Letter: House Prices – It Is Not Simply Supply and Demand

Published on: 17 Aug, 2016
Updated on: 17 Aug, 2016

From Roland McKinney

I feel I have to respond to Gordon Bridger’s letter: Housing Target – We Should Consider The Longer Term, but will deal with just a few of his points.

Firstly, Mr Bridger clings to the notion that it is only the balance between supply and demand that sets house prices. For this to be so, there should have been a massive increase in supply of housing in 2007/8, to explain the price falls seen across most of the country.

But there was no massive increase in supply, what actually created the price falls was a tightening up in the availability of credit. The supply of credit and its cost are two of the most important factors in determining what happens to house prices. Other factors that determine house prices include:

• Government taxes – stamp duty, quarrying levies, landfill tax, etc,
• Housing benefit – £8.5 billion paid last year to private landlords,
• Government subsidies – help to buy, etc, only available on new homes,
• Astonishingly high profits by developers – look at the Sunday Times “rich list” for confirmation,
• Inflation, though not as measured by the CPI – this excludes housing costs,
• Buy to leave – overseas buyers using UK property as a safety deposit box,
• No meaningful regional strategy, so people move south for work, increasing pressure on housing in London and the South East,
• External immigration at very high levels,
• The balance between supply and demand.

To suggest that house prices are solely determined by the balance between supply and demand is wrong. In the years between 2008 and 2012, according to the ONS, nationally there was an increase of 30% in the total dwelling stock. Over the same period, the UK population increased by 7.08 million, or 12.5%.

Across the UK, the number of households increased by 6.1 million, an increase of 29.5%. So there is no evidence in these ONS numbers for an undersupply of housing – yet over this period, house prices increased by a factor of 9 – house prices in 2013 were more than nine times the price they were in 1980.

Other numbers reveal something similar for the borough – that housing supply has more or less kept pace with demand. So before suggesting high house prices are due only to an imbalance between supply and demand, evidence should be produced to back up this assertion.

If, as Mr Bridger suggests, it is the supply of land that is the issue, how can it be that in the borough, as at February 2016, there were 1,471 dwellings that had planning permission, but had not been built. Over the last three years, the average net new number of houses completed in the borough was 238 per year – at that rate, the number of extant planning permissions is more than six years of supply. Absolutely no evidence for any shortage of land in this number.

There is no shortage of land for housing, but there is no desire to use what is available efficiently – or to regenerate run down areas within the town. But the first step should be to have a sensible housing target, without this, any discussion on land availability is futile.

Finally, to answer the question on how to ensure housing is available for young people – dead easy – pay those that have essential skills a real living wage.

If the NHS paid more to their skilled staff (nurses, etc) they would not have to plunder the health services of countries that are less rich than the UK for staff to come and work in the UK, and would not have to pay exorbitant rates to contract workers. If nurses can’t afford housing, their wages are too low.

We should also build more social housing for those with low paid occupations, so they have a secure place to live with the prospect of home ownership after an extended tenancy.

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