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.

 
 
 
 

Community-powered policies should be at the top of Westminster’s to do list

A generic election picture. Image: Getty.

Over the past five decades, political and economic power has become increasingly concentrated in the UK’s capital. Communities feel ignored or alienated by a politics that feels distant and unrepresentative of their daily experiences.

Since the EU referendum result it has become something of a cliché to talk about how to respond to the sense of powerlessness felt by too many people. The foundations of our economy have been shifted by Brexit, technology and deindustrialisation – and these have shone a light on a growing divergence in views and values across geographies and generations. They are both a symptom and cause of the breakdown of the ties that traditionally brought people together.

As the country goes through seismic changes in its outlook, politics and economy, it is clear that a new way of doing politics is needed. Empowering people to take control over the things that affect their daily lives cannot be done from the top down.

Last week, the Co-operative Party launched our policy platform for the General Election – the ideas and priorities we hope to see at the top of the next Parliament’s to do list. We have been the voice for co-operative values and principles in the places where decisions are made and laws are made. As co-operators, we believe that the principles that lie behind successful co‑operatives – democratic control by customers and workers, and a fair share of the wealth we create together – ought to extend to the wider economy and our society. As Labour’s sister party, we campaign for a government that puts these shared values into practice.

Our policy platform has community power at its heart, because the co-operative movement, founded on shop floors and factory production lines, knows that power should flow from the bottom up. Today, this principle holds strong – decisions are best made by the people impacted the most by them, and services work best when the service users have a voice. Our policy platform is clear: this means shifting power from Whitehall to local government, but it also means looking beyond the town hall. Co-operative approaches are about placing power directly in the hands of people and communities.


There are many great examples of Co-operative councillors and local communities taking the lead on this. Co-operative councils like Oldham and Plymouth have pioneered new working relationships with residents, underpinned by a genuine commitment to working with communities rather than merely doing things to them.

Building a fairer future is, by definition, a bottom-up endeavour. Oldham, Plymouth and examples like the Elephant Project in Greater Manchester, where people with experience of disadvantage are involved in decision-making, or buses in Witney run by Co-operative councillors and the local community – are the building blocks of creating a better politics and a fairer economy.

This thread runs through our work over the last few years on community wealth building too – keeping wealth circulating in local economies through growing the local co-operative sector. Worker-owned businesses thriving at the expense of global corporate giants and private outsourcers. Assets owned by communities – from pubs to post offices to rooftop solar panels.

And it runs through our work in Westminster too – with Co-operative MPs and peers calling for parents, not private business, to own and run nurseries; for the stewards of our countryside to be farmers rather than big landowners; and for workers to have a stake in their workplaces and a share of the profit.

Far from being ignored, as suggested in last week’s article on community power, our work has never been more relevant and our co-operative voice is louder than ever.

Anna Birley is policy offer at the Co-operative party.