So what can we do about it? Well, ultimately we want housing to be cheaper relative to income. We also want this to happen while banks are lending sensibly. Keeping interest rates low will benefit those who have houses, but do little to help those who don\’t. There is therefore only one thing that will square these objectives, and unfortunately it\’s the one thing that no one wants to face up to as a conclusion: instead of working out clever ways of financing houses, just build more houses. Let me know if you see that happening.
Weep for the country with such facile, shallow, economic analysis being forced upon it.
\”Just build more houses\” is twattishness to a high degree. How do we build more houses would at least be an interesting question.
And here simple, traditional, (neo-classical even, none of your modern neo-liberal rubbish) economics will provide clues to the answer.
The desired new housing is almost all in the South of the country. We know this because as John Prescott pointed out with his Pathfinder programme, the solution to the woes of the Northern housing market was to knock 400,000 houses down.
OK. Now, if we build more houses down in the South can people afford them at the current price levels? No, not really, that\’s what the piece itself is complaining about.
Hmm, so, perhaps we need to build lots more houses, prices will come down and thus people will be able to afford them?
OK, what is the major limitation on building lots more houses in the South? In fact, what is the major cost of building a house in the South?
No, it\’s not actually the cost of building the house. We can put up a nice 3 bedder for £100,000 using traditional building techniques. Start using modular ones and we can whack up something really rather nice for under £50k (and less for a sparse 2 bedder).
So why isn\’t the market being flooded by houses at these sorts of prices? We would, after all, in a free market, expect prices to be somewhere around the marginal cost of production, no?
Because we\’re not in a free market. The largest cost, by far, of a house in the South is not the house, nor even the land upon which it is built. It\’s the piece of paper that allows you to build on that piece of land.
I could go out today and buy a nice piece of a field, an acre (want a nice garden of course, room for a veggie patch, need clear views of the sun etc to make the Passivhaus concept work and so on) for £8,000 or so. I could build my house for that £100k. So why doesn\’t a nice 3 bedder on an acre cost £108,000? Because the market value of being able to build a house (or more accurately, houses) on an acre in the South is around £500,000. Perhaps a million, dependent upon precise location.
And that\’s caused purely by the shortage of chittys that allow you to build upon land. An entirely artificial shortage caused by our planning system. Thus, if we break the artificial shortage caused by the planning system we bring down the cost of the chittys, the explosion of housebuilding brings down the price of housing and we get what we want: a land with homes fit for heroes.
With nice gardens.
This has actually been pointed out before. By people who decided not to do facile, shallow, economic analysis, but rather thought they should look at the problem in some depth. You know, like economists are supposed to do?