13 Aug 2010

More thoughts on housing demand

Some really interesting comments on my last post, deserving of a new post. A well-briefed and articulate "Anonymous" lays into my argument, basically buying the Barker/NHPAU/New Labour line that we should be building 3 million new homes by 2020.

He/she writes I'd say there are some clear signs that some people need more housing in the UK - high housing costs relative to incomes, instances of overcrowding, street homelessness and sofa surfing...

• The high cost of private housing is/was caused by easy credit and favourable tax status. Sometime in the 1970s, housing became "an investment opportunity." The truth of this is demonstrated by the Irish property bubble which saw a phenomenal increase in housebuilding activity, accompanied by a huge surge in prices. People were building homes there because there was money to be made, not because there was a shortage of houses. It's all come crashing down now and there are apparently estates of empty new homes in the Irish Midlands with not a buyer in sight.

• Overcrowding. Relative to what? Sure there is overcrowding but it's nothing compared to our Victorian forebears, or to many third world countries today. And there are many more examples of undercrowding (is that even a word?): single older people living in large family homes that they have paid for and don't have to move on from. Both are bad uses of resources. Think of the number of empty bedrooms in this country which are lucky if they get slept in more than once a year. How many? My guess is many millions.

• Street homelesness. This surely is a litmus test of housing demand. These are people with nowhere to live at all. But if government stats are to be believed, the number of homeless people has fallen dramatically in the past few years. Hardly evidence of an undersupply of housing.

So my beef is this. There is actually no way of telling whether we have too much or too little housing, anymore than we can know if we have too many or too few roads. What we have is a housing stock of around 23 million homes, and some rather poor ways of allocating them across a population of around 65 million. Obviously, if we increase the stock to 25 or 26 million homes, there will be more room for everyone (unless of course the population increases by five or ten million), but this isn't necessarily a good use of scarce resources when so much of our existing stock is in a poor state of repair and/or is under occupied.

There are also sustainability issues here as well. However close to zero carbon these new homes might be, they are still going to add to the carbon output of the UK. In today's Times (paywalled, so I won't give a link) Conservative peer Simon Wolfson continues to trot out the usual pro-development line without so much as a word about the environmental impact all these new homes will have. His idea is to compulsorarily purchase bits of dull farmland and hand them over to "independent bodies made up of leading property developers who would be given a free hand to build the best they can." He's obviously been watching The Normans. He goes on "At a time of economic woe this type of project would create wealth, jobs and growth — not to mention new income streams for a Government that could do with the revenue."

But this is precisely the sort of lazy thinking that created the credit crunch in the first place. It's Labours eco towns, only stripped of the eco. It sounds just like the Irish Bubble Mk 2. The dumbest of dumb growth. And all in the name of "an insatiable demand for new housing."


  1. Spot on, Mark. The key thing - 23m homes to 65m people - how can that possibly not be enough, even if some are in the wrong place? Now, if we in 'advanced' circles could continue the progress, down thro 'zero-carbon' building to 'negative-nett-resource-use' building (Permaculture thinking), then the planet is actually better off than if nothing had been built (that's the only valid definition of Sustainability), and
    the more new houses the better (except that such houses, and cities, would look a bit different from what 99.9% of us are capable of envisaging today).

  2. Well-briefed and articulate? That's much catchier than "Anonymous". Maybe I'll go with that.

    I wanted to note that I actually agree with you on more than might have been apparent from yesterday's comments.

    I buy into a lot of people's arguments. For example I buy into Prof. Steve Wilcox's argument that rising houseprices were partly offset and fuelled by lower interest rates, but note that this is not the whole story, since mortgage costs as a proportion of incomes also rose in the most recent 'bubble'.

    I also agree with your assessment that the favourable taxation treatment of owner occupation plays a role - again I'll look to Wilcox and see that up until a year or two back this amounted to well over £20 billion of foregone income to the exchequer per year (and still over £15 billion in the recession).

    I suppose it's for a reason that it's called "supply and demand" not "supply and need". So, yes, it's more accurate to observe that rising houseprices are a reflection of supply outstripping demand, not outstripping need.

    And yes, the Irish example clearly shows that there was a silly bubble forming. I think part of my argument is the fact that the UK's houseprice falls have been so modest compared to Ireland's shows that we have strong demand (which may or may not equate to housing need) relative to supply. Ireland was almost all bubble, with no real demand to prop up prices when they started to fall.

