"Rabbit Hutch" Britain

An article in today's Guardian reports that houses built in the UK are the smallest in western Europe. I am not surprised: the high cost of land in the UK results in builders having to develop at high density to keep costs down, and this is also a major contributory factor to the fact that we never seem to be able to build enough houses to satisfy demand. Another contributory factor to the rabbit hutch phenomenon is the frequent requirement on developers to build a certain number of affordable homes in any new development. Affordable generally means small and cheaply made, but as today's report indicates we already have enough small starter homes.

Although I am not generally in favour of allowing market forces to decide everything, in this case we should just let builders build the houses they think are most likely to sell. The majority of people in the UK only own one house, so if builders build more of a certain type of house then prices will come down. People often stay in their first house for a long time (though many of them would like a bigger house), because they cannot find the extra money needed to trade up to a significantly better house. House prices in Britain are far too high: the solution is to build more houses so that supply equals demand, and it does not really matter what sort of house you build. Currently the number of houses being built is going down, but maybe builders would come back into the market if we removed the need to build affordable (that is, low profit) homes, and preferably simplified the frequently long drawn out planning procedures in which everyone from the local council to utility services try and get improvements to their infrastructure from the builder.

House Prices

In the UK Prime Minister Gordon Brown is interviewed on TV about the bad news that reports show that house prices are falling. In the same news broadcast people are interviewed in the street about about how they will be affected by having less money to spend because of the recession. Not for the first time the media seems to have decided what is good and what is bad, but I would query their assessment of the current situation. The government has just announced the lowest unemployment figures for thirty years, inflation is between 2 and 3%, and average salaries are a little ahead of inflation; so why exactly should the average person feel they have less to spend? When prices fluctuate then there are always winners and losers: falling house prices are good for first time buyers and bad for those sellers who are not also buying another property. House owners who want to sell so they can buy a better house are also better off if house prices fall, as the house they want to buy should come down by proportionally more than the house they are selling. For those of us not planning to sell, the value of their house is largely irrelevant. I would contend that falling house prices is either good news, or of no real consequence for most people.

More importantly, house prices have to come down if Britain is ever going to solve its housing shortage. Prices are governed by supply and demand, and the reason that Britain has some of the highest house prices in the world is that demand invariably exceeds supply. This government (and previous governments) have announced their intention to build more houses, and if we ever achieve equality of supply and demand then prices will inevitably come down. The news media generally view things from the consumers point of view, so in general prices increases on the high street are considered bad news, so why do they think house price increases are a good thing?