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timeasmymeasure
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Date: 2011-01-03 05:39 pm (UTC)Apparently an early draft of the Barker Review highlighted this issue, but the final report was persuaded to confirm the accepted supply-demand wisdom. There are, I'm told, a fair number of academic papers on housing policy which point out the flaws in this reasoning, but I don't have any specific citations to hand (although Abi says an academic journal search for "Barker Review" should turn up a few).
The problem, as I understand it, with the supply-demand argument is essentially what
Some of these factors are geographical: We're currently in the process of buying a 4-bedroom detached house with a garage and nice garden, in a nice quiet bit of Coventry, for a price that might get you a one-bedroom flat in an ok-ish but not especially up-market bit of London. This difference in price isn't because there are more houses available in Coventry (there aren't), but because more people want to live in London than in Coventry.
Another factor is social in nature: house prices are pretty low in some of the dodgier inner-city areas of Liverpool, say, but that's not because there's an oversupply of housing, but because relatively few people want to live in those neighbourhoods.
Supply and demand works fine for things like Mars bars: if I own the necessary factories, and notice that the price of chocolate is going through the roof, then I can take on more staff, buy in lots more sugar etc, and then have a warehouse full of the things within a couple of weeks, which can then be distributed to retailers in order to meet the geographical variations in that demand. If there's a big shortage of housing in a particular area, though, then it'll take a year to build, say, ten at a time, in a fixed location. Also, you have to be very careful about what sort of houses you build: developers building one-bedroom flats for single executives might be profitable for the developers, but isn't going to do anything to bring down prices of 3- and 4-bedroom family houses, especially if you build those flats in the wrong area (eg near local schools but away from mainline railway stations or motorway junctions, etc).
Even if you could bring down the demand by carefully targeting the supply, then (if I've understood what Abi just told me correctly) in order to keep house price inflation to about 2%, you'd need to build about a quarter of a million new houses a year - which hasn't been happening for the last few decades. Also, the developers aren't going to do that, because they rely on house prices remaining high in order to make a profit.
So unfortunately it's all a bit more complicated than most people realise. It's not entirely clear whether the current housing minister does realise this and is just presenting it as a simple issue in order to look like he and the rest of the government have a workable plan when they don't, or whether he actually does think the problem is easier to solve than it is.