Reflecting on the broken housing market: an introduction
The housing market is a source of much comment and tension in the UK. Many commentators and policymakers have got into the habit of describing the market as ‘broken’, indeed we take our title from the White Paper issued by the then Department for Communities and Local Government in 2017. In our commentary in February 2018, we outlined a number of critical issues when assessing the housing market; see Chadha (2018), as a precursor to the June conference. We question whether the market is actually broken, in which case traded prices would neither reflect the overall cost to society nor the benefits to the individual household of being a homeowner. To the extent that there is a market failure there is a case for government policy to counteract distortions but some of those are themselves the results of government policy. We must be careful not to stack distortion on distortion. What we noted in February is that 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.