Beyond Barker - barking up the wrong tree?

Summary

The House Builders Federation have reviewed how housing provision in the UK has met the aspirations of the Barker Review of 2004. They repeat the assertion that rising prices and the various aspects of the housing crisis are a consequence of a lack of supply. Yet the evidence ignores the crucial role of houses as assets and the impact of lower interest rates together with higher earnings, the siphoning off of dwellings to the non-residential sector and changes in benefits, mortgage rules and social housing provision. As a result the report does not offer a viable solution to existing problems and housing issues.

The report

The House Builders Federation have just released a report ‘BEYOND BARKER, A Two-Decade Review of England’s Housing Policies and Progress.'  In their introduction they set out the background.

“In March 2004, economist Kate Barker – in her landmark review of housing supply – called for a more equitable distribution of housing wealth, and warned of the potential for a growing economic and social divide between those who can access market housing and those who cannot."

I suspect most people would agree with that sentiment. They go on to state: “Two decades on, Barker’s prediction has proved accurate:

• The average age of first-time buyers is now 34 – up from 31 two decades ago when the Barker report was released;

• Home ownership levels have fallen to 65% in 2022-23, from a peak of 71% in 2003;

• Housing affordability has worsened in every local authority in England over the past two decades;

• The ratio of median house prices to median earnings has increased from 5.9 in 2003 to 8.3 in 2023."

The report therefore decisively states

“…it is clear that successive governments have not truly delivered on Barker’s call for action to increase housing supply rates and to ensure more households can access market housing - and with an ever-growing housing shortage, today’s policymakers need to be even more ambitious than the vision Barker set out in 2004.”

There are several references to a need to increase the housing supply indicating there is a housing shortage.

“Ultimately, the findings of our analysis are demonstrative of a housing crisis that has sharpened over the past twenty years, and reaffirms the need for action to increase housing supply and revive the dream of home ownership."

Barker noted in her Review that “the long-term upward trend in house prices and recent problems of affordability are the clearest manifestations of a housing shortage in the UK”.

The report then calculates the shortfall in housing using net additions compared to the figures Kate Barker set out to reduce real prices. Three sets of estimates were produced.  The report concludes that – “On average there have been only 190,000 net additional dwellings per year since 2003 – whereas at least 240,000 homes a year were needed to deliver Barker’s more ambitious scenarios."

Not missing the target but missing the point!

A number of impressive tables are included in the report, which gives the aura of technical expertise and scientific analysis. But the report fails in several respects.

Firstly it should be pointed out that Kate Barker is of the ‘build more houses’ tendency assuming that house price increases and hence affordability is a function simply of supply. Yet substantial evidence suggest that the main driver of increasing house prices is the role of houses as assets with rises in values as interest rates decline.  The other driver of increasing prices is earnings. 

Increasing supply might reduce prices in theory “But the available academic evidence suggests that no plausible rate of supply would significantly reverse the price growth of the past two decades. Multiple modelling exercises, for the UK and elsewhere, find that a 1% increase in the stock of houses tends to lead to a decline in rents and prices of between 1.5% and 2%, all else equal.” [Mulheirn,2019].  And there is the issue of as we have more houses than households what would happen to the empty houses?

The obsession with supply ignores the wide range of factors, which have created the current housing crisis in terms of affordability, access and lower home ownership. Not all housing is used to house people with some dwellings used for leisure purposes. Developers are often keen to build and promote luxury dwellings in an area rather than dwellings for the average local resident. There has been a decline in social housing where people pay a social rent.

Changes in benefit rules, stricter borrowing guidelines and the impact of a more ‘flexible labour market’ have all constrained the choices of younger people in the housing market. The rise in asset values has allowed a small number of households, generally the more affluent, to build their asset base by remortgaging existing property.  The rise in house values has created a spiral of rising prices with existing owners chasing increasing prices with new entrants struggling to buy into the market.

Conclusion

By focussing on the wrong issue the report is basically barking up the wrong tree. It fails to recognise the actual causes of rising prices and the related problems arising therefrom.  As a consequence the policy options, which are required to address the housing crisis, are ignored presenting policymakers with a policy folly and the public with false expectations of a solution. 

Sources

House Builders Federation, April 2024, BEYOND BARKER, A Two-Decade Review of England’s Housing Policies and Progress.

Mulheirn, I., 2019, Why building 300,000 houses per year won’t solve the housing crisis – and what will, LSE Blog 2019.