Why supply is the secret to affordable housing

a post by Mario Polese for the OUP blog

Image by Pete Linforth from Pixabay

Housing has become unaffordable for all but the lucky few in many of the world’s great cities. Who can afford to live in New York or Paris? Yet, housing prices can be kept in check. Some cities have succeeded in doing so, as we shall see. The secret is simple: housing supply, which can be stimulated or thwarted by public policy. Basic economics teaches us that rising demand (say for bread) in the face of inadequate supply (of bread) will inevitably lead to higher bread prices. Housing is no exception. The answer, thus, if we wish to keep prices down is to provide more housing. That indeed is the right answer; but easier said than done. For bread, the normal workings of the market (bakers making more when demand increases) will keep prices in check.

Housing, on other hand, is rarely produced under normal market conditions. Housing as well as the makeup of the neighborhoods we live in are highly sensitive issues that directly affect our well-being. Almost all nations have laws and regulations that govern what can be built where; which is why zoning ordinances exist. No one wants a waste dump next door or a high-rise blocking out the sun. How housing markets are regulated varies greatly across nations, reflecting national conditions and tastes. High housing prices in many rich-world cities, not least in the United States, are largely self-inflicted, the result of public policy.

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Reappraising the place for private rental housing in the UK market: Why an unbalanced economy is at risk of becoming even worse…

an article by Martin Field (University of Northampton, UK) published in Local Economy Volume 29 Number 4-5 (June-August 2014)

Abstract

There appears to be a current policy fascination with what rental provision from the private housing sector could offer to the UK’s housing market and to national and local economies. A plethora of reports from Parliamentary Committees, independent think-tanks, academic and professional bodies have promoted the benefits of new private rental supplies, but there seems little critical evaluation of whether this could make economic matters worse rather than better, nor of the potential negative impact upon local places.

This Viewpoint tables a number of concerns on the nature of private rental supply and its problems. It notes the manner in which the rise in private renting is impacting upon other parts of the housing market, not least its growing influence on wider assessments of housing performance by the establishment of benchmarks that are based upon ‘open market’ conditions. Particular criticism is levelled at how private rental provision is increasing ‘social’ and economic divisions between those having settled and secure accommodation and those seeing their income lost to short-hold and limited residences.

A critique is levelled against the promotion of the sector as some kind of a ‘value-neutral’ investment, since current rental and investment mechanisms represent an ideological framework to consolidate ever more resources with investors and property-owners that exclude increasing numbers of households from the potential benefits of their own owner-occupation. It is also argued that the ideological values underpinning a transfer of UK home ownership to the investment sector are going unreported, and that expansion of the private rental sector represents a real threat to future ‘affordable housing provision’.

The piece concludes with some views for putting other frameworks and financial systems for a fairer basis of housing delivery into place.

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Home Truths: How affordable is housing for Britain’s ordinary working families?

a research paper by Vidhya Alakeson and Giselle Cory for the Resolution Foundation

Summary

One third of Britain is effectively off-limits to lower-income working families looking to rent a home privately because they can no longer afford a property in those parts of the country.

An alarming new report, Home Truths, is the first to give a comprehensive assessment of where less affluent families can reasonably afford to live, revealing that even a very modest rented home is beyond the reach of low income households in 33 per cent of all local authority areas.

Full text (PDF 38pp)

Very useful maps which show clearly where the unaffordable places are. And they’re not all predictable.

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Montague proposals: New danger for vulnerable groups?

via JRF - Combined Feed by Alison Jarvis

Large-scale institutional investment in the private rented sector has long been an ambition of housing policy. So should we take our hats off to Sir Adrian Montague for suggesting some practical ways forward to achieve the objective? Or might there also be some dangers in his proposals, particularly for so-called “vulnerable” groups?

Let’s take young people as an example. Research suggests that as the prospect of home ownership recedes, the private rented sector will face far greater demands from the under-30 demographic. As demand grows, the sector will become more socially divided as different groups compete for the available stock. By 2020, a “three-tier” system is likely: those at the top who can afford to pay, a “squeezed middle” who might struggle, and a bottom rung who risk being excluded.

If you were an institutional investor keen to realise your return, which group would you target? Would you opt for the safe bet or the most vulnerable? No worries, though; the social rented sector will take on those unable to compete in the private sector, won't it? Well, not if there’s no new social housing supply, it won't.

The research predicts that the number of young people able to get in to social housing will have dropped by 360,000 by the year 2020. The whole housing system requires fundamental reform, and incentives to encourage investment in the private rented sector will achieve little if they simply substitute for investment in other housing tenures. And this is where the Montague proposals can start to look a little shaky. Kick-starting construction by using public subsidy (land) for private sector housing is not necessarily a bad thing in the current economic context. But Montague also suggests relaxing the planning agreements that have ensured that a proportion of the new homes built are affordable. For years, this has been a major source of new social housing supply, especially in pressurised areas.

So all in all… mightn't the effect be simply to shift subsidy from those who need it most to those who have more political clout?

Read more about: affordable housing, Housing, Montague, Social housing, Young people


Hazel’s comment:
Housing problems may not fit into the purist’s definition of careers information but it certainly affects the people who the most vulnerable in society.

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