Supply and Demand. Guns and butter. Desperate situations require a hard look at the facts: the massive oversupply of housing in this nation has a profoundly depressive effect on the economy.

We need to burn America’s houses to increase the value of America’s houses.

I should say here that I’m being purposefully inflammatory. I don’t literally think we should burn houses, although several climate researchers have theorized that widespread incineration of domiciles and its attendant release of massive amounts of carbon-laden smoke into the atmosphere would help the Great Plains restore their pre-Columbian balance and help offset the effect of global warming. Primarily, there are safety concerns: our computer modeling suggests that the benefits of a rise in employment for Fire Fighters are not enough to offset the risks from substantially more fire.

Our challenge in the Twenty First Century is to find safe, ecologically sound ways to destroy homes.

Supply and Demand: The Free Market

Example of the Laffer Curve, the neoclasical example of a Supply and Demand Curve. (Graph courtesy US Merit Systems Protection Board)

Pop quiz: who controls the amount of bread we produce in America?

No one. Obviously.

In capitalist societies, we believe the market sets the value of goods and services. “The Invisible Hand,” as Adam Smith called it, the automatic force which guides production yields and sets prices.

Since we believe in market capitalism, we believe in the underlying economic law of supply and demand.

This is economics 101 — that is to say, in a perfectly functioning market, for a given item, assuming that its availability remains constant, the price of that item will vary according to the demand. As demand grows, prices go up accordingly. Conversely, if demand for an item drops and people want less of it, prices drop until an equilibrium is met.

Christmas trees are a good example of this in daily life. World demand for deciduous plants remains fairly constant throughout the year until we reach its waning, darkest months. Then, as people begin to adorn their homes for holiday festivities, the price of trees increases dramatically. Trees which were $50 during July easily sell for double that amount in December. The price is driven primarily by demand.

The Market Demands Destruction

The average sale price for a single family home has declined by almost 50% over the last 13 years. (Graph courtesy North American Aerospace Defense Command)

Of course, as Reaganites no doubt know, prices can also be affected from the supply side. In this example, again, making certain assumptions about demand remaining constant, if the supply of an item increases, the price will go down. On the flip side, when the availability of an item drops, the price will go up accordingly.

Eliminating inventory from America’s housing stock will inevitably lead to a corresponding increase in the price per unit. This is not controversial, as Harvard researchers Glaeser, Gyourko, and Saiz note in the most recent issue of the Journal of Urban Economics: “Most asset bubbles also elicit a supply response, as was the case with the proliferation of new internet firms in Silicon Valley in the late 1990s. Models of housing price volatility that ignore supply miss a fundamental part of the housing market. Not only are changes in housing supply among the more important real consequences of housing price changes, but housing supply seems likely to help shape the course of any housing bubble.”

Capitalism Spurs Revolution

“The spice must flow!” declared Francisco Serrão, Portuguese Conquistador of the Malaku Islands. (Photo courtesy Marco Zanferrari)

The invisible hand of capitalism is a disruptive force, sometimes violently defenestrating the old order in favor of the new.

History provides many lessons on this topic. Take, for instance, the Moloku Islands… aka, the famed Spice Islands. It’s a hard thing to imagine in our age of unparalleled prosperity, but seasonings like nutmeg were once worth a fortune. A single peppercorn could make a man rich. First, though, he’d have to traffic his treasure back from the spice’s unique source thousands of miles away in a remote corner of the Pacific to somewhere where they could be traded for gold. It was a very dangerous journey.

Wars were fought, thousands died. Vast wealth was created and vanished. The spice must flow. But this stasis could not last forever — according to Wikipedia and other accepted sources, “The tattered mystique of the Spice Islands finally vanished when France and Britain successfully smuggled seeds and plants to their own colonial dominions on Mauritius, Grenada and elsewhere, making spices the commonplace affordable commodity of today.”

Once the monopoly was broken by market driven innovators, spices became affordable. Pepper for everyone! It is this kind of creative destruction that makes capitalism a powerful tool to drive progress. In fact, it’s America’s unbridled embrace of the free market that has made us the greatest economy the world has ever known.

Econ 101: Reducing Supply Increases Prices

A backhoe begins work demolishing apartment buildings in Okaloosa County, FL. (Photo courtesy Ahmad Ridhwan)

The only way to increase housing prices is to reduce the supply. The Obama Administration, in a classic Socialist overreaching of government power, has it all wrong: trying to fix the problems of the market on the consumer side will never yield the desired results. As long term results start to come in from the Democratic Administration’s HARP0, HARP1 and HARP2 programs, the conclusion is irrefutable: housing prices cannot be artificially increased by providing cheap capital directly to potential homeowners.

The logic is inescapable. This is a problem which must be addressed on the supply side. To improve the housing market, we need to start burning houses… if only metaphorically.

Given my background, I have long advocated for the use of monster trucks for any and all demolition needs, but community standards for destruction vary greatly across our nation. Rather than prescribe a central government “one size fits all”-type policy, the actual manner of eradication should be left up to local entities like school boards. Competition breeds innovation. And, just like France and Britain smuggling seedlings to plant forests of cloves on secret new islands, breakthrough developments drive the free market when the right economic incentives are in place.

Just like those clove seedlings, a new economic order will spring from these fertile grounds. Ask yourself, “How much would I pay to fire a bazooka at bungalo? How much would it cost to drive an armored car through the walls of a barn?”

