In Keynesian economics, there is an acknowledgement that some issues are just too big and complicated for the automatic mechanisms of “the market” to fix, and that government intervention is the only solution.
Perhaps we are facing just such a scale issue in the UK housing market today.
We are now standing in the foothills of another house price inflation mountain.
Halifax data last week showed house prices in the three months up to August 5.4 per cent higher than the year before. The rise is much higher in London.
Activity is rising too, with estate agents and lenders reporting increasing transaction levels well and the CML’s forecast for gross lending this year looking likely to be blown away.
All this apparently positive news risks us loosing sight of the fact that the housing market simply isn’t working – problems are immense in all tenures and in all parts of the country.
A great exposition of all this is contained in Shelter’s recent briefing, “Solutions to the housing shortage”, (you can find it on the Shelter website) and it is a read that I would strongly recommend.
Waiting lists for social housing are at record levels.
The impact of the spare room subsidy or bedroom tax will soon start to bite, and rent arrears will surely increase.
The private rented sector is growing but surveys show that the majority of people in the PRS actually want to be home owners, but cannot afford it.
The owner occupied sector isn’t working well either. Supply shortages mean that any increase in demand, such as is caused by record low mortgage rates and the Help to Buy scheme simply lead through to house price rises.
Fundamental to all of this is a shortage of new home building.
Everybody knows by now that we should be building around 250,000 new homes per year to keep pace with demographic changes, but at the current level of around 130,000 per annum we are falling well short.
The 6 per cent increase in the number of new housing starts, quarter on quarter, reported last month is a move in the right direction, but only a tiny move.
Just look at the shortfall and consider that we have been that far behind since 2003 when the 250,000 figure was first published in the Barker Report. We have a market that is not functioning, so what is to be done?
In some ways, the answer is simple, it is one big thing, build more homes.
But beyond the simple answer are further questions. Who should build? What should they build? Where should they build?
We need radical and comprehensive action on a number of fronts – from supporting self build through to building new towns and removing the restrictions on local authorities, we need real, practical solutions to get us to the magical figure for housing requirement.
All of it will require Government support, encouragement and endorsement but as I said at the beginning, some issues are just too big for there to be any other solution.