My article was published on the Guardian's website earlier in the week with the slightly unfortuante title "Don't Build More Homes" The point I'm making is not that we shouldn't build more homes. I'm convinced we do need more in the South East and a few other parts of England, the purpose of the article was to examine why they are not getting built. In my view the current low house building rates are a symptom, the core problem is affordability. Here is the article:
Am I alone in getting bored with the "build more homes" answer to every question in housing?
We hear it daily from politicians, housebuilders, and lobby groups as
if it were a mantra. Whatever the housing problem, it seems, the only
answer is to build more homes and the way to do it is for government to
provide more subsidy to housebuilders. In theology, mantras are not supposed to be questioned, but I think it's time we subjected this one to a bit more scrutiny.
Let
me first point out that I'm not saying we don't need more homes; quite
clearly we do in some parts of the country. But addressing it by finding
new ways to subsidise housebuilders has not only failed (housebuilding
has fallen to 100,000 units a year), it is counterproductive.
I've
visited three countries in the past couple of years that have had big
housebuilding programmes: Spain, Ireland and Portugal. What I saw there
saddened me. Not only do their building booms appear to have worsened
their economic situation, the new homes they produced appear to be
having little social benefit.
It strikes me that the major housing
problem in the UK is not supply (technically there is a million house
surplus in England), but people's ability to afford housing. Median
house prices are more than six times median earnings in England – double
what most experts think is sustainable.
Essentially people's
wealth has not kept up with house prices. Why? Obviously not enough
people have seen their incomes rise, but I'd argue that government policy,
introduced with the best of intentions, has made the other side of the
equation worse. Subsidies to housebuilders, artificially low interest
rates, mortgage rescue, bailing out failing banks and subsidies to social housing have all either helped house prices rise faster than they would have done otherwise, or prevented house prices dropping.
The
fallacy with building your way out of the problem is that people still
can't afford the houses you build. This is what Spain, Ireland and, to a
lesser extent, Portugal found. In fact to get the building boom going
in the first place they had to offer builders big tax breaks and
subsidies, and then offer further subsidies to help people buy them.
There is a large lobby in this country to do the same here. Apart from
whether we could afford such an approach, I just don't think it works.
Housebuilders following subsidy guidelines in Spain and Ireland built
houses that people didn't want and couldn't afford. People didn't buy
the houses, even when they were subsidised. They remained empty and now,
most galling of all, some of them are even being demolished.
You
might argue that it's different in England, but it's happened on a small
scale here too. The last government's strategy of brownfield development
aligned to subsidy programmes like housing market renewal led to a
large amount of inner city flat developments. Much of what was built
sold slowly and required government bailouts to prevent whole scale
abandonment. Even now there are hundreds of empty flats in town centre
developments in places like Ipswich. Places which then, and still, claim
to have a housing shortage.
It appears that no politician can
face it, but the only answer is to let house prices drop to their
natural level in relation to incomes. That would require a
less-interventionist approach, ignoring the appeals of the housebuilding
lobby and having to deal with the consequences of what would
undoubtedly be serious human impact through repossessions for example.But
after this had happened house prices would be in balance with incomes
and people would buy houses again. This would create the demand that
would get builders building again.
