Even if house prices were inflationary, the spread of demand would lessen market pressure

One of the most common objections raised to a basic income is that house prices and rents will simply be raised and erase all the income gains, leaving people back where they started. Even if all other factors were held static it seems likely that competition between landlords and home sellers — and with those selling other asset classes — would act as something of a brake on price increases, preventing them from absorbing all of the increase in income.

But other factors won’t be held static. For a start there would be a decoupling of the labour and housing markets which would increase vendor-side competition in the housing market, since there would be a greater number of people who could quit their current job and move where housing is cheaper. This would compliment and overlap with the existing trend towards remote work. The increased spending power and arrival of new customers in country towns would then create more employment opportunities, making them even more attractive relative to the city. It would of course put upward pressure on regional house prices, but the spread of demand would lessen pressure on city markets.

In Australia we’ve recently got a sense of the short term limits of this effect, as the pandemic increased city-to-country transitions, especially along the east coast, causing house prices in regional areas to rise, often pricing out locals. But in the longer term new housing stock could easily be added in these areas — at lower cost than in the cities.

But there are other factors lurking behind those rural price hikes, the same factors which prevented a collapse of house prices in the city, despite the biggest economic contraction on record.

Part of it is the Jobkeeper wage subsidy and increased Jobseeker unemployment payments, and the government allowing people to access up to $20k of their retirement funds, and directly incentivising home building and improvement (my family and I were recently evicted so my landlord could renovate, which the government was incentivising to the tune of $25k).

But the bigger part is simply cheap credit. House prices have remained high for the same reason the stock market has remained high: Because interest rates are effectively below zero. In the US is what’s been called a “fed driven economy”. Cheap money for those who already have assets and/or a good credit rating has sustained and even expanded what was already a huge asset bubble. You can borrow money, buy tech stocks, bitcoin, gold, or some other relatively safe asset -like real estate- and watch the value rise at a rate which far outstrips the interest on your debt.