Housing Crisis, Housing Shortage

 

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We are forever being told that there is a serious housing crisis and that we must build hundreds of thousands of new houses if this is to be solved.  It worries me that this has now been said so often that it is coming close to assuming the status of an irrefutable ‘truth’.  I increasingly wonder, however, whether a very real ‘housing crisis’, isn’t being conflated with a less certain ‘housing shortage’ for motives other than housing needs.

A former local authority housing officer once said to me that there was no housing shortage for those who have money.  The market may move a little slower here, a little faster there, but this is merely an inconvenience, in no way a crisis. The true ‘housing crisis’ is that houses and flats are simply too expensive for almost everyone to buy who isn’t fortunate enough to already own one.

I don’t doubt that provision of new housing is as necessary now as it ever has been.  Yet the current propaganda would have us believe that this crisis is solely a problem of supply; that an increase in population and family breakdown has led to the creation of more households, and that the only solution is to build more and faster than ever before.  If this analysis were correct, the number of UK households would have had to have increased by an order of magnitude sufficient to result in the five-fold increase in the value of my own house (as a typical example) in the ten years between 1998 and 2008.  It may well be that there are pressures on housing, but it is difficult to believe that these all occurred suddenly, simultaneously, and on such a massive scale during those particular few years (In fact the value of the house I bought had actually decreased by about 8% between 1991 and 1998 – are we therefore to assume that these same pressures were diminishing during that period?).

It is hardly remarkable that property values were rising with the general (and as it turned out, flawed) economic boom at the time.  It’s a straightforward game of Monopoly.  If you’re doing okay at the game you don’t simply hoard notes which don’t earn you anything; you buy property.  Soon you’re the owner of clusters of little green houses, and eventually clusters of big red hotels extracting punitive rents from anyone unlucky enough to land on them.  At the height of the boom in 2002 there was an average 22% annual increase in UK property values.  Anyone with money to invest needed to look no further, and many owners didn’t even bother renting them out.  Developers continue to market new estates as ‘investment properties’, and buy-to-let private landlords routinely snap up large chunks of new developments.

It wasn’t only in the UK that this has happened.  An extreme example is in Spain which, before the crash, built millions of new apartments and houses to cash in on the bonanza.  It has recently been reported that there are currently 3.5 million unoccupied dwellings in Spain kept empty by developers in the hope of a price-recovery, and yet Spain still has a housing crisis.  Britain, by comparison, has 700,000 empty properties – and a housing crisis.

For anyone who owned only the house in which they live in the late 90s, the fact that it’s now worth several times its original value is truly immaterial.  If they were to sell-up they still wouldn’t have any more choice than they originally had as every other house will have increased similarly.  Those lucky enough to have owned more than one house at that time have been able to realise the enormous increased value of their additional properties.  But those who were not owners at that time, now find themselves not only locked out of the property market, but forced to pay extraordinarily high rents to private landlords – and often without any real security of tenure.  With the continuing rise in property values relative to incomes – now increasingly fuelled by wealthy global players particularly in London – the proportion of those who find themselves locked out is increasing. This is the crisis.

Even now, however, increases in house prices are generally greeted in the headlines of many newspapers as a cause for celebration on the spurious grounds that it makes householders ‘feel better off’ and therefore more likely to spend money or take out loans.  Yet as we have seen, the only people with cause to celebrate are owners of multiple properties, whilst the growing ranks of the non-freeholders – including the majority of the upcoming generation – can only become more despondent.

In view of all this, one might well wonder just how a massive house-building programme, such as that promised by both the Conservatives and Labour, is supposed to solve the real crisis. This is even more puzzling since developers are increasingly allowed to wriggle out of their obligations to provide a proportion of so-called ‘affordable’ homes.  If the intention is to bring market prices down through over-supply, the developers would not want to sell them (as in Spain) even if they had built them in the first place, and the government would justifiably fear a property crash.

On the other hand, building construction is a major employer supporting thousands of ancillary industries.  It is the one UK manufacturing industry which can’t easily be transferred to China.  Because of this, the construction industry finds itself politically in a very powerful position; it has the ear of this, and any possible future, government. It brazenly manipulates planning laws to its own advantage and it does not share in the wider political, let alone environmental or social, agenda.  It exists solely to make money.

What’s to be done depends on which particular problem we’re intending to address.  On the face of it, the fastest way to solve the affordability crisis would be a drastic revaluation.  It has been suggested that the UK housing market is as much as 40% overvalued in relation to average incomes.  By such a devaluing, speculation would become unattractive and those currently without affordable housing would be able to get a foothold.  However, this would undoubtedly come with unintended consequences such as the collapse of the construction industry and widespread unemployment. In addition, UK housing stock, valued in Feb 2015 at £5Tn, is largely underwritten by mortgage lenders. If the stock itself suddenly lost 40% of its value it would no longer provide adequate security against the money lent resulting in another economic meltdown.  Perhaps there is a body of opinion which might consider these to be not wholly undesirable consequences, although clearly, if devaluing were to occur, it is unlikely to have been encouraged by any government.  On the strength of this it would appear that, if the politicians have thought about this at all, they may be considering that a massive house-building programme will solve the housing crisis, not, perversely, through the provision of houses, but through a general ‘rising prosperity’ engendered through the maintenance of a healthy construction industry.

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