The Competition Paradox:
Why a Private Housing Market Will Never Produce Better Houses
The rising prices for real estate in inner cities everywhere demand we think about the relationship between real estate and good architecture. We have the feeling that increasing prices have nothing to do with better building.
Here is our thinking: free markets are based on competition. Even liberal economists agree that the free market is not the goal per se. It is merely one way – and in their opinion, the best way – to achieve progress and accumulate wealth. Better, faster, cleaner, more beautiful, more comfortable, and so on. The free market economy is about freedom of choice: producers must constantly improve their goods in order to compete. Apart from the “collateral damage” caused by the exploitation of non–free market participants, such as natural resources and coerced labor, this system has outlived all other systems because it continues to “spur progress” and create wealth.
But the free market completely fails when it comes to real estate. Since the great decline of social housing in the 1970s and the resulting liberalization of the housing market, one building regulation after another has been revoked. But real estate is not like other products: free choice on the side of the consumer is missing. Imagine a supermarket with a giant refrigerator and one single piece of butter inside it. Someone stands next to it and says that you can either purchase the butter or buy butter elsewhere; it doesn’t really matter since there is a queue of people behind you who will buy the butter anyway. But maybe the butter could be better, you say to the person next to the refrigerator: the circumstances of its production could be fairer, it could have a richer taste, the color might be..., and so on. The person beside the refrigerator just smiles and gently pushes you aside, the next person in line approaches.
This is exactly what the housing market is like; from the producers’ perspective, it’s ideal. There’s competition among consumers instead of producers, counter even to the premises of capitalism. The opportunity to choose the best product and therefore force producers to improve their offering would require not just more housing stock (in a renter or buyer’s price range) but better housing stock: the ability to choose smarter floor plans over idiotic ones, nice facades over ugly ones, and more sustainable environments over shortsighted ones.
A free market in housing is impossible because there is simply not enough space to build enough housing for everyone to choose. To even have such a market would be an insane waste of material. And of course choosing a home is much more complicated than buying butter. A private housing market is useless in the attempt to build more progressive, more adequate, more beautiful, and more sustainable homes – real estate doesn’t hold any promise as a free market product.