Grantham Journal column: Housing - it’s the economics, stupid!
In this new world of fake news and fake facts, it would also seem that laudable concept of evidence led policy is the latest casualty.
From Transport for London’s decision to ban Uber to Jeremy Corbyn’s call for rent controls, it would seem that economic theory and experience is being thrown out of the window in favour of populism. Disheartening further the latest housing proposals seek to fix our broken housing market by just pumping more money into Help to Buy schemes.
Few could disagree that housing is at crisis point. Britain has seen sharply rising house prices in recent decades and now has among the highest rates per square metre worldwide. Demand has increased primarily due to higher incomes and population growth, but building has simply not kept pace. The supply of housing is unresponsive and doesn’t flex when demands change.
The reality is many people cannot afford to get on the property ladder. This is fundamentally a supply-side problem. A combination of land-banking, careful build rates and developer friendly planning rules mean there is an artificially low level of available housing. However, the ability of buyers to obtain credit presents as a classic demand-side problem (although it isn’t).
The solution is a combination of deregulation, making housing easier to build, and policy adjustment, to force developers to build quicker. Just making more credit available through a more extensive ‘Help to Buy’ Scheme won’t fix it. Those lucky enough to utilise this new scheme will find houses more affordable, and overall building will rise marginally. But the main effect will merely be to lift prices and rents further, to the benefit of existing property holders and the detriment of everyone else. In other words, exacerbating the existing problem.
On the left, we see calls for rent controls and a new generation of council houses. Sadly this misses the point; if private developers are not incentivised to build out quickly – why would a state-owned housing corporation? If the council housing faces the same planning laws and local opposition to new developments as everyone else, chucking public money will do little good. The only option for Corbyn’s policy to work is to ignore local opposition and bypass ordinary planning laws – few politicians will be comfortable with this position come election time.
Jeremy Corbyn’s further support for rent controls demonstrates a startling economic illiteracy. History shows us that be it Sweden, San Fransico or Britain artificially holding rents below market rates reduces the volume of available accommodation and drastically impacts on the quality of that housing.
Why then do the great forces of politics seem to differ so much from tried and tested economic doctrine? Well too often soundbite politics does not allow for the subtleties of such matters to be discussed openly, and politicians of all hues have to appeal to their core base. The right supporters tend to oppose green belt reform and own their own homes already, and so benefit from high prices. Whereas Corbyn favours council house building because he wants a new generation of voters who owe fealty to government.