The immediate trigger for this post are a series of comments I made today on a blog by the Green Party spokesperson on housing, Tom Chance, which can be found here
Building homes, not false hope, in London
In my comments I refer to “housing policy as if we really believed in it” in the context of hoping one day to make housing affordable again, in areas of high demand among people in their 20s and 30s, such as London. I can accept other aims for housing policy, in particular the need for an environmentally sustainable housing stock, but affordability concerns me here, and is I think of greatest wider concern as well.
Because policy doesn’t look at prices
I don’t think most housing policy is made as if this aim is really believed in, because, if it was, policy would be framed in terms of making housing affordable, i.e. in terms of price, rather than in terms of how many houses need to be built. There are occasional exceptions, such as this recent comment from Priced Out calling for zero house price inflation, but given the current level of unaffordability, this is not exactly ambitious. Instead, the debate is cast in quantitative targets, whether:
- Boris Johnson’s ‘epic challenge’ of 42,000 per year,
- the 50,000 Tom Chance thinks can be managed,
- between 50,000 and 70,000 as estimated by a House of Commons Briefing paper, or
- 72,000-100,000 as estimated by London 100k Homes, also commenting on Tom’s blog.
It would make far more sense to have core policy expressed as requiring the building of enough new homes, and the infrastructure which goes with them, to cap the proportion of income for median earners at the point of household formation ending up going on housing, either as renters or buyers. This proportion is currently around 50% in the areas of highest demand, about twice what it was 30 years ago. Such a policy would be interpreted at the city level, assuming this, as in the case of London, to constitute an effective housing market, and might still mean quantitative directives from City Hall to lower level planning authorities, i.e. boroughs, to say that they are not managing to get enough development done, but it would have the twin advantages of the numbers being set at the city level, so more locally than by Whitehall, and requiring increased supply when prices get out of kilter.
It would be a rejection of current ‘predict and provide’ targets, based on models of rates of household formation and other factors which estimate how much housing people will want. It seems clear that this approach has failed over the years, but it is more of a wonder why it would ever have been thought likely to succeed; in the long run, what people want will be reflected in pricing, and a refusal to respond to such price signals amounts to telling people they should live somehow other than they wish to, for no good reason when sufficient good, sustainable homes can be built. An insidious effect of the current system is that high demand means people squeeze into what housing there is available, and unless policy makers do look at the price signals, they can think, institutionally, that somehow or other people are finding somewhere to live, so it’s not such a problem.
and because looking at prices is too scary
The other reason for thinking housing policy makers don’t really think they will make housing more affordable is that if they did, they would be developing policy for how any housing gets built during a period in which peak unaffordability is unwound. This will not be a good time, financially, to be a first time buyer, speculative developer or buy-to-let landlord, so if the additional housing we need is going to get built, it will have to be supported by the tax payer.
Given the decades over which the housing crisis has developed, it is hard to call this a bubble, except that bubbles can develop in very viscous liquids, and I think this is one – but we don’t know how viscous it is, or if, like glass, which is in fact a very viscous liquid, it might also be capable of fracture.
All we can say is that if housing affordability is to return, it will happen along a path somewhere on a spectrum between these two scenarios
- Quickly – with enormous political pain from home owners in negative equity, and destabilisation of the financial systems; or
- Slowly – with a long period in which private sector housing construction stagnates in anticipation of falling prices, and requiring the increasing supply which will drive down prices to come from the public sector.
All we have at the moment from policy makers are the macroprudential concerns of the Bank of England aimed are avoiding the risks of an adjustment happing quickly.
I will leave it there, because predicting what might happen is so speculative, but it is clear there is a problem, and a £2.3 billion fund to subsidise first time buyers, as announced in the recent spending review, is an aggravation of the problem, not part of the solution.