There are very few people in this country who would dispute that we have a problem with housing. Those that do have clearly not been paying attention to the sorry state of affairs surrounding home ownership, housebuilding and house prices.
Over the past year, despite the Covid pandemic – house prices rose by 8.6 per cent from January 2020 to 2021 according to the ONS. This is mainly driven by the increased demand as buyers have tried to take advantage of temporary change to stamp duty that the government introduced back in July 2020. This is a clear example of how the housing market works and how prices in this country have become unaffordable for most first-time buyers the majority of the time.
No doubt, you will have heard that the free market is the main root cause of all our problems. However, this is not the case. If our housing woes were truly due to “market failure” you would see the same problems at a similar level. Yet the UK is an outlier, we have some of the highest housing costs in the world relative to average income and also in absolute terms. Most nations on a similar standing to the UK do not have the same level of housing problems and have not resorted to the intensive level of state planning and provision that is often called for by the Left as a solution to the “market failure” that is purportedly on display.
There is a clear trend that has split the UK off from most other European nations as well as the US and caused this crisis. It is driven by the rock-solid economic principle of supply and demand. According to the Commons Library “estimates have put the number of new homes needed in England at up to 345,000 per year, accounting for new household formation and a backlog of existing need for suitable housing. In 2019/20, the total housing stock in England increased by around 244,000 homes.” This failure to build adequate housing has been the trend for around 40 years. The UK has had the lowest rates of building of any comparable nation which has led to levels of housing price inflation unmatched by any other OECD nation.
If we as a nation are falling behind the number of houses needed for our increasing population by almost 100,000 per year it is no wonder that house prices are high. If demand is high – prices will be high, it is just basic economic sense as consumers compete for a “sparse” commodity. The same principle can be applied to the rental market. As demand is high prices will be high and as people need housing they will pay the extra premium to ensure that they do so. If prices are indeed too high for prospective renters, then demand will drop and prices will fall as landlords have to adapt to the market as they each compete and undercut in prices to ensure that their properties are indeed occupied.
On the face of it then, the government’s announcement that they will relax building regulations to create “the biggest shake-up of the planning system for more than 70 years” should only be good news as the UK’s planning system is one of the most restrictive in the world – especially when it comes to land supply. Indeed, some estimates suggest that excessive planning costs make up around a third of the average house price. This is of course not to mention the prevalence of Nimbyism and the highly flawed concept of the Greenbelt. Unfortunately, we have heard this story before from successive Prime Ministers – none have followed through on their promises. Hopefully, Boris Johnson remembers the value of keeping his word and will finally get the UK building again.