Is Housing a Higher-Order Good?

Mises Daily: Monday, November 30, 2009 by Doug French

While reviewing a book about the financial crisis, a policy analyst of the free-market persuasion pooh-poohed the notion that housing constitutes a long-term project or "higher-order good," insisting that homes are instead a "durable consumer good," and thus he believes that examining the housing meltdown through the lens of Austrian business-cycle theory is illegitimate.

On the surface that seems true. Homes are a finished good that provide shelter. With labor and materials ready and available, a typical suburban tract house can be constructed in 60 to 90 days. There's nothing long term about that. And our skeptic doesn't see any evidence that production was directed away from consumer goods towards the production of higher-order capital goods. So, in his view, Hayek and Mises can just butt out of this debate.

However, there is more to a house than the sticks, bricks, and gingerbread that people see and buy. The building of homes starts with the purchase of land. And buying land is not like driving over to Best Buy, whipping out your credit card, and buying a big-screen TV. First the developer and his staff look for land to build on because ultimately the builder believes he can sell houses on that land. Consultants are hired to produce soil studies and environmental reports, and to determine the availability of utilities and zoning feasibility. These reports take time to produce and cost money. FULL STORY