The Blog

Is the 'Housing Crisis' Real, or Do We Need a Culture Change?

We are experiencing a 'housing crisis'. We must be. Because every day, someone - politicians, media pundits, think-tanks - say we are. But it's difficult to remember a time when we weren't experiencing a housing crisis.

We are experiencing a 'housing crisis'. We must be. Because every day, someone - politicians, media pundits, think-tanks - say we are. But it's difficult to remember a time when we weren't experiencing a housing crisis.

Help To Buy, endless calls to build more houses; we know that prices are too high, blocking first-time buyers from stepping on the ladder. But prices are made by people - are we working with flawed information? How can we be in a constant state of property shortage when countries like Germany seem to stay robust?

Is the 'housing crisis' real? Or is it just us?

Lies, damn lies and statistics

We're constantly being told we don't have enough houses. That we need to build 250,000 homes now to meet demand. And keep it up every year for the next twenty to avoid falling into the same trap again. Meanwhile, only 109,370 homes were built in 2013. But where do these figures come from?

As Simon Jenkins points out in The Guardian, the 250,000 homes a year statistic stems from the 2004 Barker review, for which there is scant evidence. The "need is based on crude household formation, with no reference to demand, price, migration or anything else."

Discussion (and implementation) of housing policy has been drawing on the Barker review ever since its publication. If it's flawed, so is policy. For example, Shelter's report on the housing shortage (drawing heavily on the Barker review) bases its entire premise on some decidedly suspicious reasoning: equating the need for building new houses with a need to bring house prices down to a 1.1% inflation target - as most discussion does.

This is heavily reductionist. Price is not as simple as demand vs supply. Demand is far more nuanced than balancing a simple 'x people want y of which there are z' - where the higher x is, and the lower z is, the higher the price. Consider how much house prices have risen in the London and the South East compared to the rest of the country. Distribution is key. Want fuels demand as much as, if not more than, need.

Jenkins continues with his most devastating point on the housing crisis: "The 1971 census return showed Britons enjoying 1.5 rooms per person. Today, with a larger population, the figure is 2.5... The rich are simply storing money in surplus rooms." Or: perhaps we do have enough space, but too much is unoccupied, and in the wrong places.

An honest assessment of our housing needs would take into account more than gross national supply and demand. It would focus on the nature and distribution of our current housing stock and how best to re-allocate it.

When in Berlin...

Such re-allocation would be a lot easier if so many homes weren't owner-occupied. A strong rental sector implies a much more fluid housing allocation. In Britain we tend to see home ownership as a near-human right, the bedrock to a flourishing life and a healthy economy.

But elsewhere in Europe, home ownership is much lower, and renting for life far more usual. This is particularly pronounced in Germany - 'the engine of Europe' - where home ownership is only around 43%. The historical trends behind Germany's rental culture are many and various, but the lesson we can learn is that home ownership doesn't have to have the primacy we give it.

There are other ways. And they can be encouraged. Although the culture is embedded, and the infrastructure reflects that, Germany's housing policy is also tailored towards a renting nation - tight regulation and controlled rents combined with a high quality private housing stock; factors common to many other European countries.

If our housing market wasn't so focused on ownership, we would likely see far more families downsize when the children leave home - resulting in a more effective allocation of housing.

Wealth and houses

As every politician understands, housing is central to the rest of the economy. Where we seem to be going wrong is in placing such a premium on home owning. Squirrelling wealth in spare rooms is taking money out of the wider economy, fuelling price rises and feeding inequality.

If we stop relying on rising house prices to fund our retirements, that frees up more capital to put into business - and rather than wealth leaking out of the country, most British investors invest in Britain. That means a more liquid economy, creating more jobs and raising incomes.

Further, the government is clearly invested in getting us to save more - a necessary reaction to a looming pension crisis - evidenced by the expansion of the ISA scheme. But if young people are to get anywhere close to using their annual £15,000 NISA allowance, they need to not be ploughing all their money into rent, deposits and mortgages.

Housing is the central plank of the economy. We have real issues here. A proper understanding of their causes is essential to resolving them. And resolving them will ripple out to the rest of the economy - helping at least ameliorate other fundamental issues. We see the family home as the principle means of both paying for retirement and transferring wealth between generations. This is unsustainable. We need a different approach.

Maybe we don't have enough houses. Maybe we just need to stop obsessing over ownership. Maybe it's somewhere in between. But what we have now isn't working, and neither are the Coalition's half-hearted fixes. It's time for a radical re-think. And that starts with a proper analysis of our housing supply.