NIESR Press Release: "Housing and the Economy" - New research by NIESR
The latest issue of the National Institute Economic Review, to be published on Wednesday 1st August, will contain new research focused on the ‘broken’ housing market in the UK and policy options for fixing it, following a successful conference on these themes co- organised by NIESR in June*.
Leading experts in the field agreed to write provide in-depth analyses of key housing issues including planning restrictions and limitations to supply, housing affordability, regulation of rental markets, and taxation. The four articles are:
- The housing market: challenges and policy responses, by Stephen Aldridge (Ministry of Housing, Communities and Local Government);
- Broken market or broken policy? The unintended consequences of restrictive planning, by Paul Cheshire (LSE and CEP Urban programme);
- Housing, debt and the economy: a tale of two countries, by John Muellbauer, (Nuffield College and INET, Oxford);
- Housing policy and the changing tenure mix, by Christine Whitehead (LSE).
Aldridge summarises the long-run decline in housing affordability in England and suggests this is substantially attributable to shortfalls in housing supply. The main challenge for policymakers is to ensure that sufficient homes are planned in the right places. To do so they need better information on where land is available, but also the availability of public sector land. Other suggestions include speeding up the pace of development (e.g. by supporting small builders to enter the market) and a potential role for reforming taxes.
Cheshire‘s paper focuses on the impact of British Planning system on the supply of development. He makes an important distinction between planning that restricts development to mitigate market failures, and ‘absolute’ restrictions on the supply of housing. While the former is important to guarantee the ability of cities to develop in the future, the latter merely leads to a hike in prices. He identifies four factors that have made the British system inherently restrictive, leading to ‘systematic undersupply’ of land and space for both residential and commercial purposes and argues that these have had important effects on both our housing market and the wider economy and on welfare more widely defined.
Muellbauer’s paper takes a comparative approach between housing markets in the UK and Germany in discussing ‘A Tale of Two Countries’. His starting point is the stark contrast in affordability and volatility of housing, rooted in historical, institutional and policy differences. In Germany the supply of residential housing has increased much more strongly, where the private rented sector is now about twice as large as in the UK. Moreover, sensible regulations and stable house prices have resulted in an average rental duration of around eleven years as compared to 2.5 years in the UK. The failure to adopt the right policies has adverse implications for the British public not only in terms of inequality and social mobility, but also productivity and economic growth.
To tackle these issues policymakers should look beyond the remit of the Ministry of Housing, Communities and Local Government. Specific policies to tackle (and reform) are the council tax, stamp duty and a potential taxation of foreign-owned trophy homes.
Whitehead’s paper discusses the many reasons why housing policy can appear to be both incoherent and ineffective - with too many Departments involved each with different objectives and a plethora of policies pulling in different directions. Drawing on earlier research findings the paper discusses three examples which have impacted on tenure mix – the growth in the private rented sector where policy initiatives – except for unintended side effects – have been limited and market and macroeconomic pressures have dominated; a range of tax anomalies which provide inconsistent incentives and generate considerable costs to the economy; and the impact of specific policies which concentrate on supporting owner-occupation through new build initiatives.
Introducing the articles NIESR’s Director Jagjit Chadha said: “The large fall in housing affordability in the UK over the past two decades seems to be well explained by national preferences for owning homes, the increased availability of loanable funds for housing purchase and limited housing completions. Given that preferences are hard to shift and that much policy since the establishment of the Financial Policy Committee in 2011 has been directed at reducing excesses in lending practices, the remaining degree of freedom seems to be in encouraging housing development.”
The Review will also include NIESR’s analysis of the UK and global economic outlook, which will be detailed in separate press releases under embargo until 00.01am on Wednesday 1st August.
Notes for editors:
The research reflects the authors’ views and does not necessarily reflect the views of the institutions that they may represent.
*The Broken Housing Conference, held on 1 June 2018, was co-organised with The Royal Institution of Chartered Surveyors (RICS), The UK Collaborative Centre for Housing Evidence (CaCHE) and the Centre for Macroeconomics (CFM).
For full copies of these papers and queries for the authors please contact the NIESR Press Office: Paola Buonadonna on 020 7654 1923 / p.buonadonna [at] niesr.ac.uk /
The National Institute Economic Review is a quarterly journal of NIESR. Published in February, May, August and November, it is available from Sage Publications Ltd (http://ner.sagepub.com/) or at subscription [at] sagepub.co.uk
NIESR aims to promote, through quantitative and qualitative research, a deeper understanding of the interaction of economic and social forces that affect people's lives, and the ways in which policies can improve them. Further details of NIESR’s activities can be seen on http://www.niesr.ac.uk or by contacting enquiries [at] niesr.ac.uk . Switchboard Telephone Number: +44 (0) 207 222 7665