Wednesday, April 12, 2006

Squashing the Balloon

Labour MP Karen Buck once memorably compared trying to improve housing conditions to sitting on a semi-inflated balloon. Squash down on one issue and another problem pops up somewhere else. So for example – clamp down on poor housing conditions and affordability problems pop up. Increase housing choice for tenants and re-let times go up.

The government has set itself on a course to tackle one of the biggest and hardest of all housing problems - undersupply. There are some clear benefits to doing this; the supply v demand equation is shifted reducing affordability, poorer households may be able to afford better housing, overcrowding could be reduced, and increased choice of housing allows greater mobility of the workforce. All good stuff, but housing supply is a big bit of the balloon to squash down all at once. What problems are going to pop up elsewhere? I don’t know the answer but here are some possibilities.

An increased ratio of homes to population must surely result in a greater number of voids. Given a choice people are likely to want to live in new houses and less popular housing areas will suffer.

Decreasing affordability is another way of saying lower house prices. Great news if you are looking to buy, probably not so popular amongst the owner occupied sector. Expect a middle class backlash at some point.

Poorer owner occupiers in less popular areas could suffer. Tenants would be able to move away, but owner occupiers stuck with a mortgage and an asset too big to abandon would be stuck and unable to move.

Reduced demand and reduced prices are potentially bad news for the private rented sector. New supply is likely to be predominantly for owner occupation and social renting so private renting retreats into the older and possibly less popular housing stock.

This is not to say that tackling undersupply is wrong. But as Karen Buck pointed out there is always a reaction to any big policy decision. It’s as well to be prepared.

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