When the UK government stopped building non-market social and affordable housing in the UK, the private sector didn’t step in to make up the difference. It delivered more or less the same number of dwellings. The same reality applies in Australia.
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If current international trends persist, we will shortly be planning for cities with declining populations not rising, globally.
In China, Japan and Korea the norm has become one child per family which of course is less than half the replacement rate.
Western societies have sunk well below the replacement rate of 2.1 and have been encouraging in-migration to compensate. Of course, such migrants themselves will in due course be coming from societies where population growth has peaked. So, we really are, soon if not now beginning on a different long term demographic trajectory across most of the world.
On current trends China by the end of the 21st century may have 40-50 per cent fewer people than now. Staggering.
In a wild but relevant leap, part of the challenge of managing places such as the Rhondda Valley in (old) South Wales in the UK near where I was born, now has only about 60 per cent of the population than at its peak in about 1921.
Imagine when everywhere becomes the Rhondda Valley. On that thought – mind boggling in so many ways.
But I now turn to housing which of course we now think there’s too little in Australia as in the UK, but which in a few decades we may think there’s too much of.
The housing story is clear
Understanding the realities of housing demand has been one of the things I’ve focused on in these columns as I am strongly of the view that governments across the Anglosphere don’t really grasp what they are doing in this space.
The UK and Australia have both announced that some apparently large number of homes – the modelling and the data behind them both are iffy – will be built by a very specific date.
In both cases, the targets are already falling so far short in delivery that we already know the apparently large number of homes will not be achieved. Strangely, the numbers are similar: the Aussie government seeks 1.2 million homes in five years and the UK, 1.5 million over the period, while the populations are 27 million and 70 million respectively.
This is in large part because both countries managed to announce such targets at possibly the worst time in the residential sector’s history since the Second World War, and did so because they did not know the real nature and extent of the housing crisis we are in, internationally.
This is something they also didn’t seem to know, parochial as they both have been – blaming “bad planning practices” in local councils, at a time when this crisis went global.
UK Shelter has nailed some of the facts and issues
But some people are making sense about housing (apart from yours truly, obviously). Shelter in the UK for one. It’s just published a crucial report which is making waves both here and in Australia (where a sister organisation of Shelter also operates).
Crucial, because as it suggests in the title, governments in the UK and Australia have not – I kid you not – really understood basics such as the difference between “demand” and “need”.
Increased supply of the extent and kind they are proposing (which they are not achieving) has never and will never bring home prices down
Or that increased supply of the extent and kind they are proposing (which they are not achieving) has never and will never bring home prices down let alone make housing sufficiently affordable for those on average incomes, let alone the poorest.
The report is called Build Up Not Trickle Down: The Case for Need-Led Housing Policy.
Ministers everywhere should be made to read this instructive document – as should the very noisy property lobbyists who have successfully lobbied for the wrong things, such as the displacement activity that is “planning reform”.
Just read this, from Shelter, saying stuff you would have heard in these columns of mine but with the authority of a noble and informed charity behind it. Such as: “Decades of relying on private supply, without meeting the desperate need for social housing, has fuelled the housing emergency.”
This is because of the flawed assumptions underpinning this approach.
One of those is how developers work, something the Letwin Review illustrated eight years ago but of which the current UK government seems unaware.
Letwin – a pro market Tory remember – found to his surprise that developers have a special business model.
The punchline? They can only build homes at a rate which maintains local house prices. Read that again. This is not a moral problem of theirs. This is a business fundamental.
Shelter knows this: does Minister Reed?
Here’s Shelter:
“Relying on private development to reach the target will inevitably be constrained by the inbuilt limits to private supply.
“The speculative development business model, which dominates private housebuilding in England, relies on accumulating land, acquiring planning permissions and building out homes at a rate which manages developers’ risk and maximises financial returns: that is. developers are hard-wired to respond to the level of private demand in the market, rather than actual housing need.
“As a result, increasing land supply through planning reform alone will not effectively reduce house prices or improve affordability in the short to medium term.”
I stress: this is not a theory, this is the reality of privately provided “for sale” housing supply.
Further, improving affordability thus requires that a substantial proportion of the UK’s proposed 1.5 million homes be non-market/social rent.
Beyond the affordability reality there is this, again from Shelter and again, something you have read:
“It is unlikely the 1.5 million target can be achieved without more investment in social housing. The decline in housebuilding since 1980 is almost entirely due to reduced investment in social homes.”
Here’s a fun fact to support this. Between the early 50s and the mid 70s, more than 40 per cent of all housing built was council or public housing. At its peak it provided almost 200,000 homes out of the 400,000 we were building in that era.
When we pulled the plug on public housing in 1975/6, that number dropped to a trickle, with the subsequent rise of social housing providers leading to useful new supplies of social rented units but nothing like what was achieved before.
And guess what! When the public sector stopped building its 175-200,000, the private sector built…exactly the same number as before.
Private sector supply has stayed around the 200-220,000 level since we stopped building the other 40 per cent non-market units. And the population has radically increased since then.
The useful Shelter report makes us reflect on such realities and points out the gap in official thinking around housing. But I am a bit angrier than the noble charity about this gap as there is no justification for it.
The fiction that there is no problem with housing supplied solely by the private sector has been swallowed by our new government.
The facts have for decades made it clear that there’s more to this crisis than unblocking public sector barriers to private sector productivity.
There’s something wrong with the private sector model from a community utility and equity point of view and something equally wrong with a view that the public sector has only a regulatory role vis a vis the housing market when in reality it has always needed to take an investment role. Gimme Shelter.