To fix the housing market, the government needs to do nothing at all

Just stop trying.

In November, planning minister Nick Boles tackled the country's housing crisis — caused, he said, by a decade-long invasion of propertyless aliens — head-on, announcing he would seek powers to build 100,000 homes a year on Green Belt land. Shortly afterwards, Theresa May, the Home Secretary, reinforced this message, warning us of the imminent danger that migrant homebuyers pose to the “national interest” – "without the demand caused by mass immigration," she said, "house prices could be ten per cent lower over a twenty year period."

The Conservative grassroots, mortified at what they apparently see as the sheer illiberality of building on the Green Belt, moved swiftly to an ostrich position to undermine the proposal.

"The notion of a housing shortage in London… is, and always has been, a myth," read Andrew Lilico's riposte. "Surpluses of dwellings over households actually increased everywhere".

It is almost impossible to be more wrong. The immigration argument has been debunked so comprehensively that, in its 2012 report on the housing shortage (pdf), the IEA casually dismisses it as an "oft-repeated non-issue". Similarly, the effort to use simple mathematics to describe a notoriously variegated and illiquid asset class ignores the fact that neither property nor its occupants are homogenous and freely exchangeable: an abundance of one- or two-bedroom flats in a given area at a range of prices, for example, is useless if the majority of demand is for family homes (pdf).

There is, in fact, a fairly robust consensus across the political spectrum that the United Kingdom is in the grip of an acute housing supply shortage with many causes, among them NIMBYism, speculation, capital flight from southern Europe, over-taxation, land use controls, and failure to implement comprehensive welfare reform. In the absence of a credible policy proposal from the Coalition, however, the left has assumed the mantle of leadership on the issue by setting itself in diametrical opposition to austerity, demanding more central government funding for affordable housing – and lots of it.

Unquestionably, the money could be put to good use. Shelter, the housing charity, predicted in 2010 that (pdf):

"cuts to housing benefit and the slashing of the affordable house building subsidy will be devastating for the housing aspirations of thousands of young people consigned to increasing costs."

Those costs are the third-highest in Europe, 40 per cent of net income for over 15 per cent of the population. Sensing the undercurrent of popular anger, Labour has promised funding for the same 100,000 homes a year as Nick Boles – except these are “affordable” ones. Unfortunately, these counterproposals only draw battle-lines for the next election. They address the question of how taxpayers should step in to reinforce the safety net, but do nothing to tell us how to rein in the cost of the safety net itself.

The key question is this: would building more “affordable housing”, either in the Green Belt or in our cities, actually end the housing crisis? In my view, probably not. Housing was a risky enough business before the recession; today, with scarce financing, high material costs, narrow profit margins, and downward pressure on public finances for the next decade at least (£), developers face additional disincentives. If anything, affordable housing prevents developers from meeting market demand while concurrently increasing their costs — and as such it has become a significant part of the supply problem.

Many English councils mandate that developers designate a certain proportion of units in any new construction as "affordable," i.e. earmarked for social tenants or a social housing provider. Taking the London borough of Newham as an example, that locality aims to provide "the maximum reasonable amount of affordable housing when negotiating on (the approval of) individual private residential and mixed use schemes". By “reasonable,” however, Newham means 50 per cent of the total, with the affordable component supported mostly by government subsidies.

This has serious implications on any proposed scheme's economic viability. Without government grants, affordable housing in Newham is completely uneconomic at the 50 per cent target (pdf) and remains so even at lower targets, for example with 35 per cent or 25 per cent provision. Viability is further impaired where build cost per square metre rises (as occurs when a development is denser) or sale price per square metre falls (meaning the proposed unit would be affordable in a free market). To wit, the economic viability of housing schemes in England is low if you intend to build units that constitute ordinary working- and middle-class housing in most of the English-speaking world, because local planning policies force developers to only embark on those projects which realise relatively higher marginal returns and command a higher market price.

This is a fact of which local governments around the country are aware (pdf); Newham's viability assessment, for example, points out that "50% affordable housing is unlikely to be viable in all market conditions", and that "in some circumstances... sales values would need to increase beyond the 2007 peak for 50% affordable housing to be achievable."

