the cause of the great
depression of the 1930s by creating a manipulated change. The same can be said
of the high inflation of the1970s which caused wide spread chaos and market
surrounding shortages of housing in UK, New Zealand, USA, and Sweden and its
impact on the economy
Within the UK, New Zealand and the USA there
is a governmental concern over the shortage of affordable and available
housing. Each economy has suffered at the hand of poor planning and
insufficient governmental funding.
Britain’s housing crisis has been described
by the UK’s local media as a ‘human disaster’, Guardian (2015). Within this article links as far back as the
1980’s to the Thatcher government has been cited as the key issue for a lack of
housing as the local government seeks to protect so called areas of natural
beauty and reduce the high rise building in certain areas. The UK government’s
use of incentives such as the ‘help to buy’ schemes although providing a
certain level of support are also part of the problem as they create future
The New Zealand Herlad (2016) highlights the
increasing problem New Zealand is having in additional with housing. With a
majority of concerns also coming from the allowance of foreign investment into
the property market and the increasing unattainable prices of a false
inflation. To counteract this in recent times the government have placed a ban
on foreign buyers who have continued to increase the house prices through
competition. This pressure on the government to intervene with legislation to
limit housing to those that are nationals is hoped to help counteract some of
the housing concerns.
Many countries across the world including
those with in Scandinavia such as Sweden have also noticed shortages in housing.
The Local SE (2017) states that ‘Sweden’s housing crisis is fuelling
homelessness’. This is due to an influx of a migration / refugee population. Sweden
opened its doors to refugees as an act of humanitarian aid, however, such an
increase need for housing was not accounted for and therefore this has led to
poor planning causing concerns for the sustainable access to housing. As the
world is effective shrinking due to globalisation and as people are more
readable willing to travel this crisis can be seen replicated across the world.
The main cause of concern are those of
an increasing cost of living due to the inflation rising with an unreflective
rise in wage brackets teamed with the extra governmental pressures of
supporting the refugee population as argued by The Local SE (2017). Issues
regarding housing shortages can create long term social issues for communities
with an increased rise in homelessness which can also lead to increased issued
with crime and social depravity.
It could be argued that those countries such
as China that have a planned / controlled economy have less concerns with
housing as claimed by Forbes (2015). Perhaps there is something to be said
about the level of control they stipulate over their populations to help
control this, such as the one child policy which allows for very controlled
measures over the population to help slow down and effectively reduce the
constant demand for new housing.
In the UK during the 1980s when housing was
being planned for there was a lack of understanding to the growing needs of the
population. If housing markets are left completely at the hands of the
government housing can become ‘cost effective’ which can effectively mean large
quantities of ‘ugly’ grey building which are not by any means enticing.
However, equally if housing is left completely at the hands of the free market
we can end up with beautiful attractive looking housing that is unaffordable
and out of budget for the average buyer. The Financial Times (2017) argues that
it has become increasingly difficult in the UK for those in their 20s and ever
30s to get on the property ladder and although the government has tried to
support this with first home owner schemes these schemes effectively increase
inflation which in the end adds to the issue as agreed by the Guardian (2015).
intervention e.g. subsidies v Free market
To allow for the total control of the housing
market to be ran and controlled by the free market could lead to a continued
epidemic due to the nature of a profit incentive by the private sector.
However, the continual support through government funding and subsidies in a
mixed economy can also lead to social issues with increase taxation and rising
inflation making housing unattainable. Effective solution must therefore be put
in place by both the public and the private sector collaborating for the good
of the population and generations to come.
Controlled budgets on spending and more
effective planning can be one effective method that can be implemented but as
argued by Rothbard (2009) such government intervention can cause a false
economy through manipulation that can lead to the slums or depressions. It is
therefore argued as a ‘short timer fix’ not a sustainable development.
One of the big issues for the UK is that of
planning permission and planning restrictions on housing. If the UK government
is to see an effective end to the housing crisis they are currently facing they
must reduce restrictions but in place for the development of new housing. By
doing so they will help improve the elasticity of supply for housing making it
more responsive to the changing demand of the housing market within the UK as
agreed by the Office of Fair Trading (2009).
Local authorities in the UK will also require more freedom in being able
to borrow funds for the building of housing as in some cases this can be a
‘post code lottery’ to attain the required budgets to allow supply to meet the
overwhelming demand of the population.
This is a similar story across the USA where
in some areas that have been hit by the recession housing is affordable, but
the areas are undesirable such as in Baltimore whereas in other areas such as
LA housing is unattainable, and the areas are overcrowded with many living in
homeless shelters while waiting on affordable housing. The displacement and
levels of inequality across the world has highlighted that housing will
continual to be a problem if governments continue to mismanage budgets and not
take effect responsibility over planning as argued in Forbes (2015). Tax Credit allowances such as the Obama Frist
home Owner Tax Credit has proven to be ineffective in tackling the root of the
issue. However, an introduction to policy change is a welcome move by the
population as it brings a certain level of attainability to some but
unfortunately while helping one side of the community it can effectively harm
the other through increased TAX or interest rates to counterbalance the
In conclusion, if the government seeks to
make effective improvements on housing within their respective countries they
will need to consider the long-term impacts of intervention with regards to
sustainability. There is not a perfect model as often times the benefits
received by one generation are based on to the next and so there is a constant pendulum
swing between improvement for one generation with low tax and low interest
teamed with increased affordability and attainability that then leads to higher
TAX, higher interest rates and a lack of availability and affordability for the
next. The move to a free market economy is not therefore a fix in this case as
it would leave those in the weakest position most venerable to homelessness and
increased society problems. For an effective solution to be made the economy
must find a balance through careful planned intervention and controlled
spending that meets the needs of a planned growth in population to allow
housing to be both attainable and affordable.