The Origins of the Housing Crisis

Banning imports of foreign grains (such as wheat, oats and barley) – then known as corn – drives up the price of land in the home country. More marginal land is brought into cultivation, but in practice it is marginal for a reason. That means that the addition of this new land does not fully replace the imported grain and stop food prices increasing. As a result the best land, which is always cultivated, goes up in price in a pure windfall gain to its owner. 

The Corn Laws, which did just this, banning, and then taxing, the import of foreign grain into Britain, are mostly remembered for their effect on food prices and the standards of living of the average  worker, as well as for their lessons on the economics of  free trade. But at the time the question of land rents was even more important. Land, which appeared to have no substitute at all, turned out to be substitutable with foreign imports. Repealing the Corn Laws began driving down the price of all farmland.

We face a shockingly similar situation today. High house prices and rents drive up inequality. Many argue that this is a land problem: it is ‘unique and fixed in space’ and we’re not making any more of it, so it is impossible to make prices lower in high wage cities with good amenities. In fact, David Ricardo’s criticism of the Corn Laws applies identically to the UK’s housing market since the planning system. There are a huge number of potential substitutes that could be provided to existing housing, we just fail to permit them. The planning system is today’s equivalent of the Corn Laws.

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