The supply obsession won’t solve the housing crisis

More bloody houses. Image: Getty.

House prices are at record levels. Home ownership languishes near its lowest rate for a generation. And hundreds of thousands of young people can no longer afford to fly the nest.

In response to these three problems, the Chancellor is doling out cash for housing infrastructure. Meanwhile the new housing minister promises to “strain every sinew” to tackle what the Leader of the Commons recently referred to as the UK’s house-building “catastrophe”.

The new government firmly believes that supplying more houses is the route to solving all three aspects of the housing crisis. Unfortunately their diagnosis is faulty. Letting rip with housing supply will do almost nothing to solve any of them, as my new paper for the Collaborative Centre for Housing Evidence today shows.

Prices are undeniably eye-wateringly high. At around eight times average household income, houses are more unaffordable to buy than at almost any point in the past. The government’s last housing white paper summed up the consensus: “The cause is very simple: for too long, we haven’t built enough homes.”

In fact, we have a housing surplus that keeps on growing. Since house prices last hit the bottom in 1996, we’ve added 3.7 million homes in England, while only 3.2 million new households have formed. As a result, the surplus of houses over households grew from 660,000 in 1996 to over 1.1 million by 2018, a trend that is apparent even in London and the South East. Early indications suggest that over the past year we’ve added over 240,000 more homes, while the ONS anticipates that only around 160,000 new households formed.

And it’s not just the numbers of houses that look healthy. Any shortage in supply should show up in declining affordability of private rented sector housing, because rents are determined by the overall supply and demand for places to live.

Yet private rent levels have actually become more affordable for the typical household. Since the late 1990s, average household incomes have risen by around 50 per cent after inflation while, on official data, rents are only up by around 20 per cent. This is the opposite of what we’d expect to see if housing supply had been failing to keep pace.

If we’ve been building enough, how have prices got so high? The answer lies in the fact that it’s not just the supply of and demand for places to live that drives house prices. Mortgage interest rates are the other critical factor. And over the past 20 years, interest rates have collapsed. Back in 1996 you could get a 75 per cent loan-to-value mortgage fixed for two years at around 6.9 per cent. By last year, interest rates on the same product were less than a quarter of that, allowing home buyers to sustain ever larger mortgages to chase spiralling prices up.

While more houses would lower prices, the impact will never be big enough. The results of academic studies consistently suggest that even adding 300,000 houses per year in England over next 20 years would only lower prices by something like 10 per cent. This is nowhere near ambitious enough to reverse the 160 per cent increase in prices we’ve seen since 1996.


Nor will a big supply boost raise home ownership. While high house prices can weigh on home ownership, a much bigger factor is first-time buyer access to mortgages. Home ownership peaked in 2003 at 70.5 per cent and drifted down slightly to 69.1 per cent on the eve of the financial crisis. But the real collapse followed the sudden halving of the number of loans issued to first time buyers after the financial crisis, as banks became more risk averse. The median deposit required jumped from 10 per cent in 2007 to 25 per cent in 2009. Lending to would-be home owners didn’t fully recover until 2016, by which time home ownership had crashed.

For young renters, too, the government’s policy offers very little. Over a million more of them live with their parents today than was the case 15 years ago. The reasons owe nothing to general housing supply. Rather, weak wage growth, the erosion of social housing as an option and deep cuts to housing benefit over the past decade, especially for young people, have made it much harder for them to afford a place of their own, even as affordability on average has improved.

However strained the sinews, the government’s one-size-fits-all approach will not resolve the housing crisis. Until interest rates rise, it’s hard to see how government can reduce house prices without introducing more stringent controls on mortgage lending in general. Meanwhile, it can raise home ownership by either subsidising first-time buyers, directing more lending their way, or reducing financial incentives for landlords. And if it wants to tackle the unaffordability of rented housing for many, particularly in London, it needs to reverse the cuts to housing benefit, build social housing, and get wages growing again.

None of these problems will be solved by building 300,000 houses a year. The sooner we focus on the real causes of our housing woes, the sooner we’ll have a chance of solving the crisis.

Ian Mulheirn is Executive Director at the Tony Blair Institute. His paper on tackling the housing crisis is published by the UK Collaborative Centre for Housing Evidence.

 
 
 
 

To build its emerging “megaregions”, the USA should turn to trains

Under construction: high speed rail in California. Image: Getty.

An extract from “Designing the Megaregion: Meeting Urban Challenges at a New Scale”, out now from Island Press.

A regional transportation system does not become balanced until all its parts are operating effectively. Highways, arterial streets, and local streets are essential, and every megaregion has them, although there is often a big backlog of needed repairs, especially for bridges. Airports for long-distance travel are also recognized as essential, and there are major airports in all the evolving megaregions. Both highways and airports are overloaded at peak periods in the megaregions because of gaps in the rest of the transportation system. Predictions for 2040, when the megaregions will be far more developed than they are today, show that there will be much worse traffic congestion and more airport delays.

What is needed to create a better balance? Passenger rail service that is fast enough to be competitive with driving and with some short airplane trips, commuter rail to major employment centers to take some travelers off highways, and improved local transit systems, especially those that make use of exclusive transit rights-of-way, again to reduce the number of cars on highways and arterial roads. Bicycle paths, sidewalks, and pedestrian paths are also important for reducing car trips in neighborhoods and business centers.

Implementing “fast enough” passenger rail

Long-distance Amtrak trains and commuter rail on conventional, unelectrified tracks are powered by diesel locomotives that can attain a maximum permitted speed of 79 miles per hour, which works out to average operating speeds of 30 to 50 miles per hour. At these speeds, trains are not competitive with driving or even short airline flights.

