Here's why building more houses isn't enough to bring prices down

Try harder, you lot.

On Newsnight on Tuesday, there was an interesting debate about housing and homelessness. It was prompted by Wednesday’s BBC2 documentary which follows a London council’s helplessness in finding places for its homeless families to live.

There were great points made by all the participants; including Jon Sparkes from Crisis and campaigner Poppy Noor, who has experienced the homelessness system herself. But the point that struck me most was actually made by the presenter Evan Davies. He said:

“People who, if they’re in the housing market – the market sector – are clearly not going to get a home. They’re not going to afford one whether it’s private rent or to purchase … and… I just wonder whether the most basically obvious fact – and whether it’s accepted now – is that we just don’t have enough of if you like the ‘non-market sector’ homes, the social homes… where they are allocated by other factors than how much money you can afford to pay for a room.”

What struck me about this statement was how it really isn’t accepted within much of the debate on the housing shortage. Instead, there is a strongly held view across many of those who care about the housing crisis and want to solve it that simply building a lot more market homes could solve the crisis we face.

This is wrong.

I’d argue that the proposition being made by those who believe this is something like:

·         Prices in the housing market – rents and house prices – are too high and rising partly because the housing market produces far too few homes.

·         If developers were freed up to match their supply to housing demand, for example by scrapping planning restrictions, this would cause prices and rents to fall.

·         Over the long term, this is the only way to make housing more affordable.

This misses out lots of the detail, but I think it’s the core assumption of a lot of people. So why do I think it is wrong? I think you’ve got to start with the fundamentals of the housing market.

The key point is that prices and rents in the housing market are not set by newly built homes (unlike in lots of other markets, where the supply and demand for new products sets the price). Prices are set by trading within the secondary market.

What this means in plain English is that the price of a new house is determined by how much people are paying for old (secondary) houses in that local area. New build homes do not set prices.

There are around 1m property transactions in England per year, of which perhaps 120,000 are for new build market sale homes (roughly, based on new build figures minus rented homes). At just over 10 per cent of the market, the new builds will not set the price: instead, they’ll be marketed at values which reflect their local second hand market.

(There’s one slight caveat – that this is being distorted at the moment by the fact that buyers can pay more for new build homes, because of the government’s Help to Buy scheme. This adds an extra loan on top of a mortgage to the buyers of new build homes, meaning that they can pay more. According to the latest stats from the ONS, the average new build home now cost between 13 per cent and 64 per cent more than the average second hand home in English regions, and 40 per cent on average for England. Part of the reason for this difference may be the extra demand created by the Help to Buy scheme. But anyway.)

For new build homes to start impacting, let along setting, prices in the wider housing market there would need to an enormous rise in the scale of market building. Kate Barker’s influential review of housing supply in the mid-2000s recognised this. It argued that even if private housebuilding roughly doubled from 120,000 to 240,000, house prices would still continue to rise on a trend of 1.1 per cent above inflation. She said that to stop house prices rising at all would imply a level of market housebuilding that would be “undesirable and unachievable”.

I agree that it would be unachievable to get the market building enough homes to start flatling or reducing house prices overall. The reason is simple: the private housebuilding market can only build when prices are rising.

Private house building operates on a speculative business model. Firms buy land years in advance and they pay a price based on how much they think homes will sell for in the future. If house prices fall, they stop building – as they would not make a return.

You cannot solve the problem of high house prices and rents by over-building market homes.

This is where Evan Davies is spot on. What we need is to build (and retain) a lot more “non-market” homes which are outside of the land price, house price trap. Over time this will moderate price rises in the market sector too, by giving people who can afford the market a viable alternative choice.

There’s an obvious second benefit to building non-market homes, too. It is that, outside of the market, you have scope to set rents and/or prices that people can genuinely afford. In the short term, this is what is needed most – homes that people on normal and low incomes can actually afford.

Many of these non-market homes will be part-funded by through schemes delivered by the private market which also provide full market homes – I’m not saying we should stop building market schemes. But the critical point is that without building thousands more homes outside of the speculative, high-price market we simply won’t make a dent in the housing crisis.

Evan Davies got this point intuitively. But we need to do quite a bit more work to make sure it is widely appreciated so that we build the right sort, as well as the right number, of homes.

 Pete Jefferys is a policy advisor at Shelter. This post was first published on charity’s blog. 


America's cities can't police their way out of this crisis

Police deployed tear gas during anti-racism demonstrations in Los Angeles over the weekend. (Mario Tama/Getty Images)

As protesters took to the streets across the United States over the weekend to express their anger at police killings of unarmed black Americans, it was hard to miss the hypocrisy coming from local authorities – including the otherwise progressive, left-leaning officials who are in power in most major American cities. 

Many US mayors and their police chiefs had issued public statements over the past week that seemed – only briefly, as it turned out – to signal a meaningful shift in the extent to which the Black Lives Matters movement is being taken seriously by those who are in a position to enact reforms. 

The sheer depravity of the most recent high-profile killing had left little room for equivocation. George Floyd, 46, died last Monday under the knee of white Minneapolis police officer Derek Chauvin, while three additional officers helped to hold Floyd down, doing nothing to aid him as he begged for them to stop and eventually lost consciousness. The officers had been attempting to arrest Floyd on suspicion of having used a counterfeit $20 bill at a deli. All four have since been fired, and Chauvin was arrested Friday on charges of third-degree murder and second-degree manslaughter. 

