Meaningof the government intervention and free market.
There are three main types of economies,Free, Command and Mixed. Most economies are mixed where they have private andgovernment ownership and control of assets. A free market economy is often described asone in which the government reframes from interfering in any way at all. Thismeans in such an economy there is no government intervention as suggested byKates (2011). Government interventioncan range from introducing TAX breaks or TAX increases. This can happen bymanipulating the market to encourage competition or growth in the market, asstated by the UK Office Of Fair Trading (2009).
This for some economists such as Caron et al(2015) is argued to create problems of inflation, deflation, unemployment andeven led to depressions. Therefore, it is widely debated that governmentintervention can cause a huge negative impact on the economy. However, Rothbard (2009), has suggested that “the free market without any changes orsupport from the government could exist without the danger of sufferinginflation, deflation, depression, or unemployment.
” Further claiming that governmentintervention can at times create long lasting future problems. It is very difficult to finda pure example of a free market economy due to most economies being mixed.However, Economy Watch (2010) argues the closest example to free is America.
This is due to mostof their enterprises being privately owned. In this economy there has been widespreadissues regarding the shortage of affordable available housing with many livinghomeless. However, government intervention was part of the cause of the greatdepression of the 1930s by creating a manipulated change. The same can be saidof the high inflation of the1970s which caused wide spread chaos and marketcrashes. Issuessurrounding shortages of housing in UK, New Zealand, USA, and Sweden and itsimpact on the economy Within the UK, New Zealand and the USA thereis a governmental concern over the shortage of affordable and availablehousing. Each economy has suffered at the hand of poor planning andinsufficient governmental funding. Britain’s housing crisis has been describedby the UK’s local media as a ‘human disaster’, Guardian (2015). Within this article links as far back as the1980’s to the Thatcher government has been cited as the key issue for a lack ofhousing as the local government seeks to protect so called areas of naturalbeauty and reduce the high rise building in certain areas.
The UK government’suse of incentives such as the ‘help to buy’ schemes although providing acertain level of support are also part of the problem as they create futureinflation problems. The New Zealand Herlad (2016) highlights theincreasing problem New Zealand is having in additional with housing. With amajority of concerns also coming from the allowance of foreign investment intothe property market and the increasing unattainable prices of a falseinflation. To counteract this in recent times the government have placed a banon foreign buyers who have continued to increase the house prices throughcompetition. This pressure on the government to intervene with legislation tolimit housing to those that are nationals is hoped to help counteract some ofthe housing concerns.
Many countries across the world includingthose with in Scandinavia such as Sweden have also noticed shortages in housing.The Local SE (2017) states that ‘Sweden’s housing crisis is fuellinghomelessness’. This is due to an influx of a migration / refugee population. Swedenopened its doors to refugees as an act of humanitarian aid, however, such anincrease need for housing was not accounted for and therefore this has led topoor planning causing concerns for the sustainable access to housing. As theworld is effective shrinking due to globalisation and as people are morereadable willing to travel this crisis can be seen replicated across the world.
The main cause of concern are those ofan increasing cost of living due to the inflation rising with an unreflectiverise in wage brackets teamed with the extra governmental pressures ofsupporting the refugee population as argued by The Local SE (2017). Issuesregarding housing shortages can create long term social issues for communitieswith an increased rise in homelessness which can also lead to increased issuedwith crime and social depravity. It could be argued that those countries suchas China that have a planned / controlled economy have less concerns withhousing as claimed by Forbes (2015).
Perhaps there is something to be saidabout the level of control they stipulate over their populations to helpcontrol this, such as the one child policy which allows for very controlledmeasures over the population to help slow down and effectively reduce theconstant demand for new housing. In the UK during the 1980s when housing wasbeing planned for there was a lack of understanding to the growing needs of thepopulation. If housing markets are left completely at the hands of thegovernment housing can become ‘cost effective’ which can effectively mean largequantities of ‘ugly’ grey building which are not by any means enticing.However, equally if housing is left completely at the hands of the free marketwe can end up with beautiful attractive looking housing that is unaffordableand out of budget for the average buyer. The Financial Times (2017) argues thatit has become increasingly difficult in the UK for those in their 20s and ever30s to get on the property ladder and although the government has tried tosupport this with first home owner schemes these schemes effectively increaseinflation which in the end adds to the issue as agreed by the Guardian (2015).
Governmentintervention e.g. subsidies v Free marketTo allow for the total control of the housingmarket to be ran and controlled by the free market could lead to a continuedepidemic due to the nature of a profit incentive by the private sector.However, the continual support through government funding and subsidies in amixed economy can also lead to social issues with increase taxation and risinginflation making housing unattainable. Effective solution must therefore be putin place by both the public and the private sector collaborating for the goodof the population and generations to come. Controlled budgets on spending and moreeffective planning can be one effective method that can be implemented but asargued by Rothbard (2009) such government intervention can cause a falseeconomy through manipulation that can lead to the slums or depressions. It istherefore argued as a ‘short timer fix’ not a sustainable development.
One of the big issues for the UK is that ofplanning permission and planning restrictions on housing. If the UK governmentis to see an effective end to the housing crisis they are currently facing theymust reduce restrictions but in place for the development of new housing. Bydoing so they will help improve the elasticity of supply for housing making itmore responsive to the changing demand of the housing market within the UK asagreed by the Office of Fair Trading (2009). Local authorities in the UK will also require more freedom in being ableto borrow funds for the building of housing as in some cases this can be a’post code lottery’ to attain the required budgets to allow supply to meet theoverwhelming demand of the population.
This is a similar story across the USA wherein some areas that have been hit by the recession housing is affordable, butthe areas are undesirable such as in Baltimore whereas in other areas such asLA housing is unattainable, and the areas are overcrowded with many living inhomeless shelters while waiting on affordable housing. The displacement andlevels of inequality across the world has highlighted that housing willcontinual to be a problem if governments continue to mismanage budgets and nottake effect responsibility over planning as argued in Forbes (2015). Tax Credit allowances such as the Obama Fristhome Owner Tax Credit has proven to be ineffective in tackling the root of theissue.
However, an introduction to policy change is a welcome move by thepopulation as it brings a certain level of attainability to some butunfortunately while helping one side of the community it can effectively harmthe other through increased TAX or interest rates to counterbalance theeconomy. In conclusion, if the government seeks tomake effective improvements on housing within their respective countries theywill need to consider the long-term impacts of intervention with regards tosustainability. There is not a perfect model as often times the benefitsreceived by one generation are based on to the next and so there is a constant pendulumswing between improvement for one generation with low tax and low interestteamed with increased affordability and attainability that then leads to higherTAX, higher interest rates and a lack of availability and affordability for thenext. The move to a free market economy is not therefore a fix in this case asit would leave those in the weakest position most venerable to homelessness andincreased society problems.
For an effective solution to be made the economymust find a balance through careful planned intervention and controlledspending that meets the needs of a planned growth in population to allowhousing to be both attainable and affordable.