17 Mar 2011

Those dodgy housing demand figures

If ever a meme was unravelling fast, it's the idea that we are suffering from a "housing shortage." I first starting questioning this assumption back in 2007, and have re-visited the issue from time to time, although for much of that time I felt I was pissing in the wind.

But recently, I have heard others questioning this long-held orthodoxy too and it now shows signs of going viral. Graham Norwood's blog Property Newshound this morning carries a piece called Figures That Don't Add up. And David Ireland at the Empty Homes Agency wrote a brilliant piece on his blog called 5 Big Housing Lies and why the Public Doesn't Buy the Housing Crisis.

It's not that we have enough homes, it's that there is really no way of telling what enough is, and all the measurements of housing demand are never anything more than extrapolating past trends into the future. Let's see how this works.

Back in 1919, there were only about 5 or 6 million homes in the UK. Today there are around 24 or 25 million. The population has gone up from around 35 million back then to 61 million today. So in 1919 there were 5.8 people for every house; today it's 2.5 people for every house. What does that tell you? That we have more space? Yes. That we are richer? Yes. That there is a trend towards smaller households? No argument with that.

But the housing shortage argument is largely based on saying that this trend towards smaller households is the cause of all this housebuilding, rather than the result of it. And that, as we are "demanding" to live in smaller and smaller households, we must therefore build more homes to meet this demand. But there is a debate here to be had about whether we really are all demanding to live alone, because that is what more and more of us seem to be doing (myself included).

And another point worth making here. This concentration on the number of new homes being built obscures other related issues, namely the size of the average home (is it growing or shrinking?) and the quality of the existing stock. There is a huge amount of low-level building work going on all over the country with people extending their homes, and this greatly adds to the overall amenity of the housing stock, and it ought to be measured as well and summed up to together with the amount of new housing. In other words, what really matters is not the simple number of homes in existence but the overall floor area available per person, and the quality of the housing. These would be much more telling statistics which would inform us about the state of the nation's housing, but they are not published because a) they are not known, and b) there is no lobby campaigning for them to be improved.


  1. Interesting post. Housing in the UK is such a complicated thing, it sits at the junction of social policy, the housing market and the financial system and as such has been a political hot potato for a generation or more. In particular, the monetary value of houses is so central to our feelings of wealth and the solvency of big banks that politicians will do almost anything to prevent house prices falling. Yet there is plenty of evidence that it is people's inability to finance house purchases that is the sticking point, not lack of houses.

    What we hear from housebuilders' organisations is what you'd expect from any trade organisation lobbying the government on behalf of it's members. They talk up the problem and then offer to fix it, for a price. Simple, if rather dishonest.

    There is a massive difference between 'demand' from customers ready and willing to buy and 'demand' in the sense of 'wouldn't it be nice if I could have a new house for next to nothing". Who wouldn't want that?

  2. Yes, I think you've hit the nail on the head. I'm not saying that new housebuilding is a bad thing. It's just that it shouldn't be justified on there being a bottomless pit of "demand" which, if we don't meet it, will inevitably propel us into a "housing crisis." That's nonsense.

  3. Personally I think that house price inflation is more a result of perverse economic incentives than of limited supply.

    Economically housing suffers from an inverse supply curve – the higher prices rise the greater the demand. People don’t want to miss out on the gold rush.

    Trouble is, the financing of this gold rush comes out of the pockets of future generations. To me, it feels like a giant ponzi scheme – each generation creaming off a little more from the generation that succeeds it.

  4. Readers of this blog may already be familiar with the economists' contribution to this problem: Land Value Tax http://en.wikipedia.org/wiki/Land_value_tax

    A sensitively-implemented LVT could control house price inflation, ideally bringing house prices gently down to earth over a period of years. As it should replace taxation on property improvement (e.g. VAT on extensions/conversions), it would also stimulate a great deal of small-scale building activity.

    As the Wikipedia article notes: the primary problem with introducing it in this country is that the large landowners constitute a political power bloc, and would of course oppose it.

  5. The trouble with housing is that those who really need the space, like young families, are unable to afford it. Many larger homes are occupied by middle aged couples whose children are at uni.

    There's nothing wrong with a couple having a big house all to themselves. However it doesn't help people living in tight accommodation to know that on average we have loads of space!