Simon Jenkins is quite wrong about the housing crisis

Simon Jenkins says that there is no housing crisis, and lists 11 ‘myths’ that have misled people into thinking there is. I usually really like Jenkins's pieces, but I think almost all of his rebuttals of these ‘myths’ are wrong:

1. That there is a housing “crisis”. There is none. Too many people cannot find the house they want in London and the south-east, which is where most politicians and commentators live. …Average prices in London may be £500,000, but in the north-west and north-east of England they are £150,000.


There are even cheaper houses in the Scottish Highlands, Spain and Bulgaria. The point is that London and the south east are not just where ‘most politicians and commentators’ live, they're where most of the best jobs are being created, and hence where people want to live — from 2007 to 2011, "London’s economy (GVA) grew by a nominal 12.4% compared to between 2.3% and 6.8% across other UK regions." There’s a good case for trying to rebalance but for now it’s easier to build houses where the jobs are than move the jobs to where the houses are.

2. That an average is a minimum. It is not. Housing hysteria is based on averages. When someone asks “How can I possibly afford £500,000?”, the answer is: you cannot, but somebody presumably can. But go on Zoopla and there are houses in parts of London for £180,000. Even the poorest newcomers seem to find somewhere (usually private) to rent.

The problem here is that the average house is not affordable for the average earner. So the cheapest houses Jenkins can find in London go for £180,000 (actually, I'm not sure this is true because I can't find any on Zoopla) – where does that leave people on the lowest salaries? So ‘the poorest newcomers seem to find somewhere (usually private) to rent’ – never mind if those places are squalid, far from work and cost half those people’s incomes, eh?

3. That there is a national “need” for 250,000 new houses a year. ... Housing need implies homelessness. It should refer to the 60,000 people currently in temporary accommodation, who ought to be the chief focus of policy attention. All else is “demand”.

The 250,000 new houses a year figure is based on the number of new houses needed to stabilise affordability. True enough, people’s wish to have more in their lives than food and shelter – a bit of disposable income for themselves or their kids – is ‘demand’, not ‘need’. They won’t die if they don’t have it, they’ll just have worse lives.

4. That the solution to house prices lies in building more new houses. …The chief determinant of house prices is the state of the market in existing property and the cost of finance. During the sub-prime period, prices soared in America and Australia despite unrestricted new building. It was cheap money that did the damage. The house-builders lobby equates housing to “new build” because that is where their interest lies.

No doubt interest rates have an impact on the price of houses, as with any investment good. Simon Wren-Lewis explains why here. But think of interest rates and housing supply as two blades of a scissors: the only reason houses are an investment good rather than a simple consumer good is because the supply is so inelastic. There is no investment market in TVs or cars because the supply of these things responds to changes in demand for them.

The story Jenkins gives of the US housing bubble is a popular one but isn’t well supported by the evidence. Jenkins is extraordinarily ignorant if he thinks that building was or is ‘unrestricted’ in the US – planning controls mean that US GDP may be 13.5% lower than it would otherwise be. Houston, Texas, which (in)famously is the only major US city with no zoning code, actually escaped the subprime collapse virtually unscathed, and Texas issues so many building permits annually that median home prices in Texan cities are a fraction of that of tightly-controlled California.

5. That the solution lies in the green belt. This is an anti-ruralist’s version of myth four. Even were the green belt obsolete, which few accept, or partly so (which I accept), it will not dent the pressure of overall demand. Nor is sprawl remotely “sustainable” development. It requires new infrastructure and puts more pressure on roads and commuting. It is bad planning.

Jenkins does not explain why he thinks building more houses in places people want to live ‘will not dent the pressure of overall demand’ so it’s hard to rebut this. There is plenty of land around existing train stations into London that could be built on. Certainly new infrastructure would be required. I’ve discussed some ways to capture planning gain and use impact fees to fund other new infrastructure here.

6. That high buildings are the answer. They are inefficient as the higher you build the more is spent on servicing. London’s most popular and economic housing is “high density/low rise”. Towers have supplied mostly empty pads for the rich, housing no one.

I mostly agree with Jenkins here. “High density/low rise” housing is popular because it is relatively cheap, as he suggests. There is a clear price premium for lower density terraced and semi-detached housing – compare similarly units in the same areas in almost any part of London. This is the sort of thing people seem to want to live in, if we built enough for them to afford it. The reason we can't do this is – you guessed it, and Jenkins later acknowledges it – planning laws.

7. That the answer lies in new social housing. Security of tenure and low turnover – not to mention right to buy – renders the fixed stock of public housing inflexible and immobile. Increasingly it has become a generous donation by the taxpayer to a fortunate few, for life.

Yes. Very few people actually want to live in social housing – 80-84% say they’d like to own their own home, if they could. But Jenkins seems to want neither social housing nor much private housing to be built.

8. That people have a “right” to live where they or their parents lived before. Localities benefit from stable populations, but conferring and bequeathing such a right to discriminatory subsidy is in no book of rights.


9. That there is also a “right” to home ownership. The state has a housing obligation for those who need help. Home ownership is capital accumulation, developed out of the Tories’ mortgage tax relief as a form of saving for old age and to endow offspring. It promotes inequality and cannot be termed a right.

No, there isn’t and shouldn’t be a ‘right’ to home ownership or to live where your parents lived, but nor should home ownership be seen as capital accumulation only. As per above, houses are part consumer good (because people use them), part investment good (because they are scarce and valuable and their supply is inelastic). People want to own their own homes – we don’t need to use the empty language of rights to think it’s worth trying to give them that.

10. That renting is stupid. Renting is buying a service. About 60% of Germans rent. They do not think of buying until their 40s. Booming Berlin has 90% of its population renting. Renting aids labour mobility and channels savings into productive investment. As a result, Germany has little house price inflation and no “ladder” advantage to owning not renting.

Renting is great – Jenkins is entirely correct here. But a dysfunctional housing market also means a dysfunctional rental market. Rents seem to be less elastic than house prices, though they are rising, but quality and choice are dropping. A minor anecdote in evidence of this: flats that lettings agents used to show to people individually are now being shown to large batches of people, and there is a mad rush to be the first person to secure any half-decent flat that comes onto the market.

A second point: when people like Jenkins and Robert Shiller warn against owning a home, I tend to agree, but I have to wonder whether they are renters themselves. If not, why not?

11. That buy to let is evil. The poorest people rent from the private sector. The more houses are available to rent, the more flexible is the housing stock and the lower are rents for those who do not buy. Whether buyers-to-let should enjoy tax breaks and whether rents should be regulated are quite different matters.

This seems right to me. Buy to let has been demonized unfairly, although there are bad tax loopholes that distort the market in favour of it. But if you accept the logic that renting is desirable for at least some people you must accept that some people will need to act as landlords. They effectively bear the risk involved with investing in housing that renters do not want.

Jenkins's 'realities' are worth reading but are all fairly lacklustre. The goal should not just be to put roofs over people's heads: it should be houses people want to live in, in places people want to live, at prices they can afford.