The UK government today announced tentative plans to encourage the building of low cost homes that would be affordable by ordinary people. The idea of affordable homes is definitely good in a country where most young people will probably never be able to afford a home of their own given that in many places average homes cost ten times an average salary.
However the interesting thing is not so much about homes, but about the failure of the capitalism system to provide a product at a suitable price point. Since WWII, the government has taken the lead in home building for the lower end of the market although the vast majority of government built homes were for rent (and in fact old council houses are still fantastic buys because of the build quality and relatively low prices). Since the early 1980s the government has pretty much left it to the private sector to provide housing. They have failed.
To demonstrate this, look at house price inflation … it vastly exceeds ordinary inflation. The Halifax House Price Index shows that since 1983, house prices have increased at a rate of 8% a year whilst ordinary inflation increased at 4.5% a year. Even more dramatically (and expanding on statistics given earlier), the ratio of house price to salaries has a long-term average of 3.5:1 whereas in 2006 this ratio was 6:1 and a later survey shows that in some areas 10:1 is being exceeded.
There are a variety of reasons given as to why house prices are so inflated including :-
- Increased life expectancy means homes are released back into the available housing pool more slowly.
- Greenbelt legislation means land for homes becomes more difficult to find and is more expensive.
- An increase in the tendency of people to live alone means a greater increase in the level of demand for homes than would be suggested by the increase in population.
But the fact remains that the original Thatcherite theory that the market would provide has failed. In theory entrepreneurs would seek to find a way to produce homes in a quantity and at a price point to fill the gap in the market … cheap homes for first time buyers who could not otherwise afford to get onto the housing ladder. There is plenty of demand for such homes.
As an example, it should be possible to build much more densely in cities than is currently the case … not far from where I am writing, there are large amounts of land occupied by single-story garages and this in one of the most densely populated cities in the UK! Another example, why are there not property developers experimenting in alternate building strategies to produce homes cheaper ? For instance using pre-fabricated modules to provide a snap together set of prepared rooms would probably be cheaper than doing things as we currently do.
Not that I am covering all possibilities here … after all that is what the property developer is supposed to do. The one that comes up with a way to build cheap high quality homes in bulk will probably make far more money than the property developers who produce high value homes … “pile it high and sell it cheap”.