Housing in Crisis : A Clear Failure of Free Market Policy

Housing in Crisis:

By Henry Stewart : @happyhenry

If councils had continued to build homes at the rate they did from 1974 to 1979, we would by 2014 have had 4.1 million extra dwellings.

That fact perhaps on its own explains the current housing crisis. Now it might not have been possible to build that many homes. Perhaps, due to available land, they would only have built half that, or a quarter of that, number. But even just a quarter would have meant we would not have the same level of housing shortage or, probably, prices as unaffordable as we face today.

The decision to stop local authorities building houses was a political one, taken by the government of Margaret Thatcher. It was based on a belief in the market. Surely, the argument went, if the housing market was not “crowded out” by public construction then the free market would respond and provide the homes that were needed.

Restrictions on council house building were not only continued by her successors, but further tightened. The average 32,000 council houses built each year from 1979 to 1990 was well down on Labour’s 152,000 from 1974-79. However under John Major it fell to an average 3,500 from 1990 to 1997. Under Tony Blair, from 1997 to 2007, just 357 council homes were built each year on average.

house-chart

 

Local authority Housing Association Private Total
Labour, 1974-79 151,678 21,978 144,240 295,920
Thatcher, 1980-90 31,905 14,684 166,417 211,147
Major, 1990-97 3,584 33,052 147,114 183,323
Blair, 1997-07 357 23,712 180,657 202,738
Brown, 2007-10 680 29,847 123,437 153,963
Cameron, 2010-14 2,830 27,158 106,345 140,335

Source: Table 208 House building: permanent dwellings started, by tenure¹ and country2

https://www.gov.uk/government/statistical-data-sets/live-tables-on-house-building

 

The number of dwellings built by housing associations during Blair’s years in office also fell, to 10,000 less per year than under Major. We know from Nick Clegg’s memoirs that, for Cameron and Osborne, there were clear political reasons not to increase social housing. He remembers one of them saying “I don’t understand why you keep going on about the need for more social housing – it just creates Labour voters”

 

Why Labour did remove the ban on councils building more homes is more of a mystery. Owen Jones has said that he once asked Hazel Blears, who had been Secretary of State for Local Government, why Labour did not ensure more public housing was built. The reply: “None of us knew anybody in social housing so we weren’t aware of the scale of the problem.”

Private sector house building did rise. But the 22,000 extra houses built each year from 1979 to 1990 did not come near to making up for the 120,000 annual shortfall in council houses. Neither was a shift made to housing associations, which built an average 7,000 homes a year less during the Thatcher years than under the previous Labour government.

Free market advocates would probably claim that the failure of the private sector to bridge the gap was down to market flaws, such as a shortage of land and planning restrictions. However a successful free market creates a balance of supply and demand, but there is no reason to suggest it will meet a public need for affordable housing.

Faced with a choice between using a piece of land for a £20 million mansion or 90 affordable homes at £200,000 each, it is always going to be the mansion that is more profitable. That is an extreme example. But the choice between 45 expensive home or 90 affordable ones is probably more common. It is clear that, without planning intervention, private developers will tend to build for the more affluent part of the market.

“Subsidised” housing? Or efficient housing?

David Cameron liked to describe social housing as “subsidised”, suggesting that the lower prices faced by council or housing association tenants was due to public subsidy. However social housing in the UK receives no such subsidy.

Cameron’s description was a recognition that social housing provides more affordable homes. It is also a recognition that the public sector can provide homes, without subsidy, at a better price (and often better quality) than the private sector. It is simply more efficiently provided housing.

The housing sector is a clear example that the free market cannot provide the solutions to all our public needs and indeed that it is often the public sector that can do so more efficiently and at lower cost.

Jeremy Corbyn has pledged to build 100,000 council house a year if elected. It does seem to be a policy that makes simple sense. It does not even need an increase in central government expenditure or in taxation, but only a removal of the restrictions on local authorities securing loans to build homes.

During the 2015 election the Green Party leader had difficulty explaining where the money would come from for public house building. Evan Davis on Newsnight explained it very simply: all that is needed is for councils to borrow the money on the public bond markets, and then to to use the resulting rent to pay both the loans and the interest. No extra public expenditure is required.

The housing crisis is a problem created by political ideology being put ahead of what was society needs. But it is also a problem that can start to be solved very easily by a return to public housing.

priced-out-graph

http://www.pricedout.org.uk/why

 

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