Do we really need any new homes?

There is a an unspoken problem at the centre of our housing debate. Are we short of new homes? Almost every commentator states that we are and that we therefore have a housing crisis on our hands. But the evidence for it is thin on the ground and what there is is almost always constructed from data which is only partially relevant.

Like the length of council house waiting lists, which is long and growing longer, but this only tells us the demand for council/social housing. Which, in turn, tells us that either private housing is too expensive or social housing is too cheap, but it doesn't really inform us as to whether there is a shortage of housing overall.

Or rents. Rents are going up in the South-East, having been pretty stable for many years. The reason seems to be that the population is increasing, private housing is too expensive to buy, mortgage finance is difficult to come by and so private renting is the only option for many. The squeeze is on, for sure, but this still doesn't lead to the conclusion that we are short of houses.

For to be short of houses, we have to have some notion of how many houses there should be. We don't. The nearest we come to it is something called the rate of household formation, popularly believed to be around 250,000/annum in the UK as a whole. This is used as a yardstick against which to measure our pitiful attempts to match it.

In the 20 years I have been writing about housing, we have never got close to this target. It's only ever been an aspiration. In the Blair boom years, we achieved about 180,000 new homes a year: now it's down to around 100,000. In the past five years, we have fallen short of this notional target by an accumulative 750,000 homes, so you'd think house prices would have rocketed as a result. Which, of course, they haven't.

Which perhaps in turn tells us that the notion of a rate of household formation is bunkum. Households form when they can afford to. When times are tough, they hang together. A household formation rate is a nebulous idea which may well be derived from historical data but it tells us nothing about the situation as it now stands.

To have a housing shortage, you have to have something more concrete to measure it against. Like what? Well, some sort of housing standard such as number of bedrooms per head of population. Or national housing floor area, or some such Domesday Book type data (which the national census doesn't seem to collect). If we had such data to hand, we could then set a standard — such as there must be 1.5 bedrooms for every man, woman and child living in the UK — and then we could judge whether or not we have a shortfall.

Without such an approach, there is really no way of knowing whether we have too many or too few homes, anymore than we might know whether there is a road shortage or a supermarket shortage. Relative to what?

The only hard data we actually have are house prices which are very efficient at allocating resources, so that supply and demand are kept in balance. For every buyer who thinks prices are too high, there is a seller who think they are too low. Do the sellers thus conclude there is a housing surplus? No. So why do buyers insist there is a shortage? Because they'd like to see lower house prices, naturally.

But the sellers — largely the elderly half of the population — want house prices to stay high to pay for their retirement. They certainly don't want them to crash. And, surprise, surprise, it's the oldsters who are mostly dead set against new building in their area. They are the classic NIMBYs. They are not stupid.

So in a nutshell, the young would like there to be more homes so that the prices might inch down a little, whilst the sellers are perfectly happy with what we've got, thank you. That's the essential tension between the young and the old which creates our housing market. It doesn't however follow from that that we have a housing shortage.