Letter: There Is A Connection Between Housing Supply, Demand and Prices

Published on: 26 Aug, 2016
Updated on: 26 Aug, 2016

From Keith Chesterton

Gordon Bridger is right in his letter: Housing Target – We Should Consider The Longer Term. Guildford and the UK need a lot more houses built. And yes, increasing housing supply would reduce the rate of increase of house prices. Though no realistic rate of building is likely to reduce prices.

Kate Barker’s Review of Housing Supply (March 2004) give a lot of evidence. As some correspondents say, new housing is only about 1% of housing stock, so on its own, it would not affect prices too much. It is the change in expectations of the rate of new building which would have the effect of cutting back price increases.

Guildford needs to play its part. We can’t just sit in our comfortable houses and deny others the chance to do so.

And finally, most of us know that correlation doesn’t equal causation – certainly Gordon Bridger does. Teaching Grandma to suck eggs, I think.

Responses to Letter: There Is A Connection Between Housing Supply, Demand and Prices

John Perkins Reply

August 27, 2016 at 5:53 pm

Is the claim that Guildford and the UK need a lot more houses built supported by any provable fact rather than opinion or computer model? Nobody tells me that they cannot find somewhere to live because there is nothing for sale. Many say that they cannot afford to buy, so if an increase in new houses does not reduce prices then it is no help.

The convoluted suggestion that expectation of the rate of new building somehow reduces the rate of price increase really doesn’t seem to offer any solution, even if true.

Few would deny others the right to sit in their own home. However, new houses will not be available to those without the means to buy that right. So who is being denied?
Adrian Atkinson Reply

September 3, 2016 at 2:55 pm

I, as almost all of those who believe the draft Local Plan (DLP) is misshaped and flawed in logic, do not think this is a binary debate. We disagree with the plans proposal, but that does not mean advocate doing nothing, or as Mr Chesterton’s says: “We can’t just sit in our comfortable houses and deny others the chance to do so”.

A more sustainable, balanced approach, taking into all the factors into account, is the best way forward rather than blindly accepting what the council is proposing. They have no mandate for what they are doing, not from their election manifesto.

Firstly, affordability: as Mr Chesterton and Mrs Barker said in her report, “… no realistic rate of building is likely to reduce prices.”

This area has always been a high price area to live in and data shows that it hasn’t increased at a higher rate than other surrounding boroughs. Therefore, there is no requirement in the NPPF, to invoke an excess supply over demand factor to try to reduce prices.

Having said that, living in the hope that building lots of homes, over and above local demand, and attracting more people to the area, is going to reduce the real affordability of area is a foolish one indeed. This is the rationale given for having such a high housing target in excess of identified need in the draft Local Plan (DLP) to deliver 40% of them “affordable”. 80% of local (Guildford) prices (the definition of affordable) is not affordable for those this policy is trying to help.

I take the point about asset price inflation expectations being reduced may have an impact on future pricing by a guaranteed supply in excess of demand. However, Guildford is not in control of the international macro-economic environment in order for our rash actions to drive a result for our local need; Brexit, exchange rates, supply of money (quantitative easing) interest rates of 0.25%, proximity to London etc all drive the ability of people to pay higher prices vs any changes in supply and demand.

For example, even if one ignores quantitative easing and record low interest rates here in the UK, for the Europeans, UK house asset prices just got 20% cheaper than a year ago with no increase in supply.

Secondly, even if you buy into the idea that supply can theoretically reduce house prices, the market is rigged by the control of supply by builders. Likewise the building of “affordable” homes won’t happen. The only truly affordable or social housing was built by councils, this is now effectively zero.

The DLP affordabilty policy is not binding and developers will do what they are doing with the Howard of Effingham/Berkeley Homes planning appeal claiming the lack of financial viability as to why they intend to build zero affordable homes as part of the development proposal.

Is it a correlation or causation that the head of Berkeley Homes is, according to The Guardian, one of the highest paid executives in the UK, at a cool £23m last year with this type of strategy?

Going back to Mrs Barker’s point about “change in expectations of the rate of new building which would have the effect of cutting back price increases,” not reducing prices. The builders are the ones who are control of the amount of supply not a borough.

Large builders have to, by law as listed companies, maximise the returns for shareholders. The build out rates will happen at a rate designed not to reduce prices and maximise returns, simple. Guildford gets nothing, the developer companies are not charities.

Or is the plan to make Guildford such a godawful borough to live in so house prices will fall?

We will not see the desired benefit based on an excessive strategy.

The cost to the environment, our health and well-being, the damage to the amenity value of our wards and parishes and the ability of our infrastructure to cope (not just the A3) needs to be equally up weighted in relation to the pie in the sky future benefit of decreasing house prices and increasing the affordability of the area for people not currently living in the area, as the plan suggests.

That is why this plan is morally flawed. The plan needs to be more balanced and not based upon back of a fag packet economic fallacies. It needs to be for true need and not true greed.