It confers collective social and economic benefits, at both the micro and macro level, but at some cost. Which one is likely to win the day? The cost/benefit balance seems to be context-specific. It also seems to depend on a country’s level of economic development. 43 For developing countries, there is evidence this balance may sometimes be growth-negative. For developed countries, the evidence is more compellingly growth-positive, perhaps owing to their more developed public and social infrastructure to support diversity. Diversity of what? Thus far, I have used the word “diversity” in a very general sense. That is inadequate when it comes to crafting policies which promote diversity. Diversity of what exactly? Specifically from a policy perspective, which dimensions of diversity are most important if we wish to maximise the social externalities it confers? In his book, The Difference, Scott Page distinguishes identity diversity (race, gender, ethnicity, age etc) and cognitive diversity (intelligence, problem-solving, personality etc). 44 To this, we might usefully add a third – experiential diversity (socio-economic background, skills, experiences etc). While there is some overlap between them, these measures are conceptually distinct: the first physiological and pure nature; the second neurological and part nature, part nurture; the third environmental and pure nurture. The aspect of diversity most extensively studied is identity, specifically ethnicity and gender. That is for the very simple reason that these dimensions of diversity are the ones most easily observable and, latterly, reportable.
The strict regulation of the rental market also means, for instance, that households may feel forced to buy a home even at stages of their lives when ownership and a mortgage may entail taking a major risk. Although a mortgage is a longterm undertaking for both the borrower and the lender, the households mainly choose variable-rate mortgages; only around one percent choose fixed rates at maturities longer than five years. In addition, the banks largely fund their lending using mortgage bonds with maturities that are significantly shorter than the maturities of the loans.1 I see the specific aspects I have just listed as risk factors, even though arguments can easily be found for each aspect to explain why this particular one does not actually constitute a risk. For example, one can point out that the high level of household debt is offset by the high level of household saving and households having assets that are substantially larger than their debts, or that the low level of construction over several decades limits the scope for a fall in housing prices.2  1  In many countries, mortgages are amortised over periods of 20 to 40 years. This was also the case in Sweden a few decades ago, but it subsequently became increasingly common with interest-only loans. Over the past few years, a larger proportion of new mortgage borrowers have chosen to amortise their loans, but still at a slow rate.