This is a brilliant diagnostic of the 'Human Operating System.' As an engineer, I see this as a classic impedance mismatch: we are trying to run the high-frequency, decentralized logic of a global market through the low-bandwidth, coalitional hardware of the Pleistocene brain. Your point about rent control and minimum wages as 'broken signals' is spot on. In control theory, if you suppress the feedback signal (price), the system can't self-correct, leading to the exact supply collapse you described. It’s a reminder that while our 'folk' intuitions are great for survival, they are often 'noise' in a complex economic system.
I have a bone to pick with the statement "rent is....a signal that coordinates investment and construction of new housing." Because in Australia we have a situation wherein housing price inflation is driving rents presumably in line with the credit market, but new housing is not being constructed, "investors" are simply sitting on old housing stock until the market rises enough to sell out. So rent is simply sustaining the credit affordability in a rising rates environment, but real estate institutions are providing the investment logic and the signal to raise rents in the house price inflation environment that exists regardless of rates. Any 'housing' that is being built is due to another institution: the profit-maximising private developent company (and these are all politically connected). So the expense and the paucity of new developments means the demand far outstrips the supply and there have been long-standing Thatcherite-type arguments (for 40 years now) against public housing that it now seems far too late to reverse.
> Any 'housing' that is being built is due to another institution: the profit-maximising private developent company (and these are all politically connected).
That is a result of another intuition failure, that resulted in laws that made it impossible to build new housing without being politically connected.
The more precise statement would be that rents are ONE signal in the set of economic sub-functions that drive housing results. Here in Oz, house prices are another "signal" - an owner needs to charge sufficient rent to (almost) cover mortgage + maintenance. The preponderance of small, non-corporate owners of rental properties makes this a more significant signal than it would be in a market in which provision of rental proerties was a more "industrial" or governmental concern.
The author's concern was to expose the non-systemic thinking that sees government imposed rent control as a simple solution with no drawbacks. The same observation applies to all price controls, of course.
This is a brilliant diagnostic of the 'Human Operating System.' As an engineer, I see this as a classic impedance mismatch: we are trying to run the high-frequency, decentralized logic of a global market through the low-bandwidth, coalitional hardware of the Pleistocene brain. Your point about rent control and minimum wages as 'broken signals' is spot on. In control theory, if you suppress the feedback signal (price), the system can't self-correct, leading to the exact supply collapse you described. It’s a reminder that while our 'folk' intuitions are great for survival, they are often 'noise' in a complex economic system.
I have a bone to pick with the statement "rent is....a signal that coordinates investment and construction of new housing." Because in Australia we have a situation wherein housing price inflation is driving rents presumably in line with the credit market, but new housing is not being constructed, "investors" are simply sitting on old housing stock until the market rises enough to sell out. So rent is simply sustaining the credit affordability in a rising rates environment, but real estate institutions are providing the investment logic and the signal to raise rents in the house price inflation environment that exists regardless of rates. Any 'housing' that is being built is due to another institution: the profit-maximising private developent company (and these are all politically connected). So the expense and the paucity of new developments means the demand far outstrips the supply and there have been long-standing Thatcherite-type arguments (for 40 years now) against public housing that it now seems far too late to reverse.
> Any 'housing' that is being built is due to another institution: the profit-maximising private developent company (and these are all politically connected).
That is a result of another intuition failure, that resulted in laws that made it impossible to build new housing without being politically connected.
The more precise statement would be that rents are ONE signal in the set of economic sub-functions that drive housing results. Here in Oz, house prices are another "signal" - an owner needs to charge sufficient rent to (almost) cover mortgage + maintenance. The preponderance of small, non-corporate owners of rental properties makes this a more significant signal than it would be in a market in which provision of rental proerties was a more "industrial" or governmental concern.
The author's concern was to expose the non-systemic thinking that sees government imposed rent control as a simple solution with no drawbacks. The same observation applies to all price controls, of course.