8. Affordable Housing

As with any commodity, it is the combination of the price demanded and the financial means of the prospective buyer, that renders it affordable or not.

Housing is no different. House prices have been rising inexorably at least since the 1960s and continue to do so, especially in the most sought after areas, such as London and the South East.

However these increases have not been matched by any commensurate increase of wages and salaries above the general level of inflation since the crash of 2008; even in the less sought after areas of the country, where the increases have been less severe, people have still struggled to find the down payment for a mortgage.

This situation is nothing new, but it has become far more acute in recent years. The consequence is that, since 2000, home ownership has been in decline and private renting has been increasing (see fig.1).

The problem of ‘affordability’ has been around at least since the end of the First World War, when the ‘Homes for Heroes’ programme was established leading later to subsidised council housing which, although a form of welfare, was an effective solution to the problem of affordability for many years. The council housing stock thereafter was added to with greater or lesser enthusiasm by all governments until being set into reverse by the ‘sell off’ policy of the Thatcher government in the 1980s. This policy of course added to the number of homeowners who then had a vested interest in continually rising house prices, not to mention a new group of grateful Tory voters.

But council housing, rightly or wrongly, has always carried a stigma; given the choice and the financial means, the majority of people would choose to live in the leafy suburbs rather than the council estate, and the crucial phrase here is ‘financial means’; without the financial means, many things become unaffordable, including housing.

The solution to this problem offered by politicians, (and many economic advisors) is to build more houses, hoping that by the law of supply and demand, the increase of supply will bring prices down. But they do not recognise that the price of a house is related not only to the value of the building but also the value of the site upon which it stands. In high value areas the site value may be as much as 4 times that of the building value, so any increase of house building can only affect 25% of the total price, the 75% due to site value will continue to rise regardless. Land does not obey the law of supply and demand because the supply of land is fixed.

Ireland suffers the same problem with housing as England. Conall Boyle, former lecturer in economics and statistics at Birmingham City University, provides an interesting article showing that an increase of house building in Ireland between 1975 and 2015 did not help to bring prices down, see:

http://housescheaperbettermore.blogspot.fr/2017/07/building-more-houses-wont-bring-down.html

It is the site value factor that has the greatest affect on house prices in high value urban areas and these ever-rising prices are exacerbated through land hoarding and land speculation, creating an artificial shortage and pressure to increase prices – simply to the benefit of the landholder.

The best solution to this problem is to impose a land value tax which would arrest the rise of the land value factor, keep rising prices under control and make land banking and speculation unprofitable. Depending on the degree to which a land value tax is imposed, extreme house prices can be reduced. Only then will housing become affordable.