How an architect mandate segments the French housing market

Prior to there being a threshold (1976), the chart shows a positive skew, but with a clustering of homes somewhere around 100 m2. Importantly, the distribution shows a smooth progression. But once an ART is implemented, the distribution then starts to show a clear spike right before the threshold, followed by a cliff and a "missing mass."

This, of course, makes sense. The market is pushing up against the glass to avoid having to use and pay for an architect. And the "missing mass" is the market shifting supply to below the threshold, or sufficiently beyond it. I mean, if you're going to surpass the threshold, you may as well do it confidently.

Now here's where things start to get more interesting. Levy finds that this threshold acts as a focal point that segments the market. Households above the threshold tend to have higher incomes, and homes just past the limit were on average 8-10% more expensive to build. This additional cost cannot be justified by the addition of the architect's fee alone.

On the other side of the threshold, the concentration of demand "up against the glass" was shown to create economies of scale through more standardized home design and production. In other words, the threshold incentivizes the market to get really good at designing and building a certain scale of home.

It was also shown to unintentionally promote greater housing density, because what the threshold does is create a soft cap on housing consumption for a large segment of the market. As you can see in the bottom right chart above, it effectively pulls supply back and under the threshold, away from larger homes and larger lots.

It may seem fairly innocuous to mandate that people use an architect above a certain scale, and I will forever be a proponent of great design, but as Thomas Sowell once said, "there are no solutions, only trade-offs."

Cover photo by Alex Tyson on Unsplash

Chart from Regulating Housing Quality: Evidence from France

Prior to there being a threshold (1976), the chart shows a positive skew, but with a clustering of homes somewhere around 100 m2. Importantly, the distribution shows a smooth progression. But once an ART is implemented, the distribution then starts to show a clear spike right before the threshold, followed by a cliff and a "missing mass."

This, of course, makes sense. The market is pushing up against the glass to avoid having to use and pay for an architect. And the "missing mass" is the market shifting supply to below the threshold, or sufficiently beyond it. I mean, if you're going to surpass the threshold, you may as well do it confidently.

Now here's where things start to get more interesting. Levy finds that this threshold acts as a focal point that segments the market. Households above the threshold tend to have higher incomes, and homes just past the limit were on average 8-10% more expensive to build. This additional cost cannot be justified by the addition of the architect's fee alone.

On the other side of the threshold, the concentration of demand "up against the glass" was shown to create economies of scale through more standardized home design and production. In other words, the threshold incentivizes the market to get really good at designing and building a certain scale of home.

It was also shown to unintentionally promote greater housing density, because what the threshold does is create a soft cap on housing consumption for a large segment of the market. As you can see in the bottom right chart above, it effectively pulls supply back and under the threshold, away from larger homes and larger lots.

It may seem fairly innocuous to mandate that people use an architect above a certain scale, and I will forever be a proponent of great design, but as Thomas Sowell once said, "there are no solutions, only trade-offs."

Cover photo by Alex Tyson on Unsplash

Chart from Regulating Housing Quality: Evidence from France

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