The colour of money | World Finance

Housing markets in a number of countries have in recent years shown a puzzling kind of behaviour, where an apparent shortage of homes is accompanied by an unusually low transaction rate. People need houses, but they aren’t buying them. A good example is Canada. In 2023 it saw a population increase of 3.2 percent, the highest in decades. Politicians are trying to ramp up the supply of new homes to match this influx. But at the same time, metropolitan areas such as Toronto also experienced one of the slowest housing markets on record. There are more unsold condominiums in Toronto than at any time in history.

According to classical economics, the law of supply and demand states that the price for any commodity including a roof over your head will adjust so that the market clears. However, instead of clearing, housing markets are going dark. So what is going on? To understand this conundrum, a useful analogy can be found in an even more vexing phenomenon, which troubled physicists at the turn of the previous century: the photoelectric effect.

Making a spark
The photoelectric effect refers to the tendency of some materials to emit electrons when light is shone on them. In the late 19th century, physicists demonstrated it by experiments in which they placed two metal plates close together in an evacuated jar, connected the plates to the opposite poles of a battery, and shone a light on the negatively charged plate. If conditions were right, then the light would dislodge electrons, which raced across to the other, positively charged plate, in the form of a sudden spark. According to classical physics, the energy of the emitted electrons should depend only on the intensity (brightness) of the light source. Shine a bright light, get a bigger spark. But in practice, it turned out that what really mattered was the colour: blue light created a bigger spark than red light. And depending on the material, for some colours no amount of light would work.

What counts is not the total number of buyers (the brightness) but how much each buyer can actually spend (the colour)

In a 1905 paper – one of a stream of results including his famous formula E=mc2, which would define the new physics – Albert Einstein showed that the photoelectric effect could be explained by the idea, recently proposed by Max Planck, that energy is transmitted only in discrete chunks known as quanta, from the Latin for ‘how much.’ According to this theory, electrons were emitted when individual quanta of light struck individual atoms – which meant what counted was not the total energ