Opinion: Housing affordability and the role of planning

Housing estateBy Professor Paul Cheshire, Spatial Economics Research Centre & London School of Economics and Political Science

26 January 2011

A lot of media attention focuses on Britain’s position in world leagues of cancer mortality or educational standards. While not arguing that it is more important, it is astonishing how little attention is given to our world standing in terms of housing and housing affordability.

Housing is by far the largest expenditure in most household budgets and is one of the most important sources of welfare. Not only does it provide shelter but, as has been increasingly realised, housing allocates access to a wide range of public goods and amenities such as a quiet environment or clean air.

The way that housing rations access to better schools is the most widely researched of these; for example, moving a standard house from the catchment area of the worst to the best primary school in the Reading area in 2000 was associated with a 33 per cent price premium, but recent work has shown significant house price premiums for access to open space, less noise, better transport, jobs, clean air and less crime. All these apparently ‘free’ goods, provided by public policy out of taxes, are priced just like restaurant meals, but through the housing market.

Yet despite its importance for welfare, housing in Britain is arguably worse and more expensive than in any comparable country in the world. Not only is it more expensive but we have more price volatility. British new-build houses are 40 per cent smaller than in the more densely populated Netherlands; and at the same time they are 38 per cent more expensive per square metre.

People concerned with design complain about their design; those concerned with the environment complain about poor insulation. In the last complete house price cycle (1982 to 1995) the up and down swing of real house prices, averaged over the whole of England and Wales, was 21 per cent greater than in the most volatile urban area in the whole of the US.

Since 1970 British real house prices have increased by a factor of three; in both Switzerland and Germany over the same period they hardly increased at all. Housing affordability - expressed as the lower quartile house price relative to lower quartile incomes - has deteriorated sharply, even since 2000 when the ratio was about four for England compared to 7.63 in 2009. In 2009 new housing construction was at its lowest level since the mid 1920s and according to The National Housing Federation is expected to fall further next year.

The British do not just suffer from bad and expensive housing - problems extend much further. Housing is very unaffordable but this varies regionally: relative to lower quartile incomes housing is almost twice as expensive in the South East as it is in the North West. This makes it very difficult for firms in economically dynamic areas to recruit. More obviously, it makes it hard for people to move from areas of high unemployment to where there are jobs, a problem which is even worse if you are a social housing tenant.

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