Is there a housing crisis?

Is there a housing crisis?

Add to Reading List
Add to Reading List

Is the earth a planet? Is the Pope a Catholic? Do bears defecate in the woods?

I never thought I'd have to write a piece arguing for the existence of a housing crisis. I thought the basic facts of rising homelessness, falling home ownership, a house-price-to-earnings-ratio significantly above the historical average and very weak housebuilding relative to population growth made such a thing eyeball-poppingly self-evident. 

The housing and homelessness charity Shelter argues that to meet the country's need for housing, we would need to build 250,000 homes per year, and we are falling dramatically short: "England is now delivering fewer homes than in any peacetime year since the First World War, even before accounting for a much larger population and smaller households. As a result, the country faces a large and accumulating shortfall between the homes we need and the houses we are building – of approximately 100,000 to 150,000 homes a year. If we remain building at current levels, we build a million fewer homes than we need every seven years."

Shelter points to this chart, which highlights the dramatic fall in homebuilding and how that is correlated with the soaring house prices we have seen in the last couple of decades:

Yet Andrew Lilico writing for CapX says no, this correlation has nothing to do with a housing crisis. Lilico says: "There is no UK "housing crisis" and there never was one."

Lilico points to two statistics to make his case. First, he argues that there is still a surplus of dwellings over the number of households, just as there was in 2001 and 1991 and 1981. Housebuilding may have fallen, Lilico argues, but only in proportion to falling demand for housing.

Next, Lilico points to the fact that private rental costs have risen at a slower rate than inflation. He argues: "We see that, far from renting becoming ever more unaffordable, exactly the opposite has happened over the past ten years — rents have not even kept pace with inflation."

Lilico concedes that home ownership has become vastly more expensive, but argues that it doesn't matter: "Buying a house is indeed very expensive. So is buying a Ferrari. So is buying a yacht.  But we don’t normally talk of there being a "yacht crisis". Now obviously virtually no-one in Britain needs a yacht.  But, equally, virtually no-one needs to own a house.  What we need is to be able to live in houses, and as we’ve seen already the cost of renting houses has not been rising particularly rapidly. So housing being very expensive is not a social problem in its own right."

I'd love to see Lilico try and convince a homeless person or someone living in a mouldy bedsit or a twentysomething boomerang child of the idea that nobody needs the security and peace of owning their own dwelling, and that the aspiration of owning a home is on par with the aspiration of owning a yacht or a Ferrari.

Lilico's evidence for his ideas is very fudgy and blinkered at best. Lilico dismisses out of hand the possibility that suppressed household formation due to excessive housing prices might be twisting the ratio of dwellings to households. But the Office for National Statistics' data show that 600,000 more 20-34 year olds were living with their parents in 2013 than 1996, a trend which has been rising and rising since the turn of the millennium. If that's not suppressed household formation, I don't know what is.

Furthermore, some "dwellings" are more equal than others. Just because there are more "dwellings" than "households" doesn't mean that those dwellings are liveable or conducive to happiness and prosperity and wellness. A huge chunk of the population lives in "bad housing" that does not meet the Decent Homes Standard — dwellings that are overcrowded, that are not in a reasonable state of repair, that lack efficient insulation and heating, etc. Shelter estimates that "[a]round three in ten people live in bad housing (3.6 million children, 9.2 million working age adults and 2 million pensioners)."

And as Tomas Hirst pointed out on Twitter, the fact that private rents are not rising faster than inflation does not mean that rents are not high by historical standards. The data (via the Institute for Fiscal Studies) shows that housing costs increased dramatically as a proportion of income since the 1990s for all tenants especially private renters, and things have stayed painfully expensive as housebuilding has plummeted:

Embedded image permalink

Essentially, what Lilico has done is cherrypick a couple of statistics that make his case look superficially plausible, while ignoring the broader weight of evidence such as the rising homelessness rate, suppressed household formation and soaring house prices.

Of course, those with a vested interest in perpetuating the crisis and keeping rents and house prices far above the historical norm might be prone to deny that a crisis exists. That is just self-interest. But the real issue isn't the existence of a housing crisis. It is what to do to solve it.


Keep up to date with the latest thinking on some of the day's biggest issues and get instant access to our members-only features, such as the News DashboardReading ListBookshelf & Newsletter. It's completely free.


Twitter Feed

RT @mybuchshelf: Are book collectors real readers, or just cultural snobs? – via @aeonmag

A collection of some of the best econ books of the year, feat - @ryanavent, @BrankoMilan, @g2parker and more...…

RT @mark4harrison: Blogged: Donald Trump and America's Incomplete Contract with Itself @warwicknewsroom @cage_warwi…

RT @NIESRorg: The weak pound in your pocket: @angusarmstrong8 continues to make waves with his blog post, this time in the @FT https://t.c…

RT @LSEReviewBooks: Review Archive: The Sharing Economy: The End of Employment & the Rise of Crowd-Based Capitalism by Arun Sundararajan ht…