May 20, 2018
Business

Depoliticise development to solve the UKs housing crisis

Capitalism is the great engine behind all the material freedoms of modern life.

Yet tragically, capitalism is not allowed to work its magic with what matters most to us, namely our dwellings and cities.

Why are we suffering a housing shortage while no one worries about a shortage of bananas, bikes, or cars? Of course, in socialist countries all the above are endemic.

Read more: DEBATE: What if the UK becomes a nation of cradle-to-grave renters?

The explanation is that the housing market, in contrast to the bicycle market, is highly politicised. We must set the market free and allow economics, not politics, to guide the allocation of land resources.

We should be experiencing an urban renaissance, as crucial sectors grow and people flood into our networked cities. Instead, planning restrictions and imposed standards block the adequate supply of urban houses. Our housing market is in paralysis.

This means prohibitive prices. Paradoxically, the affordability system contributes to rather than alleviates the affordability crisis. If we want to change this, choice has to replace the state-enforced allocation and rationing of land and housing resources.

I believe this is not only guided by what we think is just, but by how inefficiencies in housing bear down on Britains prosperity.

The extraordinary price spiral of the last decades can be attributed to politically-backed nimbyism – a form of protectionism that privileges current owners of residential land and properties.

In contrast, the eradication of land use restrictions could be a rocket under the overall value we all get out of London. Mixing land uses is crucial for the vitality of the city. But a healthy mix will only come about if discovered through the creative trial and error process of prices; state allocations wont fit what people actually need.

The current imposition of residential unit mixes and housing standards leaves no room for urban entrepreneurs and their architects to innovate at all in the London housing sector. Our lives here are so much poorer for it, blocking the discovery process of the market and taking away vital choice.

Density too must be taken out of the hands of politicians. To the extent that collective action is called for, an association of property owners might regulate density externalities like rights of light. Do so, and well all be better off and happier.

Rent controls and other “protections”, as Londons mayor is proposing, are no solution to the current crisis. Quite the opposite: they backfire and withdraw supply from the market. Rent controls mean wasteful maintenance patterns and a misallocation of houses. They keep tenants stuck in places they would otherwise leave, and lock out those who would move in.

The rationing of homes via the affordability system implies a very similar misallocation. Any rationing forgoes the market rationality that always allocates resources to those who best utilise them.

Then there is the bureaucracy involved in administering the system, and all the effortful queuing up for these places.

Sadiq Khan seems intent on ramping up “affordable housing” to 50 per cent of all new housing provision. He will thereby make the remaining half all the more unaffordable, by placing on these houses the burden of compensating for his subsidies. No wonder then that the income eligibility threshold is ramped up continuously. Its a vicious interventionist spiral.

These infringements on free choice make everyone who might want to rent or buy a home smaller than current housing standards allow much poorer. The effect of these standards is to disadvantage the poorest of us who fail to qualify for subsidies.

That the housing situation is a huge priority is brought home by the fact that most of us are willing to pay a very large part of our total income on our homes. Location is one of our most obvious preferences.

In some parts of London, young professionals, for whom a central London location is vital, are forking out up to 80 per cent of their disposable income each month on rent. Restrictive state interference is taking away choices. As their rents ramp up, they are let down.

My demand: roll back the political interference in the housing sector, unleash entrepreneurial and architectural creativity, and let the competitive market process channel these energies and investments towards a brighter, and more social future.

Read more: Letting agents are facing an epidemic of their own making

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