    I'm not so keen on your take on overcrowding. We have a couple of measures for looking at this - the bedroom standard and the statutory standard, neither of which are particularly generous. [ CLG, Shelter ] The evidence base confirming the serious negative impacts of overcrowded housing is strong; the stuff on poor educational attainment rings particularly true when you think about kids having to do homework in whatever space they can find (I recall the BBC showing a powerful documentary on homelessness a couple of years ago, which showed a teenager doing her homework in a bathroom). Sure, it was a worse problem in the UK in the past, and the incidence of it as a problem is worse in some other places now, but that doesn't make it OK.

    On under-occupation, I don't disagree with you that addressing it would be a good way of addressing some of our housing need. But how? (And how in a way that is politically/electorally acceptable?) This could, of course, tie into the taxation agenda - switching over to a property taxation would help to encourage some of those under-occupying to down-size... but look out for those heart-wrenching tales of the asset rich and income poor (they're normally Devonshire widows).

    You're right on street homelessness - it's not much of an indicator of an under-supply of housing. (As an aside, it has fallen in recent years, and from the perspective of consistency keeping the method of measuring it the same has allowed the trend to be observed. However the downside is that the method itself is widely accepted as being pretty rubbish, with a large systemic bias towards under-counting. Still not enough to really feature in the under-supply argument, but worth knowing about.)

    Apologies for not responding to the comments on the environmental aspects. Real life calls...

    Yr hmbl & obt svt,
    WB&A (Mr)

  3. Yes, good comments all.

    The questions we have to face are: Why is it politically unacceptable to tax housing properly? Whose interests are being protected? Might it not be that a majority might just be in favour of CGT on houses if it kept a lid on prices?

  4. I concur with this readers argument from the Guardian regarding idea of implementing a Land Value tax.


    It strikes me as a madness that housing has for so long been seen as an 'investiment'. Where is all this return coming from if it isn't a national pyramid scheme thats gone out of control? I know of people in their 30s and 40s who have salaries of £25,000-£40,000 who have assets of over £1million. Its frankly impossible for them to have saved that much money in such a short time. Surely, at some point, assets will have to correlate with earned income rather than unearned income? The problem will be in finding away to move to an 'earned income' model that doesn't screw the propertyless to the benefit of the propertyfull.

  5. "Why is it politically unacceptable to tax housing properly?"

    Because the people most likely to pay are the ones that are most likely to vote?

    And alot of them won't get past the "your going to tax me to live in my home" and won't listen any further than that.

  6. I thought your reference to THE NORMANS was very very funny.

  7. Have to agree with Mark. While I come from Northern Ireland rather than the south of Ireland I do know that they have something like 350k vacant houses, an incredible number for a country with a population of roughly 4.5 million. In places like London there is always going to appear to be too much demand, but look further north and I'm sure there are many vacant houses.

  8. It's interesting to know that although in many areas, the housing market is struggling to recover post recession, but the demand for new housing still remains in some regions.

  9. Quite right, Mark. In the 40 years I've lived in my (large, developer encircled) Sussex village the number of houses has risen by 25% but the population is unchanged in number. It has got older, and the number of children feeding into the village school each year has halved. A substantial proportion of the houses are now under-occupied by the often-lonely elderly - not the best solution for most of them and not the best solution for the country. We also have lots of second homes - people here for weekends only, but able to outbid the young families who need the homes.

    We don't try to build all the roads people would like to drive on, and we shouldn't try to build so many houses that supply outstrips demand. Progressive taxation of under-occupation to encourage sensible use looks an option - house pricing, rather like road pricing?

  10. The housing subsidy doesn't even stop at the CGT relief. It continues via the lack of any UK property tax. (Council tax isn't a property tax, more a graduated poll tax. The old Rates were an attempt at charging a notional income tax on the rental value).

    I read an American document somewhere saying that the minimum cost of owning a smallish detached house (by their standards) is about ?$3,000 per year. This represents the property taxes levied by local and state governments, which tend to be a percentage of the house value.

    It makes sense. This tax is equivalent to taxing the notional rental value of a house. We're already quite happy to tax the rental income of buy-to-lets (income tax on the landlords), or blocks of flats owned by insurance companies (corporation tax). But we shy away from taxing owner-occupied property.