Why don't people respond more to price signals? I'm prompted to ask by Laurie Penny's complaint at being ripped off to live in a rat-infested slum.
She's right that this is outrageous. But she seems unaware that the solution lies not with better housing policy - we'll grow old waiting for that - but in herself. Every writer must ask: what would Hunter S. Thompson do? And the great man would have legged it out of the city - though not before shooting the rat. The great thing about being a writer is that you can do the job anywhere. The answer to Laurie's problem is simply to move out of London. You can rent a four-bed house in Leicester (say) for the price of a one-bed flat in Hackney.
And of course, it's not just renters who have an incentive to move. For the price of a one-bed flat in London, you can get a detached house here in Rutland plus a few hundred thousand pounds in change. I know - I did.
In not doing this, though, Laurie is in the great majority. Latest figures show that, in the year to June 2012, a net 51,700 people moved out of London into the regions. This is only 0.6% of London's population. Which seems to me to be a tiny number in light of the massive house price gap. John says professionals and creatives are being priced out of London - but the process is an awfully slow one.
Why so slow? Of course, some people need to work in London. But I suspect these - policy wonks, City workers and suchlike - are a minority. And, yes, we must guard against the fallacy of composition here; whilst it's possible for any individual teacher (say) to move out of London, not all of them can.
Nevertheless, we have a puzzle here. I suspect a big part of the answer lies in a preference for familiarity. We know that ambiguity aversion can be a powerful force in economics, and it's close cousin, the home bias, can cause people to buy disproportionate quantities of local goods and assets. Perhaps the same thing is keeping Londoners in London - an aversion to change. (You could, of course, put a positive spin on this by calling it a preference for the social capital of one's friends.)
In this respect, of course, British culture is very different from, say, the US's. In the latter, there's a long history - captured in song and literature - of people moving hundreds of miles. Here, there isn't. The upshot is that people are slow to respond to the signals being sent by the housing market.
This illustrates a general point. Markets are not merely places where anomic rational calculating machines meet. They are instead embedded in a society and in cultural norms. And sometimes, these norms stop those markets working as well as they otherwise would.