But this is not 2007, and we would be mistaken to believe that the social housing crisis is separable from the supply problem in the wider private markets. British social housing policy is itself heavily reliant on private sector provision; a crisis in one begets a crisis in the other, or as put by the IEA (pdf):

If social housing in Britain is under strain – and it clearly is – it is because the housing market as a whole is under strain.

When we consider that fully 20 per cent of the nation's residential property is directly or indirectly supported by the state and virtually the entire private sector housing supply process — design, location, construction, profit margin, and post-completion tenant allocation — is regulated and made more burdensome by the state, it does not take much to see that virtually all state intervention in the UK housing market should in theory, and does in fact, constrain supply or inflate demand. Certain aspects of the problem arise from pet policies of the right; others, of the left. What they have in common is that they disincentivise new housebuilding while making existing housing more expensive at the same time, to the detriment of low- and middle-income earners, the propertyless and the young.

Neither redistributive taxation nor piecemeal tinkering are well-suited to solve this problem. An iconoclastic, no-holds-barred programme of liberalisation, however, is. Like fuel shortages in the America of the seventies or bread shortages in the USSR of the eighties, the British housing crisis is government-led. If the government is serious about solving it, the first thing it should do is get out of the way.

The Carpenters estate in Newham, London. Photograph: Getty Images

Preston Byrne is a fellow at the Adam Smith Institute.

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Why do the words “soup, swoop, loop de loop” come to mind every time I lift a spoon to my lips?

It’s all thanks to Barry and Anita.

A while ago I was lending a friend the keys to our house. We keep spare keys in a ceramic pot I was given years ago by someone who made it while on an art-school pottery course. “That’s er . . . quite challenging,” the friend said of the pot.

“Is it?” I replied. “I’d stopped noticing how ugly it is.”

“Then it’s a grunty,” she said.

“A what?” I asked.

“A grunty. It’s something you have in your house that’s hideous and useless but you’ve stopped noticing it completely, so it’s effectively invisible.”

I was much taken with this idea and realised that as well as “grunties” there are also “gruntyisms”: things you say or do, though the reason why you say or do them has long since been forgotten. For example, every time we drink soup my wife and I say the same thing, uttered in a strange monotone: we say, “Soup, swoop, loop de loop.” How we came to say “soup, swoop, loop de loop” came about like this.

For a married couple, the years between your mid-thirties and your late forties might be seen as the decade of the bad dinner party. You’re no longer looking for a partner, so the hormonal urge to visit crowded bars has receded, but you are still full of energy so you don’t want to stay in at night, either. Instead, you go to dinner parties attended by other couples you don’t necessarily like that much.

One such couple were called Barry and Anita. Every time we ate at their house Barry would make soup, and when serving it he would invariably say, “There we are: soup, swoop, loop de loop.” After the dinner party, as soon as we were in the minicab going home, me and Linda would start drunkenly talking about what an arse Barry was, saying to each other, in a high-pitched, mocking imitation of his voice: “Please do have some more of this delicious soup, swoop, loop de loop.” Then we’d collapse against each other laughing, convincing the Algerian or Bengali taxi driver once again of the impenetrability and corruption of Western society.

Pretty soon whenever we had soup at home, Linda and I would say to each other, “Soup, swoop, loop de loop,” at first still ridiculing Barry, but eventually we forgot why we were saying it and it became part of the private language every couple develop, employed long after we’d gratefully ceased having soupy dinners with Barry and Anita.

In the early Nineties we had an exchange student staying with us for a year, a Maori girl from the Cook Islands in the southern Pacific. When she returned home she took the expression “soup, swoop, loop de loop” with her and spread it among her extended family, until finally the phrase appeared in an anthropological dissertation: “ ‘Soup swoop, loop de loop.’ Shamanistic Incantations in Rarotongan Food Preparation Rituals” – University of Topeka, 2001. 

This article first appeared in the 21 July 2016 issue of the New Statesman, The English Revolt