You Won’t Cure The Housing Shortage With Demand-Side Policies

Another Wednesday, another Prime Minister’s Questions session in the House of Commons.  This week, Jeremy Corbyn chose to lead with questions on the “Housing Crisis”.

I sometimes feel sorry for politicians – they live in a world where everything is a “crisis” when they are not in Government and then everything must be regarded as perfect when they are.  However, there is no doubt about the impact of not building enough houses – prices keep going up and rents follow.

It is said that if you get three economists together and ask them a question, you will get three different answers, each one of which will be intellectually robust and well reasoned.  There is, however, one exception.  They will always agree that demand outstripping supply will cause prices to rise.  That is why house prices and rents have kept on growing, decade after decade.

All this makes me wonder why Governments – of whichever political colour – keep creating policies that will impact on the demand side of the housing market.  Everybody wants young people to be able to buy their home, or live in a decent rented house or flat that meets their needs.  But “Help To Buy”, “Shared Ownership” and similar schemes stimulate demand.  That always increases prices.  Increasing prices also stimulate demand, because people rush to get onto the ladder before prices go up even further.

The only time Government has reduced demand was just at the start of the last recession.  That time Gordon Brown “let it be known” that he was contemplating a “Stamp Duty Holiday” to try and reduce the spiralling price of houses.  It was a singularly ill-judged move, because purchase transactions up and down the land were halted as people (or rather their Solicitors) stopped exchanging contracts whilst they waited to see what would transpire.  There are those who argue this actually caused the housing price bubble to burst.  I don’t know whether that is correct, but it is certainly the case that sales dried up and were down by over 60% for the next two years.

The real problem was that house builders stopped building, workers got laid off and things only started really getting going again in 2012.

And that’s the problem with the housing sector.  It runs hot and cold.  Builders are either flat out, or wondering how the next pay day salaries are going to be settled.  In turn, this has led to the construction sector being made up of self-employed people working for developers, rather than as employees.  That practice is so widespread, HMRC have created the “Construction Industry Scheme” so people have there tax administered under the “CIS” arrangements.

All of this leads to a workforce that is distant from the employer.  This leads to a lack of training and therefore to a lack of skills.  Even politicians will agree there is a real shortage of construction workers and whilst Ministers will always tell you about the number of Apprenticeships they have created (for which they should be proud) they get a bit tongue-tied when you ask about Bricklayers, Carpenters and Plasterers (or any other construction trades).

Presently, as a nation, we are running behind the house building requirement by about 150,000 houses a year.  That means we are not even meeting the present demand for houses, let alone keeping up with growth.  Without the massive influx of workers from elsewhere in the European Union we have seen over the past decade, we wouldn’t even be delivering that many houses.  (And yes, I do see the irony in people moving to this country to build houses and deal with our shortage when – they will need houses to live in themselves………)

The reality is that we need to get a grip on the delivery of skills to the workforce.  To get youngsters to understand there is a well-paid future in a trade.  To re-skill people leaving other industries.  Increasing the workforce is a supply-side measure, which will increase the construction sector’s capacity. so we can meet the challenge that housing our people has become.