For some time now, regular readers may have noticed, I’ve been publishing articles that could be parsed, basically, as, “Yes, Britain does need to build more houses, don’t be bloody silly”.
There was this article from November 2017, in which I asked if the housing crisis was a myth (spoilers: no). Then there was this, by the Centre for Cities’ economist Paul Swinney, in which he argues that, whatever you may have heard recently, supply definitely is one of the causes of the housing crisis.
Obviously, having been banging on about the need to build more bloody houses for several years now, I’m rather invested in this argument. But the reason I keep publishing this stuff is because of the recent appearance of commentators – most notably, Ian Mulheirn of Oxford Economics – who argue that there is actually no crisis of housing supply. The problem, Mulheirn argues, is one of excess cash pushing prices up. If and when interest rates rise to a more normal rate, then the cost of borrowing will become more expensive, and house prices will become affordable once again. (Rents, he argues, haven’t risen at all.)
I’ve never bought this argument. While interest rates are clearly a factor, it doesn’t seem sufficient to explain the rise in shared living, or the growth in the number of renters paying more than half their income in rent. So, while I don’t believe that building more housing will magically solve everything, I do believe, in the most expensive cities, like London and Oxford and Cambridge, it would help.
That said, Mulheirn is an economist, and I am not. He has a better grasp on the data than I do, and while I instinctively think he’s wrong, I lack the skills to prove it. So, human nature being what it is, I’ve developed a tendency to latch onto anything that suggests I’ve not been living a lie for the last five years.
And lo, it came to pass:
Click to expand.
This is from the Resolution Foundation’s latest report, A New Generationl Contract, which has won most headlines for its proposals to give every British citizen £10,000 at the age of 25.
In my quest to prove that I Am Not Wrong though, this is the chart I find most interesting. A couple of things about it grab me.
The UK doesn’t have many homes relative to its population. In fact, this seems to be a true across the English-speaking world: the US, Canada, Australia and Ireland are also all hovering around the 550 homes per 1,000 people mark, while most continental European countries have over 600, even over 700.
The UK housing market is inelastic. The three dots, representing the figures in three different years (1990, 2000 and 2015), are all fairly tightly clustered together. Again, this is true of all the English-speaking countries, except Ireland. Compare that to Japan, or Portugal, or Finland or Greece where the supply of homes relative to population has shot up over the same period.
We need to be careful here, as “increasing the supply of homes” isn’t the only way to get a higher number on this measure. Demographic decline – fewer people, in layman’s terms – of the sort seen in several European countries and Japan, but largely unknown in the Anglosphere, would have much the same effect. So would a boom of holiday home construction, of the sort seen in many Mediterranean countries and also, more bafflingly, Ireland. (That went well.)
Nonetheless: the result is that the UK has a smaller number of homes to go around than, say, France. In fact…
The UK position is getting worse. Between 1990 and 2000, the number of homes per thousand people in the UK actually increased – by sight, I’d say that’s a shift from around 555 to around 575.
But since then, it’s fallen back, to somewhere around 560 again. We know that the population has grown in that time. This graph suggests that housing supply has not grown to meet it.
Here’s what the Resolution Foundation report says about that chart:
While the measures outlined so far would improve life in the private rented sector and level the playing field for first-time buyers, building more homes is critical if we are to bring down the market cost of housing over the longer term. While some accounts have minimised the role that supply has played in exacerbating the housing challenges of young people, a rise in multi-family households suggests constrained supply. And when we look cross-nationally, as we do in Figure 9.5, we can see that the UK has a far lower housing-stock-to-population ratio than most comparable countries and has been far less successful at increasing that ratio in recent years.
Building homes at a faster rate than the adult population is growing is essential if supply and demand are to be rebalanced. The government’s target for England of getting 300,000 new homes built a year, significantly above the projected rate of population change, is a good place to start.
Or, to sum up: I was right, goddammit.
That said, CityMetric is a broad church. And all jokes aside, I am more interested in understanding this mess, so that we can fix it, than I am in being smug about my own righteousness. If anyone from the “No, we have plenty of houses actually” lobby wants to pitch a rebuttal, you know where I am.