Debate Magazine

Housing Crisis Paradox

Posted on the 31 January 2017 by Markwadsworth @Mark_Wadsworth

We are told that high housing costs are due to a lack of supply. Therefore we need to build more homes to make them affordable. But building and maintaining housing expends labor and capital, which are a cost. 

How can increasing the cost of something make it more affordable?

Of course people need somewhere to live and the cost of housing is outweighed by the benefit of having shelter. But as the UK has roughly a million more dwellings than households, everyone has a roof over their heads, so it doesn't  appear we have an actual "shortage".

This paradox is based on a misunderstanding of costs. Location isn't a produced factor, so what makes up the majority of rents and selling prices isn't a cost, but a transfer payment. It is this payment which causes excessive individual, inter-generational and regional inequality, from which affordability issues for large parts of society is but one of the symptoms.

What puzzles me is that the subject of economics is really about costs and how to reduce them ie resource allocation and productivity.

Why is is then not a single economist recommends tackling this problematic transfer payment at source with a 100% LVT as the best way of addressing the "Housing Crisis"? Which would not only solve affordability issues completely and permanently, but would reduce costs by allowing the market to rationalise our existing housing stock.

Instead they want to tackle it indirectly by building more houses in order to reduce selling prices. Not only will this be far less effective in the goal of reducing the transfer payment, it will add billions of pounds of unnecessary costs to our economy.

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