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.

 
 
 
 

What it's been like living in one of the few places that never locked down

People enjoy sunny weather in Tantolunden park in Stockholm on May 30, 2020, amid the novel coronavirus pandemic. (Henrik Montgomery/TT News Agency/AFP via Getty Images)

While most of the Western world was confined to their homes for the better part of two months this spring, my friends and I in Stockholm continued hanging out. In stark contrast to most other places, we went to restaurants (occasionally, outside when possible), to one another’s houses (in our yards when possible), and even sent our kids to school. As the rest of the world opens up again, not much will change in Stockholm.

As an American expat living in the Swedish capital, I was initially angry at Sweden’s response to the Covid-19 pandemic. In my home country, early outbreaks in locations such as Seattle, New York City and the San Francisco Bay Area led to strict rules that were soon mirrored in many other states and cities. The Swedish strategy, meanwhile, boiled down mostly to recommendations: If possible, work from home; avoid unnecessary travel within the country; engage in social distancing; and if you’re above 70, stay home. I felt that, in the face of a global pandemic, a country known for its generous welfare policies – that took such good care of its citizens – wasn’t doing its part to protect us.

My friends and I are mostly expats with young families who, early on, pulled our children out of school against official policy. (Schools here only closed for those 16 and over.) We eagerly waited to hear what further action our current country would take. Surely a country known for its progressive social policies would take fast, decisive action to protect its citizens?

The regulations that were put into place in Sweden amounted to restricting public gatherings to no more than 50 people (reduced from 500, which concert halls skirted by restricting entry to 499), limiting restaurants to table service only, and no visiting retirement homes. People here did take the work-from-home guidelines to heart – no one I knew was going in to work. But bars and restaurants were full. My Instagram feed was a highlight reel of acquaintances clinking champagne flutes at the city’s major clubs and restaurants.

After the first few weeks, I slowly started meeting up with friends again. I sent my kids back to school, where they intentionally spent most of the day outdoors and drop-offs were restricted to outside only (parents weren’t allowed to enter the building). I was careful to take precautions like bringing hand sanitizer to playgrounds and wiping my hands after opening and closing the gate to school. Hardly anyone wore masks to the grocery shop or inside stores – the few times I’ve seen people wearing them I’ve done a double take. One busy Friday night in late April at the local supermarket there was a line out the door and someone regulating the number of customers allowed inside at the same time. I took a photo and sent it to my family in the US saying “Sweden finally catching up with the rest of the world!” (I haven’t seen entry to that store being regulated since.)

When I spoke to Swedish friends about the strategy many agreed with the relaxed approach, mentioning that other countries’ draconian measures would be unnecessary in Sweden. A recent poll showed that just 11% of people in Sweden felt they did not trust state epidemiologist Anders Tegnell, who is leading the strategy. In this country, the onus was placed on citizens themselves to follow recommendations. It's about personal judgement and individual responsibility within a framework that rested on mutual trust, rather than top-down control. Swedes’ high level of interpersonal trust and trust in authority was often cited in the press as the characteristic enabling the relaxed Swedish strategy in tackling the virus, as opposed to social distancing becoming a matter of surveillance and policing like in Spain or Italy, where any nonessential socializing was forbidden.

In early May, Sweden's ambassador to the US Karin Ulrika Olofsdotter said in an interview with the Washington Post that some media outlets made it look “like everyone in Sweden is out drinking and partying,” she said. “That is not the case.” But that was certainly how it felt to me. According to research by Esteban Ortiz-Ospina and Max Roser in 2016, in countries such as Norway, Sweden and Finland, more than 60% of respondents in the World Value Survey think that people can be trusted. And in the other extreme, in countries such as Colombia, Brazil, Ecuador and Peru, less than 10% think that this is the case.


Of course, many places in the US also took a similarly relaxed approach to tackling the pandemic, with conservative lawmakers and anti-lockdown activists citing Sweden as taking the right approach. Sweden, rarely finding cheerleaders among conservative US circles, suddenly stood as an example to follow. But since then, places such as Arizona, Texas and Florida have all seen significant spikes in cases following reopenings and are being deemed the new epicentres of the virus – while Sweden’s numbers have stabilised. According to some reports, the death toll in Sweden is one of the highest in the world per capita, but the total number of Swedish deaths remains at just above 5,000, compared to over 120,000 in the US, over 43,000 in the UK, over 28,000 in Spain and over 34,000 in Italy. The mortality rate in Sweden and the number of new intensive care cases in the country declined in the last week and contagion rates here are now “stable” according to the WHO.

Although it didn’t always feel like it at the time, Sweden issued clear guidance from the beginning, with the expectation that people would choose to follow it. It certainly was my experience that everyone I knew stopped going into the office and started working from home. William Hanage, an associate professor of epidemiology at Harvard’s School of Public Health, attributed Sweden’s slowing of the virus to implementing guidance early on. “Sweden’s policy is unusual in that it took a much less stringent approach to preventing transmission," he says, "but interestingly it implemented those measures at a very early stage in the pandemic, before large amounts of community spread had occurred.”

Now I go outside and all too often realise I’ve left my hand sanitiser at home. I even met a friend for lunch outdoors at a busy cafe one particularly sunny day, and another indoors one Friday night for dinner. In May I had a birthday bash in my garden with a dozen or so friends and we ended up at the local bar. I always felt guilty after, as if I’d done something wrong that I couldn’t tell my family in Baltimore about. When I watched international news or spoke to family back home I would feel a certain cognitive dissonance between my own seemingly low-risk reality and what I knew to be happening in the rest of the world. My family in the US calls me skeptically questioning why I’ve had people over in my garden, or been out to eat. I can’t explain the lack of logic that permits an entire city’s citizens to operate life as normal in the midst of a global pandemic. But Stockholm has become a bubble of exactly this.

Being relatively young and healthy, I’m not so worried about getting sick. Even though young and healthy people have gotten seriously ill, there haven’t been any reported cases at my kids’ or any of my friends’ kids’ schools. Nobody I know in Stockholm knows has gotten sick, allowing me to feel a certain distance from it. But my husband’s parents are in their mid-70s and weren’t able to see their grandchildren for two months save for a few visits to their hallway, where we wave and blow kisses to them standing at the door.

I’ve been grateful – but also felt a sense of guilt for – my freedom here. When there are no hard and fast rules about how to act, it’s easy to constantly question yourself: Is it really okay to be outside, sitting at this full cafe? Is it okay to invite a few friends over for a birthday? Is it okay to send my kids to school? These questions have surely gone through minds around the world in the past several weeks, and now it’s clear that that behaviour had dire consequences in some cities and not others.

While Swedish social media at times suggests an endless friend-filled party at summer homes and popular hangouts, the reality here is a balancing act between personal judgement and the freedom to continue life as normal. Self-regulation is what it comes down to in Sweden, anyway.

Elysha Krupp is a writer and editor currently living in Stockholm.