If you ever read or saw Gone with the Wind, you had a first hand look at one of the most peculiar economic phenomena of the 1800’s. During the American Civil War the Union (North) had surrounded the Confederacy (South) with a naval blockade aimed to cut off the Confederate States from trade. Overnight, blockade running became the major business of the South and the Rhett Butlers of the era were born, supplying the south with a lavish array of dresses, jewelry and perfumes. Unfortunately, the blockade runners didn’t bring one very important thing, food.
The Rhett Butler Effect, as economist and historian Mark Thornton would later call it, occurred due to poor public policy in the South. In a desperate attempt to collect money for the war, the Confederate government heavily taxed blockade runners. In response to the tax increase, blockade runners either exited the market or limited their business to items with a greater payoff. Towards the end of the war, the Confederate government realized that the south was starving and demanded that the blockade runners use a portion of their vessels to smuggle food, which could only be sold at a price well below market value. This new policy, much to everyone’s surprise, had the opposite effect. Instead of increasing the amount of food available to southerners, which was already low, runners reduced the amount of food they smuggled because the price limits on the food had them selling it at a relative loss when compared to the potential profit they could be making smuggling luxuries. Since the “cost” of smuggling rose significantly (from the danger of running a blockade to danger + tax to danger + tax + cargo space) even more runners quit the business, those who remained in the business were only smuggling luxuries, and the people of the south starved.
Frankly, you will give a damn.
I understand the tent protesters; I personally struggle to live in a small home, all of 35 meters, along with a wife and child. I agree with their disgust at the Israeli government, which kept interest rates artificially low, driving cautious investors to the real estate market, sacrificing the housing market in order to subsidize exporters through monetary policy. I agree that massive housing reform is needed and that government bureaucracy needs to be eliminated. But when the protesters demand public housing or that builders be bound to build a certain percentage of apartments for a more affordable selling price, I strongly disagree. Much like the Confederate policies of taxation and reserving cargo space for below market value food, the public and / or affordable housing demands will only exaggerate the effect of an already corrupted market. In the end, students may get their housing, but when the shortage becomes worse, they, along with the middle class, will be left to suffer.
“Sir, you are no Gentleman.”
“And you are no Lady.”
Over the past few weeks, both sides have become increasingly unreasonable. Netanyahu wants the free market to take care of everything, not understanding that students cannot wait until the free market undoes the government’s damage. Students want affordable housing using government intervention, not understanding that government intervention caused the housing crisis in the first place and that if the government legislates in their favor, some other group (the middle class) is going to have to bear the burden.
“With enough courage, you can do without a reputation.”
The ingredients for a solution are clear. Israel needs a solution that eliminates the government monopoly on land, plows through bureaucracy and lets the free market correct the mess we’re in, while at the same time providing solutions for those who would otherwise suffer during the market recuperation.
The solution to this problem should therefore have two answers. First, Israel needs solutions like Netanyahu’s “supertanker” to break through the myriad of government offices that control too much land and slow construction. At the same time, the Israeli government should provide a temporary solution to students, one that can provide cheaper housing as soon as possible and at a minimal cost.
One such idea would be for the government to give away some of its land in order to build small villages for students from shipping containers built via prefabricated construction (בנייה קלה / בנייה מתועשת / בנייה טרומית). The government could have an auction among the many providers of prefabricated construction in Israel and choose a handful of suppliers to build student villages as efficiently and quickly as possible. These companies would be obligated to build either small houses or apartment buildings with living spaces of a predetermined size and quality in return for the ability to charge the students a predetermined amount for rent that is set in advance by the Israeli government. The construction companies would then bear the financial burden of the building; the government would only have to subsidize the land and its development. While students live in such housing, they will temporarily exit the real estate market, driving down prices for everyone else. Once several years have passed and the market recovers, the government could begin to slowly limit the rent controlled housing and allow the students to reenter into a reasonable housing market. And the best part is that unlike any other solution, this one can be completed in as little as 90 days, as builders of such projects usually complete them in record time.
For those of you worried that such housing is impossible or unlivable, let me assure you that this is not the case. Containerized housing units are used in England, the Netherlands and all over Europe as a high quality, inexpensive alternative to building houses. In the UK, containers are being used to build not only small homes and stores, but also hotels and entire neighborhoods. Building apartments from containers will allow housing to be built with less land, high standards, and with the lowest possible carbon footprint, which is bound to appeal to college age protestors. Here are a couple of examples of such buildings :
In order for a real solution to be reached the Israeli public needs a compromise that is more than mutual bribery between the the government and the protesters; it needs a plan that will take care of Israel’s citizens in both the long and short run. Hopefully this plan, or else another (I don’t claim to hold the monopoly on good ideas), will do just that.
Do you have any solutions to the housing crisis? If so write them below
PS – If you agree with this solution in this post, or even just like the few Gone with the Wind quotes, you can pass this article along by using the social networking links below.