Does the housing crisis in the UK require government action?

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Steve Earley, Head of Economics at Austin Friars St.Monica’s School 

A summary of the issue

In 2011 more than 36,000 homes were repossessed. •

Over 1.7m households are now on the waiting list for social housing.

•

Over 600,000 homes are classified as overcrowded. •

5.9m homes failed to meet the Government’s Decent Homes Standard in 2011.

•

First time buyers now need to find £51,000 on average for a deposit.

•

The scale of the problem

Shelter sees this problem as a case of market failure which the

government needs to correct.

•

“The UK is suffering a massive housing crisis.There simply aren’t enough decent, affordable homes.” - Shelter

•

There is also concern over the quality of the UK’s housing stock.

•

More than a quarter of UK homes failed to meet the government’s Decent Homes Standard (DHS) in 2011.

•

Non-decentaccommodation

Government investment has reduced the proportion of social housing failing to meet the DHS from an estimated 50% in 1997 to just 8% in April 2011 – a substantial improvement.

•

The main problems of non-decent accommodation are in the private sector – in owner-occupied homes and in the rented sector.

•

But are these dwellings falling short of DHS actually ‘sub-standard’.

•G

It can be argued that the norms for decency in the DHS reflect the aspirations of those that set them and are not an objective view of what is actually ‘acceptable’.

• C

Owner-occupation

Would so many home owners choose to live in ‘inferior’ conditions?

• C

Over two-thirds of homes classified as non-decent in the English Housing Survey are owner-occupied.

• C

Are the standards reflecting targets which are in excess of those expected by average households themselves.

• C

Poor households are no more likely to live in non-decent homes than richer households, so non-decent homes are found at all levels of income, and government intervention would by viewed as unwelcome. 

• C

Private rented sector

We should bear in mind that there are already many statutory regulations in place in this sector, concerning gas safety, fire safety and electrical equipment.

• C

So should tougher criteria on properties belonging to private landlords be introduced?

• C

It is in this sector that sub-standard rates are the highest.• C

More stringent government requirements would put up landlords’ costs and with it the level of rents which are already very high.

• C

Also, some landlords might respond by withdrawing their properties from the market thus adding to housing shortages.

• C

The size of the problem

In November 2011 the government stated that “latest household projections suggest that the number of households will grow by 232,000 per year” into the foreseeable future.

• C

Yet in 2011 only 110,000 new homes were built.• C

The private sector has never built more than 150,000 homes a year.

• C

There are roughly a million homes which should have been built over the last 20 years which weren’t built.

• C

With the backlog and shortage getting worse each year there is a feeling that something radical needs to be done. 

• C

The cause of the problem

It can be argued that too much ‘red tape’ and excessive regulation has prevented builders, through the planning system, from building more houses.

• C

Thus the government has vowed to streamline planning rules from over 1,000 pages down to just 52.

• C

If the impediments of the current planning system are removed we could expect the supply curve for housing to shift to the right.

• C

This will improve both the quantity and the affordability of houses.

• C

Opposition to the changes

Some organisations feel that this new policy is a threat to the ‘green belts’ which surround our major towns and cities.

• C

Some feel that the new plans create a ‘developers’ charter’ and that council officials will find it harder to reject building proposals in future.

• C

This could lead to urban sprawl and serious damage to the countryside leading to negative externalities.

• C

In March 2012 the government revised their draft planning document to specifically encourage building on ‘brownfield’ – or previously developed sites, and tightens up on the definition of ‘sustainable development’.

• C

Conclusion

In spite of what the data shows, is the quality of the UK’s housing stock a real issue?

• C

Would freeing up the housing market to produce extra quantity enhance competition and produce the desired improvements?

• C

Yet what some see as the solution to this – reduced planning regulations – is seen by others as having the potential to cause economic problems elsewhere.

• C

So does the housing crisis require government action?• C

We need to remember that every choice incurs an opportunity cost.

• C