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“Peak” Housing

With oil near a recent nadir ($40 per barrel), where have all the “Peak Oil” alarmists gone?

When oil prices shoot up, every single time, the doomsdayers crawl out of their tee-pees and lean-tos (actually, more likely their McMansions that happen to be “carbon neutral” because they paid for offsets), and warn that “Peak Oil” has arrived.

I do not intend this to be a Simonian post on real resource costs over time (note that the long-term trend in real opportunity costs of obtaining oil has always been, and is still downward)

In any case, doomsdayers will pick any price increase as a sign that we are running out of it, and forget that prices are easily manipulated. Just as the OPEC cartel has in the past artificially increased prices above their true scarcity value, commodities prices can increase because of other factors such as inflation and expectations. Let’s not analyze that for now …

But House prices shot up to unprecedented heights and I saw no-where in the press stories from the same alarmists about “Peak Shelter.” After all, shelter is more essential for survival than oil. When house prices went up, did that mean that our long-term ability to produce more houses also fell, like the Peak Oil people claim about oil?

But further, even if the price rise signals that oil or houses are relatively more scarce, if they come from an increase in demand, I would argue that this is immeasurably a GOOD thing for two reasons:

(1) People are producing enormous wealth which enables demand to increase. If a rise in housing prices is a result of people demanding more housing, then in order for the additional housing “wants” to be satisfied, something must be first produced to exchange for it. So, while the money cost of houses does in fact rise, it tells us that more other goods and services are being produced to get it, making all of us better off. And it also tells us that, at the margin, people place a higher value on homes than they did in the past – so this is naurally reflected by the higher prices. However, it is also important to note that even if we see that the price of houses (or oil) is rising, what matters is the real sacrifice anyone must make in order to secure additional units of that resource. Compared to what our grandparents had to give up to secure a 2,000 square foot home (even if similar quality), we give up comparatively less (more on explicitly why in a future post).

(2) But to think of something as having high or low value at the margin is irrelevant beyond the signal it sends to direct resources where they are most valued. There is no “correct” marginal value. In fact, we need our “problems” and we don’t need no stinkin’ czar to help us figure it out how to deal with it. When the price of houses rises dramatically, it gives consumers an incentive to figure out ways to economize on the use of houses, but it also gives builders and other home producers an incentive to serve our needs better. If a 1,000 square foot bungalo in Biloxi was selling for $10 million, you bet your bottom dollar that a huge number of us would start learning how to wield a table saw and a level. So why should oil be any different? It is not – particularly when you consider that “oil” is not necessarily what any of us care about, what we really care about are the services that are provided by a commodity called oil – the production of plastics (which can be done with plant matter), the movement of our cars (which can be done with solar power), the heating of our homes (which can be done with coal fired electricity), and so on.

So why were there no “peak housing” alarmists? Why are there no “peak sneaker” alarmists? Why do we not worry about running out of bubble gum? If we grant that it has something to do with the ability of human beings to apply their creativity to dealing with such economic problems, then why treat any natural resource differently? It should not matter whether the resource is renewable or not … and we will discuss more in the future as to why.

2 Responses to ““Peak” Housing”

  1. Speedmaster says:

    I just assumed that all of the big-oil CEOs had some kind of religious epiphany a few months ago?! 😉

  2. Dan Swanson says:

    Oil prices went to $147, the economy crashed. Poverty, Starvation and Unemployment are all increasing. Oil production is set to be much lower next year. As for the current low price, it is a symptom of the crash. Depletion wise we are right on schedule. What part of this don’t you understand?

    Read “Understanding the Low Prices of Oil and Gasoline”
    at http://www.energystrain.com

    Dan

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