What if there really ISN’T a housing shortage? | East Devon Alliance
U.K. Home Shortage Seen Everywhere But in Data
By Simon Kennedy Jun 9, 2014 1:27 PM GMT
Britain’s weekend media was packed with stories reporting how a housing shortage is fueling surging property prices.
Most newspapers cited the International Monetary Fund’s warning that house prices pose a risk to the economy. The Mail on Sunday said U.K. Chancellor of the Exchequer George Osborne will hit a “home run” by outlining plans this week to ease red tape for construction. The Sunday Times declared May’s 3.9 percent jump in prices a “humdinger.”
Deputy Prime Minister Nick Clegg joined the worrywarts today by committing to investing to end what he called a “chronic lack of housing.”
But what if there is no housing shortage after all? That would undermine the conventional wisdom. It’s the case made by Andrew Brigden, chief economist at Fathom Consulting in London and a former Bank of England economist.
He echoes Nobel laureate Robert Solow’s quip of the 1980s that “you can see the computer age everywhere but in the productivity statistics.” Brigden said in a May 29 report that the shortage of housing is “evident everywhere but the data.” He attributes the surging prices to historically low mortgage rates and government subsidies for borrowers.
The firm’s analysis shows that the number of dwellings rose by 0.6 percent in 2012, the most recent year for which data are available, maintaining pace with population growth. Indeed, the amount of housing per capita has been broadly stable for the past 15 years.
A lack of homes would also push up inflation-adjusted rents, and they’re not. Instead, they gained just 2.2 percent in the year to the first quarter with house-price inflation at 8 percent, Brigden said. He also suggested that the quality of the houses that are being built may be rising to meet the needs of buyers, favoring four-bedroom houses over two-bedroom flats.
If there isn’t a shortage then the government should do away with its program aimed at easing affordability and prices will correct anyhow once interest rates begin rising, said Brigden. Better that than tweak lending rules.
“While we are not advocating a rapid tightening of monetary policy -- far from it -- any attempt now to use macroprudential policy to mitigate against the consequences for house prices of a prolonged period of exceptionally low mortgage rates is likely to be too little too late,” he said. “Policy makers should not use a perceived shortage in the supply of housing as a smoke screen.”
Some sense at last. Its pretty obvious cheap credit is to blame, not immigrants (though they play a part) or shortage of supply. Otherwise we'd see loads of people sleeping in the streets. The problem is generally one of distribution. If I built a block of 100 flats, all of them would be "snapped up" by investors and landlords - net result, zero extra supply for people wanting to buy a house, and so the cycle repeats.
This is why the government's policy of "build build build" is worthless. It'll never change the demand/supply ratio, and houses will continue to be stupidly expensive. The only policy that would work is to reduce the demand - either through taxation of property ownership, regulation of rental markets, or simply by making it more expensive to borrow to get a house in the first place (though, note: this will have no effect on foreign investor demand, that'll require non-dom legislation like other countries have)
U.K. Home Shortage Seen Everywhere But in Data - Bloomberg
And directly from Fathom Consulting:
UK housing shortage evident everywhere but the data
Fathom Research | 29 May 2014
It seems to be almost universally accepted that the UK is suffering from a shortage of housing. A perceived failure of the construction industry to build sufficient new homes is apparently what drove Chancellor George Osborne to introduce phase 1 of the ‘Help to Buy’ scheme. In a television interview earlier this month Bank of England Governor Mark Carney appeared to side with Mr Osborne.
> It is a truth universally acknowledged that UK house builders are not building enough new homes. There is a chronic shortage of housing in the UK, and unless something is done, it is only going to get worse. That is the received wisdom.
> But the received wisdom is wrong. Evidence for a UK housing shortage is at best hard to come by.
> In 2012, the number of dwellings in the UK rose by 0.6%. The UK population rose by 0.6%.
> And it’s not just 2012: the amount of housing per capita has been broadly stable for the past 15 years.
>If there were a shortage of housing, housing rents would be rising rapidly in real terms. They are not.
> The high level of house prices, relative to incomes, has nothing to do with a perceived shortage of housing and everything to do with a combination of exceptionally low mortgage rates, and subsidised access to mortgage credit.
> House prices are a key channel – perhaps, in the UK, the key channel – for the transmission of monetary policy.
> Once the normalisation of monetary policy begins, house prices will fall relative to incomes, and possibly outright. And this will happen even if the construction of new homes grinds to a halt.
Futures Forum: Houses v Fields
Futures Forum: Devon: taxing second homes
Futures Forum: East Devon: taxing second homes
Futures Forum: 60,000 new homes
Futures Forum: Richard Rogers and the housing crisis
Futures Forum: Building between 240,000 and 245,000 homes a year
Futures Forum: Greenfield vs Brownfield
Futures Forum: Help to Buy: housebuilders and homeowners benefit...
Futures Forum: Going, going, gone?... "Evidence from CPRE branches across England demonstrates that there is a growing threat to our most important landscapes from inappropriate development."
Futures Forum: Elderly to blame for housing crisis...?
Futures Forum: Housing: "it would be impossible to build to meet demand because there is a never-ending queue of people who want to move to Devon."
Futures Forum: Innovative solutions to the lack of affordable housing....... self-build alternatives...
Futures Forum: “We need the Government to address the chronic lack of affordable housing, take real steps to improve the private rented sector and to urgently consider the impact its cuts to housing benefit are having.”
Futures Forum: Allocating housing numbers in East Devon
Futures Forum: “We need a public that will be appalled by tiny rooms, lack of storage space, tiny windows, poor insulation."
Futures Forum: Migration, Sidmouth and East Devon
Futures Forum: Renting vs Buying in the South-West
Futures Forum: Greenfield and Brownfield
Futures Forum: Greenfield vs Brownfield: part two
Futures Forum: Greenfield vs Brownfield ... which is 'more expensive' ... and for whom?
Futures Forum: District Council to protest about 'planning bribes' ... "Intimidating councils into allowing consent to build on inappropriate sites for fear of losing at appeal and then not receiving the New Homes Bonus."
Futures Forum: "The haste with which local authorities have been hustled into producing their local plans and the pressure they’re under to produce the numbers of houses - has forced them to designate greenfield sites."
Futures Forum: "House prices in Britain are around 30% too high" >> "The solution to the UK housing crisis? Build on the green belt"
Futures Forum: The solution to East Devon's housing crisis? Build on the green belt
Futures Forum: Economics @ Transition Exeter: A land value tax