Tag Archives: market failure

Economics in the raw

Focus E15 — the young London mums at the sharp end of our economic failure

Some of the 29 Focus E15 mums outside the Carpenter's estate flats in Stratford, east London.The Focus E15 mums, who are campaigning for affordable housing in East London, are back in court this week, after fending off Newham Council’s vindictive attempt to evict them on Friday from the abandoned Carpenter’s estate, a stone’s throw away from the Olympic Park. Here’s Zoe Williams, writing in Saturday’s Guardian, after visiting the “really nice” flats being occupied by these brave young women at the sharp end of London’s housing crisis.

So it’s a constellation: social housing being bought out by private developers, councils trying to divest themselves of what sparse stock they have left, “affordability” criteria bearing no relation to actual affordability, wages that don’t even cover social rents, thousands of homes empty in preparation for the billions their destruction will bring in. It’s pretty plain to everyone except council officials that what looks like a heap of problems is actually one: housing is too expensive. If you try to shoo people from each area as they are priced out by rents, at some point they’re going to mind.

Exactly the point I made (less elegantly) in my post earlier this month: sometimes what looks like a complicated, intractable problem has a simple solution, but the people in power simply don’t want to see it.

Newham Council actually sent people to vandalise the water supply to the Carpenter’s estate in a crude attempt to force the Focus E15 mums to leave. How the bloody hell do we end up  with a Labour council in London’s poorest borough doing something like that? Because politicians and policy makers simply can’t bring themselves to admit that the free market has failed utterly with housing and we need to try something else.  God forbid, we might actually have to go back to what we used to do and let councils do what the market patently cannot.

Economic ideas aren’t abstractions; economics happens to real people. And this really is economics in the raw. Market failure ruins lives, including the lives of people too young to have even heard the word “economics”. This is too important to be left to comfortably salaried academics and City executives to discuss among themselves. That’s why I’ll be at Bow County Court on Thursday to support the Focus E15 mums. I hope you can join me, but if you can’t make it, you can donate a few quid to the cause via their Facebook page.

More houses? Oh, if only it were that simple…

If you can’t explain something, complicate it.

A few years ago, I went into an estate agency in south London to inquire about renting a flat. The agent, a friendly bloke whom I knew quite well, was incredulous. “Are you sure you want to rent? You should buy something,” he said, thrusting a sheaf of property details towards me. “Look, prices are going crazy in the area!”

It only dawned on me afterwards how odd this was. Here was someone trying to sell me something by telling me the price was so high it was “crazy”. The housing market in Britain is now so dysfunctional, we take absurdities like this for granted.

Take the report from the Halifax last month, which found that it costs a family £1,300 a year more to rent an average three-bedroom house than to buy one. What’s more, the gap is getting bigger – rents are rising even faster than house prices.

It probably doesn’t surprise you that renting is more expensive than buying – but it should. After all, renting is supposed to be what you do until you can “afford” to buy.

High rents and unaffordable house prices are a vicious circle from which the market offers no means of escape. High rents drain people’s income making it harder and harder to save a deposit to buy. This keeps demand for rented houses and flats high and keeps rents rising, making saving harder still.

If the market worked properly, house prices would eventually begin to fall as fewer and fewer people could afford them, but this never seems to happen. Whatever the reasons – the overall shortage of housing, the role of houses as investments, the vicissitudes of mortgage finance, sharp practice by estate agents – it’s a truly spectacular market failure.

People within the property “industry” – who usually have a vested interest in sky-high prices – will tell you it’s all very complicated, but in this case the economics really are very simple. There aren’t enough houses, to rent or to buy, in the places where people need or want them. If you’ve read a single convincing argument why this isn’t so, please let me know.

As Paul Krugman points out in a recent blog, sometimes clever people just don’t want to see the simple answer to a problem, especially if it raises awkward questions about what they believe. Mainstream economists and conservative politicians, usually so keen on simple market explanantions for everything, are also quick to hide behind complications when it comes to housing. This is probably so they can avoid having to explain why the market has failed to provide the housing we need.

As this chart shows, neither the private sector nor housing associations have come anywhere near making up the housing shortfall since Mrs Thatcher pulled the plug on council housing more than thirty years ago. Demand for housing has gone through the roof and the response from the private sector has been: bugger all.

But people like George Osborne can’t admit that, so they come up with fiddly, half-baked financial schemes like Help to Buy. Because what we really need is more housing demand, higher prices and more debt underwritten by the taxpayer. That really is crazy.

Stopping councils from building houses hurts us all


This graph from Monday’s Guardian tells you most of what you need to know about the housing crisis in the UK. It tells a simple but very sorry tale.

Nothing much happened to private sector housing completions for thirty years, at least until they fell off a cliff after the 2008 crash. Housing association building remains an insignificant part of the picture. What really matters is the complete collapse of council house building since the 1980s. This has been a disaster, and not just for potential council house tenants.

The boom in house building during the 1950s and 1960s (which ensured for the first time in our history that most people could spend their lives in sanitary housing conditions) was a highly effective partnership between the private and public sector. Very crudely, the councils built for renting and the private sector built for buying (it wasn’t entirely true – I was brought up in a house built by the GLC for sale as part of its “overspill” policy of encouraging people to move out of London). This ensured there was a plentiful supply of affordable housing for renting and kept the lid on house prices even while incomes rose.

This is why so many middle and even working class people were able to buy their own homes in the 1960s and 1970s, without getting into silly amounts of debt. These were the golden years when working families, if they were in secure employment, could buy the sort of reasonable family home that only millionaires can afford in London today. There was plenty of housing about and plenty of ways to put a roof over your head: council flats and houses, private landlords, rooms to rent, bedsits – we were providing houses of all shapes and sizes for families of all shapes, sizes and means.

Far from “crowding out” private investment in housing, or making people “reliant” on the state (as if people don’t have minds of their own), council house building was the reason people could afford to buy their own homes. Council development stimulated private development. There is no evidence from this data that the private sector is capable or willing to respond to today’s unprecedented demand for housing: the long boom in house prices which began in the 1960s has had no net effect on private housing completions at all, even from the 1980s onwards when private developers no longer had to compete with councils for tenants and buyers. It’s a dismal market failure.

If we want affordable housing to buy, we have to have affordable housing to rent, and that probably means council housing. That means lower rents and lower prices. Of course, people who are relying on property hyperinflation to fund their retirement won’t like it. But at least they’ll still have a roof over their heads.