Trains that can attain 110 miles per hour and can operate at average speeds of 70 miles per hour are fast enough to help balance transportation in megaregions. A trip that takes two to three hours by rail can be competitive with a one-hour flight because of the need to allow an hour and a half or more to get to the boarding area through security, plus the time needed to pick up checked baggage. A two-to-three-hour train trip can be competitive with driving when the distance between destinations is more than two hundred miles – particularly for business travelers who want to sit and work on the train. Of course, the trains also have to be frequent enough, and the traveler’s destination needs to be easily reachable from a train station.

An important factor in reaching higher railway speeds is the recent federal law requiring all trains to have a positive train control safety system, where automated devices manage train separation to avoid collisions, as well as to prevent excessive speeds and deal with track repairs and other temporary situations. What are called high-speed trains in the United States, averaging 70 miles per hour, need gate controls at grade crossings, upgraded tracks, and trains with tilt technology – as on the Acela trains – to permit faster speeds around curves. The Virgin Trains in Florida have diesel-electric locomotives with an electrical generator on board that drives the train but is powered by a diesel engine. 

The faster the train needs to operate, the larger, and heavier, these diesel-electric locomotives have to be, setting an effective speed limit on this technology. The faster speeds possible on the portion of Amtrak’s Acela service north of New Haven, Connecticut, came after the entire line was electrified, as engines that get their power from lines along the track can be smaller and much lighter, and thus go faster. Catenary or third-rail electric trains, like Amtrak’s Acela, can attain speeds of 150 miles per hour, but only a few portions of the tracks now permit this, and average operating speeds are much lower.

Possible alternatives to fast enough trains

True electric high-speed rail can attain maximum operating speeds of 150 to 220 miles per hour, with average operating speeds from 120 to 200 miles per hour. These trains need their own grade-separated track structure, which means new alignments, which are expensive to build. In some places the property-acquisition problem may make a new alignment impossible, unless tunnels are used. True high speeds may be attained by the proposed Texas Central train from Dallas to Houston, and on some portions of the California High-Speed Rail line, should it ever be completed. All of the California line is to be electrified, but some sections will be conventional tracks so that average operating speeds will be lower.


Maglev technology is sometimes mentioned as the ultimate solution to attaining high-speed rail travel. A maglev train travels just above a guideway using magnetic levitation and is propelled by electromagnetic energy. There is an operating maglev train connecting the center of Shanghai to its Pudong International Airport. It can reach a top speed of 267 miles per hour, although its average speed is much lower, as the distance is short and most of the trip is spent getting up to speed or decelerating. The Chinese government has not, so far, used this technology in any other application while building a national system of long-distance, high-speed electric trains. However, there has been a recent announcement of a proposed Chinese maglev train that can attain speeds of 375 miles per hour.

The Hyperloop is a proposed technology that would, in theory, permit passenger trains to travel through large tubes from which all air has been evacuated, and would be even faster than today’s highest-speed trains. Elon Musk has formed a company to develop this virtually frictionless mode of travel, which would have speeds to make it competitive with medium- and even long-distance airplane travel. However, the Hyperloop technology is not yet ready to be applied to real travel situations, and the infrastructure to support it, whether an elevated system or a tunnel, will have all the problems of building conventional high-speed rail on separate guideways, and will also be even more expensive, as a tube has to be constructed as well as the train.

Megaregions need fast enough trains now

Even if new technology someday creates long-distance passenger trains with travel times competitive with airplanes, passenger traffic will still benefit from upgrading rail service to fast-enough trains for many of the trips within a megaregion, now and in the future. States already have the responsibility of financing passenger trains in megaregion rail corridors. Section 209 of the federal Passenger Rail Investment and Improvement Act of 2008 requires states to pay 85 percent of operating costs for all Amtrak routes of less than 750 miles (the legislation exempts the Northeast Corridor) as well as capital maintenance costs of the Amtrak equipment they use, plus support costs for such programs as safety and marketing. 

California’s Caltrans and Capitol Corridor Joint Powers Authority, Connecticut, Indiana, Illinois, Maine’s Northern New England Passenger Rail Authority, Massachusetts, Michigan, Missouri, New York, North Carolina, Oklahoma, Oregon, Pennsylvania, Texas, Vermont, Virginia, Washington, and Wisconsin all have agreements with Amtrak to operate their state corridor services. Amtrak has agreements with the freight railroads that own the tracks, and by law, its operations have priority over freight trains.

At present it appears that upgrading these corridor services to fast-enough trains will also be primarily the responsibility of the states, although they may be able to receive federal grants and loans. The track improvements being financed by the State of Michigan are an example of the way a state can take control over rail service. These tracks will eventually be part of 110-mile-per-hour service between Chicago and Detroit, with commitments from not just Michigan but also Illinois and Indiana. Fast-enough service between Chicago and Detroit could become a major organizer in an evolving megaregion, with stops at key cities along the way, including Kalamazoo, Battle Creek, and Ann Arbor. 

Cooperation among states for faster train service requires formal agreements, in this case, the Midwest Interstate Passenger Rail Compact. The participants are Illinois, Indiana, Kansas, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, and Wisconsin. There is also an advocacy organization to support the objectives of the compact, the Midwest Interstate Passenger Rail Commission.

States could, in future, reach operating agreements with a private company such as Virgin Trains USA, but the private company would have to negotiate its own agreement with the freight railroads, and also negotiate its own dispatching priorities. Virgin Trains says in its prospectus that it can finance track improvements itself. If the Virgin Trains service in Florida proves to be profitable, it could lead to other private investments in fast-enough trains.

Jonathan Barnett is an emeritus Professor of Practice in City and Regional Planning, and former director of the Urban Design Program, at the University of Pennsylvania. 

This is an extract from “Designing the Megaregion: Meeting Urban Challenges at a New Scale”, published now by Island Press. You can find out more here.