The idea that the Housing Crisis can be solved under the current economic system by building more houses is both mistaken and harmful. If we define the housing crisis as one of affordability, then according to various accepted metrics, a supply solution would mean that prices would have to fall overall by 50% in London, Oxford and other parts of the South East and between 10% and 40% elsewhere. It is impossible to achieve this, or even to stabilise house prices overall, by building more houses under current conditions. The reasons are that
New houses constitute only a very small part of the housing stock, so new housing has negligible effects on the overall market until the numbers reach into the millions.
Demand is almost unbounded (both from UK and from international investors), so supply can never “meet” demand.
Furthermore lowering house prices would have disastrous consequences on the rest of our economy and on many private individuals and businesses. For example
Housebuilders (including now many social housing providers) only build in a rising market. Their businesses would all collapse in a perpetually or suddenly falling market.
Our banking system is reliant on housing prices continuing to rise and so would collapse if there was a significant drop in house prices (as it did in 2008 when house prices fell by the largest amount in our history – 16% overall, less in London). This reliance has increased significantly since the 1980s.
Many millions of people would be bankrupted if there were significant long term falls in prices, including all those with buy-to-let properties as well as recent home buyers. Many people now have all their security including pensions wrapped up in high house prices.
The whole economy would collapse if prices came down significantly as our “wealth” is now largely embedded in our housing and the liquidity of the economy depends largely on bank money creation on property loans.
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