Another flawed report from the free market coalition

A few days ago, the Tony Blair Institute for Global Change, released a report ‘The Urgent Need to Build More Homes’.  As the title suggests it supports building more homes.  It states that “Britain has high and rising1 housing costs, which puts pressure on the cost of living for individuals and families and makes it hard for younger people to enter the housing market. In the 1990s, it took three years for a low- to middle income family – at the 30th percentile by income – saving 5 per cent of their disposable income to save enough for a deposit. By 2021–22, this figure had risen to more than 22 years."

 

And the cause of this?  The same old myth, that the planning system is holding back housing supply. “The current planning system is holding back progress at every point: it is failing to incentivise building homes where people want to live and work; it is embedding slow, outdated processes; and it is empowering veto players rather than those keen to deliver change.”  So the report supports Government policy of 370,000 new dwellings per year, in fact suggesting higher levels would be desirable.

 

The report purports to justify increasing supply because “Basic economic theory would imply that if there is a plentiful supply of homes and no tight geographic constraints, the prices of homes tend not to rise much above the economic cost of building more homes,..."  Yet this is a fundamental flaw in the whole case.  Housing supply has outpaced household growth for many years.  We have a surplus of 1.5 million dwellings in England. There is not a lack of supply problem. Evidence from various sources indicates that the drivers of house price increases have been the rise in asset values (during the period of low interest rates), and increases in earnings.  The report fails to acknowledge that for these reasons, house prices are going to be higher than the building costs.  And past increases in value are locked into the system.  If average prices in an area are say £350,000, then the value of new properties will be similar. Where they are £450,000, the value of new properties will be £450,000.  Supply is not the problem.  .

 

Oddly enough, the report fails to mention the impact of second homes and holiday lets or the use of dwellings for investment purposes. 

 

Yes there are issues with housing – affordability, quality and access. But to address these require reform across a range of government policies. In planning terms ensuring that developers provide houses which are affordable and not to meet demand for second homes, holiday lets and luxury use. 

 

Again we have a report based on neo-liberal economic assumptions. It fails to address the causes of housing problems or to develop appropriate policies.

 

Langengen,T. Myers, J. Emerson, K., September 2024 ‘The Urgent Need to Build More Homes’, Tony Blair Institute for Global Change.