The behavioral economics of Mexican central heating

December 30, 2010

I love Damien Cave’s dispatch from Mexico City (elevation: 7,350 feet), which gets very cold in the winter, inside and out:

In expensive restaurants, in grocery stores and museums, in the homes of the poor, middle-class and even the wealthy, a small space heater is often the only thing breathing warm air.

Why is this? Cave has two theories. The first is cultural:

Deep in this country’s Aztec roots, there is admiration for submitting to the elements, and it seems to re-emerge every winter with force.

The second is economic:

Mexican builders and homeowners have simply grown accustomed to construction without central heating, and with single-pane windows that are especially porous to heat and cold. As a result, insulation materials are profoundly expensive here.

Sadly, Cave doesn’t put numbers on the cost of insulation materials or central-heating systems in Mexico, compared to elsewhere in the world, so it’s hard to tell what he means by “profoundly expensive.” But I suspect that it’s not that expensive:

Fernando Sandoval, an architect who used to work for Anderson Windows, the American chain, said that given such prices, double-pane glass and central heating could eat up a sixth of the total cost of construction. Few seem to bother. Even the most modern apartments here, with stainless-steel appliances and granite countertops, are often devoid of radiators or thermostats.

“They all say, ‘I’d rather have hardwood floors,’ ” Mr. Sandoval said. “Or, ‘It’s only going to be cold for a month or a month and a half, I’d rather buy a really nice Italian cashmere sweater.’ ”

In most countries, I suspect that people would consider central heating a much higher priority than hardwood floors. Especially, as Cave notes, since the Mexico City winter is not only a few weeks long: it lasts from November to February.

There are three things going on here, I think, which might explain what’s going on.

First is good old-fashioned path-dependency: it’s pretty clear that the overwhelming reason why any given Mexico City dwelling doesn’t have central heating is that other Mexico City dwellings don’t have central heating. It doesn’t really matter why or how it got this way, or whether there’s a reason at all: once it’s gotten there, it’s very hard to change.

Secondly there’s the question of relative, as opposed to absolute, cost: it’s not that central heating systems and double-glazed windows are expensive, so much as that everything else, when it comes to Mexico City house prices, is cheap. A $10,000 central heating system seems much more expensive when your house costs $50,000 to build than it does if you’re spending $250,000 on it. This works the other way, too: when I closed on my New York apartment in 2005, I went out and bought a ludicrously expensive keyring to put my hard-won keys onto. I’d never normally drop that kind of money on a keyring, but in the context of the sums I was spending on the apartment, it felt like nothing.

Finally, there’s mortgages—or the absence thereof. Mortgages, or any kind of long-term local-currency debt instruments, are relatively new animals in Mexico, which means that historically homes were paid for in cash, and often took years to build. In that situation, keeping construction costs as low as possible becomes very important: adding a central heating system could mean delaying moving in for an extra year.

Put the three together, and you don’t need ludicrously expensive heating systems or romantic notions about what might be lurking “deep in this country’s Aztec roots” to explain why we all start shivering when we visit Mexico City in the winter.

For the time being, extra demand for housing in Mexico City is being met by extra supply. At some point, however, that’s going to stop, supply won’t be able to meet demand, and prices will start to rise. And that will be the point, I suspect, at which we’ll see people starting to install central heating.

Update: Paul Krugman sees parallels with English food. And Derrida, in the comments, sees Jevon’s Paradox at work:

Maybe it is true that the best way to reduce energy consumption is to make devices like heating and air conditioning less efficient, instead of more. Not having cheap double panes, etc. seems to make central heating less appealing in the DF, resulting in a great deal less energy use than efficient but wide-spread central heat.


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