The market will provide the answers.

The standard metrics for the housing market do not apply in this new economy. Instead of “housing starts,” we need to instruct the Department of Housing and Urban Development to start tracking “housing ends.” The balance of power in Washington lies clearly with the builders, not the destroyers. Given our system of checks and balances, we need to create a Department of Demolition to offset HUD’s influence and to bring a more nuanced approach to management of our housing stock. As we enter the twenty first century, much more attention should be paid to destruction permits than to building permits.

This idea is gaining traction. Speaking before the Senate Select Committee on Banking, Housing and Urban Affairs, former Fed Chairman Paul Volker appeared to agree with the consensus: “What has become apparent during this period of crisis is increasing concentration in banking and the importance of official support for systemically liquidating large areas of the housing market. What is apparent is that a sudden breakdown or discontinuity in the functioning of such institutions risks widespread repercussions on markets, on closely interconnected financial institutions, and on the broader economy.”

What is apparent is that we need to burn houses.

There are, then, two controversial aspects that remain unresolved.

How Do We Select Houses for Destruction?

Loudon County, PA fire department incinerates an unused home using propellent sprayed from a fire engine. (Photo courtesy Brian Mensching)

Google has no answer for this question. Not a satisfactory one, anyway. Nor does Bing.

Ultimately, this is up to the local communities to decide, but here are some suggestions:

Random

Pro: An old fashioned house burning lottery is long overdue. Eliminates any chance of favoritism or political shenanigans.

Con: Could lead to the unintentional destruction of cultural landmarks.

Destruction of cultural landmarks

Pro: A Pol Pot Khmer Rouge-style purge of the nation’s most decrepit buildings is long overdue.

Con: Could destroy something cool.

Popular democracy — a direct vote

Pro: An old fashioned torch and pitchfork party is long overdue.

Con: What does the public know about architecture?

Target foreclosed / abandoned properties

Pro: Long overdue removal of blight from the city.

Con: Trouble spots typically include poorer neighborhoods, removing houses from those areas requires the participation of residents least able to help.

Target expensive properties and neighborhoods

Pro: Ensures the full participation of local residents.

Con: Expensive properties generally have wealthy owners with pricey lawyers. Likely to end in a pyre of litigation.

Competition

Pro: This country hasn’t seen a neighborhood vs. neighborhood spirit war since the 1920s.

Con: Could escalate into deep rooted sectarian violence.

Target high density housing, starting with apartment buildings

Pro: Ensures a maximum amount of rebuilding.

Con: Competition from natural forces such as Godzilla.

What Will We Do With All This Vacant Land?

“Parks should always be named for the neighborhoods they replace,” declared Alaska Governor Sarah Palin. Andora Woods Park, Maple Glen, PA. (Photo courtesy Moyan Brenn)

Recently, the City of Philadelphia created a land bank, seizing and centralizing all vacant and unused land into a city trust. From there, parcels are distributed to various agencies, non-profits, etc… Presuming that the city with a fantastic mural of Frank Rizzo can keep this system uncorrupt, this is a very equitable way to redistribute land.

For those of us who live in the real world, there’s a time-tested, clear cut way of maximizing income for a scarce resource: auctions.

That is, if you want to redistribute the land. After all, you might want to build more houses.

However, if you want to ensure permanent prosperity by keeping the supply of houses low compared to the relative demand, our research suggests that no new structures should be erected. For one thing, this approach shields future structures erected on a given property from repeated destruction orders. Furthermore, total and permanent razing helps to keep housing density low — market studies clearly show that people prefer to live in less dense neighborhoods.

The Economic Consensus: Burn Houses

A computer simulation performed at Rand Corporation shows gradual improvement to the housing market corresponding to reduction of housing stock. (Graph courtesy National Oceanic and Atmospheric Administration)

Recent computer simulations at the RAND Corporation performed on historical data show that for every 15% decline in the availability of housing, prices for homes increase by 17.24%. When 50% of available dwellings are destroyed, a threshold is reached and prices rocket up by nearly 300%.

While several members of Congress, the self-described “Retardant Caucus,” have lodged objections and held negative hearings, according to public opinion polling, American popular sentiment is starting to warm to the idea of house burning. While still fairly low in absolute terms, during the last ten years of economic downturn, attitudes have changed considerably. In 2014, 33% of the American people believed that housing stock should be curtailed considerably in our country. Several million more Americans correctly believe that an influx of immigrants to the United States might exert inflationary pressure on housing prices and that “Congress should seriously study burning houses as an alternative.”

The experts agree. The data is conclusive. The time to study is over.

The consensus opinion among economists across a wide range of political and ideological spectrums is clear: the concept of “supply and demand” is fundamental to understanding economics. That is to say, it is a given that reduction in supply will lead to an increase in the value of the remaining homes. No doubt, there will be some tinkering involved in the final formulation — it’s hard to say, without proper experimentation, the best way to proceed — but we expect great things as this idea starts to take hold.

According to Former Fed Chairman Alan Greenspan, we should have done this years ago. “Buy and Burn,” he said in an interview with CNBC. “Had the United States government taken all of those units off the market and really prevented prices from falling as sharply as they did, the net effect would have been far less onerous than what we have run into. So, yes, that particular strategy, in retrospect, especially, turns out to have been the low cost strategy.”