Housing - Fiat stole your choice to rent or own

Housing is a high-order need of humans. It provides shelter, storage, security and other amenities for family, friends and invited guests. The location of housing is important as humans need to socially engage, form partnerships and trade with each other over time and space. Housing located where it is difficult to undertake these activities will be in low, or non-existent, demand. Housing and land are commonly combined as one, although the mix of housing and land can vary widely - from large country estates to inner-city apartments. Both housing and land need upkeep. Housing will become derelict if not well maintained. Land will become overgrown if not well maintained. That said, the cost of remediating a derelict house is likely to be much more than the cost of slashing land and returning it to a productive state. As such, the depreciation cost - including the regular cost of maintaining productive capability - is a key consideration for any housing owner, and to a lesser extent the land owner. The portion of land that is not used for the purposes of housing can provide the owner with the option of food production. Food, water and clothing are the primary needs of humans, so the capability to produce your own food is a form of insurance protection. Apartment living doesn't generally offer that protection.

As housing provides for a higher-order need of humans it makes sense that housing is a high priority for most people. Living in a nice house can provide a high level of utility.  As value is subjective, not everyone will place a high level of utility on housing - some may prefer to travel the world as a nomad - but we do know that home ownership aspirations tend to be high among the populous. Although most people only need to live in one house, some will live in two or more. That said, the marginal utility of your second or third house will be lower than the utility of your first house.

House ownership carries with it the rights to occupation. It also carries with it the responsibility for the costs of depreciation and maintenance. It also carries with it the burden of government agency costs which are surplus to the services provided. This may include land tax, stamp duty on purchase, capital gains tax and excessive council rates. 

The house owner can also lease the rights of occupation to another party. This may include passing on some of the maintenance costs to the tenant.

In a free market, the decision to own a house or be a tenant of a house, should depend very much on the subjective value assessment of individual. Those people who highly value the stability of long-term possession would likely prefer to own their house. Those people who highly value flexibility of location would likely prefer to rent a house. Those people who have accumulated short-term wealth and wished to exchange that into long-term wealth, would consider purchasing a house, but not necessarily the one in which they intend to live.

In a free market, the rental on a house would rise or fall depending on the marginal supply and marginal demand for like houses, but overall it would be quite stable. This would provide owners the ability to enter into long-term leases with tenants.

Our current housing market is anything but stable. To own or not to own a house has not been a fair choice. The house owners have smashed it. The tenants have lost out big time - rents have risen and the capacity for them to purchase a house has greatly diminished despite their best endeavours to save through the banking system.

So what went wrong? Many, especially those trained in neoclassical economics, will point to a lack of supply of housing. They call for even more 'land release' and apartment 'infill'. While there may be a small element of truth in their arguments, they are wrong. What went wrong was the denominator. It is the fiat money created through the banking system that has created the inequities in the housing market. Fiat money has taken away the economic choice of humans to rent rather than own housing.