“The lack of compassion, use of excessive force, or going beyond the scope of the law, doesn’t just tarnish our badge—it tears at the very fabric of race relations in this country,” Los Angeles Police Chief Michel Moore told the Washington Post in response to the Floyd case. Meanwhile Moore’s boss, Los Angeles Mayor Eric Garcetti, on Friday claimed that he understood why his city, which is no stranger to police brutality, was protesting. “We absolutely need as a nation, certainly as a city, to voice our outrage, it’s our patriotic duty to not only stand up for George Floyd but for everybody who has been killed unnecessarily, who’s been murdered for the structural racism that we have in our country,” Garcetti said. 

Normally, US police chiefs and mayors tend to ask citizens to withhold judgment on these types of cases until full investigations can be completed. But a 10-minute video recording of Floyd’s killing had made what happened plain. Police chiefs across the country – and even the nation’s largest police union, which is notorious for defending officer abuses – similarly condemned the actions of the Minneapolis officers, in a rare show of moral clarity that, combined with the arrest of Chauvin, offered at least a glimmer of hope that this time things might be different. 

As the events of the weekend have since shown, that glimmer was all too fleeting. 

In city after city over the past three days, US mayors and their police chiefs made a series of the same decisions – starting with the deployment of large, heavily armed riot units – that ultimately escalated violent confrontations between officers and protesters. Images widely shared on social media Saturday and Sunday nights made it clear that members of law enforcement were often initiating the worst of the violence, and appeared to treat protesters as enemy combatants, rather than citizens they were sworn to protect. 

In New York City, two police SUVs were seen plowing into a crowd of protesters, while elsewhere an officer was recorded pulling down a young protester’s coronavirus mask in order to pepper spray his face

In Louisville, the city where Breonna Taylor, a 26-year-old black woman was fatally shot by police on 13 March, state police in riot gear were captured confiscating and destroying protesters’ supplies

In Minneapolis, forces opened fire with nonlethal rounds on residential streets, much to the shock of homeowners standing on their own front porches. 

Images of police pushing or shoving peaceful protesters were almost too numerous to count, including, in Salt Lake City, an elderly man with a cane

In many places, police also targeted journalists who were covering the protests, firing at clearly identifiable media crews with rubber bullets, injuring and even arresting reporters

Some protesters did commit acts of vandalism and looting, and the leaders of cities where that happened generally responded in the same ways. 

First, they blamed “outside agitators” for the worst protester behaviour, a claim that harkens all the way back to the civil rights era and for which the evidence is murky at best

Next, they enacted sudden curfews with little to no warning, which gave law enforcement an excuse to make mass arrests, in some cases violently. 

In a pair of widely criticized moves, Garcetti of Los Angeles closed the city’s Covid-19 testing centers and suspended the entire mass transit system Saturday evening, stranding essential workers on their way home from daytime shifts. Late Sunday night in Chicago, the city’s public school system halted its free meal distribution service for low-income children, citing “the evolving nature of activity across the city”.  

Governors in at least 12 US states, in coordination with city leaders, have since called in National Guard troops to “help”. 

At this point it’s clear that the leaders of America’s cities are in desperate need of a radically different playbook to respond to these protests. A heavily armed, militarised response to long-simmering anger toward the heavily armed, militarised approach to American policing is more than ironic – it’s ineffective. Granting police officers wider latitude to make arrests via curfews also seems destined to increase the chances of precisely the tragic, racially biased outcomes to which the protesters are reacting. 

There are other options. In places such as Flint, Michigan, and Camden, New Jersey – both poor cities home to large black populations – local law enforcement officials chose to put down their weapons and march alongside protesters, rather than face off against them. In the case of Camden, that the city was able to avoid violent clashes is in no small part related to the fact that it took the drastic step of disbanding its former police department altogether several years ago, replacing it with an entirely new structure. 

America’s cities are in crisis, in more ways than one. It’s not a coincidence that the country has tipped into chaos following months of emotionally draining stay-at-home orders and job losses that now top 40 million. Low-income Americans of colour have borne a disproportionate share of the pandemic’s ravages, and public health officials are already worried about the potential for protests to become Covid-19 super-spreading events.

All of this has of course been spurred on by the US president, who in addition to calling Sunday for mayors and governors to “get tough” on protesters, has made emboldening white nationalists his signature. Notably, Trump didn’t call on officials to get tough on the heavily armed white protesters who stormed the Michigan Capitol building over coronavirus stay-at-home orders just a few weeks ago. 

US mayors and their police chiefs have publicly claimed that they do understand – agree with, even – the anger currently spilling out onto their streets. But as long as they continue to respond to that anger by deploying large numbers of armed and armored law enforcement personnel who do not actually live in the cities they serve, who appear to be more outraged by property damage and verbal insults than by the killings of black Americans at the hands of their peers, and who are enmeshed in a dangerously violent and racist policing culture that perceives itself to be the real victim, it is hard to see how this crisis will improve anytime soon. 

Sommer Mathis is the editor of CityMetric.