Why Manx Housing is Unaffordable: The Elasticity of Supply

Having a good understanding of how prices are created allows us to understand what causes prices to be lower or higher – and how to fix the Manx housing crisis.

This excellent video below gives a very clear explanation of why Manx housing is inaccessible to so many families on the Isle of Man: it is expensive because increased demand is not being met by matching supply.

This particular video was produced by leading American economist Tyler Cowen, and it uses some American phrases and examples – but the lessons are obviously transferable to the Isle of Man.

In the Isle of Man, we have increased demand for housing not just because the Government wants to slam in about 15,000 extra people into the Isle of Man (roughly approximately to two extra towns the size of Ramsey).

But even if there wasn’t much net migration, demand for housing has increased for many reasons:

• People are getting married later (more people are wanting to live longer as singles, rather than couples).
• People are getting divorced sooner (rather than mum, dad and a couple of kids living in one 3 bedroom home, shared custody means that mum wants to have a home big enough for her children AND dad also wants to have a home big enough for his children – but separate from mum)
• People are living longer and healthier than previous generations (they need homes for longer!)
• More people are working from home more often (increasingly, homes are also used as office space for some people)

All of these factors combine to increase the demand for housing. Meanwhile, we impose significant rules restricting the supply of housing – meaning that it is very inelastic as the video below explains.