With the benefit of hindsight, articles on inflation from pre-monetarist days can make a very amusing read. Back then, economic journalists were essentially arguing that inflation is caused by everything under the sun except money-creation. Before the Friedmanites set the record straight, people attributed inflation to trade union power (‘wage-pull inflation’), to oligopolies in the product or retail markets, to increases in the price of natural resources (‘cost-push inflation’), or in fact to anything – except the one thing that really caused it: excessive increases in the money supply. If the latter possibility was mentioned at all, it was quickly dismissed: the price level goes up because too much money is being created? How simplistic, how reductionist! The world is so much more complex than that.

Except it wasn’t. Things really were that simple: create loads of money and the price level will go up; stop creating loads of money and the price level will stop going up.

But we should not be too smug about the columnists who did not see the seemingly obvious back then, because we have our own contemporary equivalent of the 1970s inflation debate: our housing debate. In the British media, you can find a lot of ‘explanations’ of the increase in house prices and rents: immigration, landlords’ greed, speculation, the sale of council flats, too much mortgage lending, too little mortgage lending… anything, in fact, except the one thing that really causes it: the crippling of the supply side through planning restrictions.

Planning minister Nick Boles did no more than point out the obvious (‘if people want to have housing for their kids they have got to accept we need to build more on some open land’), but that was already more than enough to provoke the usual hue and cry. Take the Telegraph’s David Hughes:

‘Nick Boles has set out a housing policy that could have been written for him by the Home Builders Federation. Last night on BBC’s Newsnight, the planning minister said he wanted to pour concrete over an additional 33 per cent of open land and – abracadabra! – our housing crisis will be sorted. […] When was the last time you heard a minister making quite such a jejune remark? “All we need to do” is build over an areas twice the size of Greater London and it’s job done. Marvellous.’

The article then goes off to lazily repeat the same old myths and half-truths about what ‘really’ causes the housing cost explosion. House prices go up because the planning system freezes the supply side? How simplistic, how reductionist! The world is so much more complex than that.

Except it isn’t. Things really are that simple: stifle homebuilding, and prices skyrocket. Allow homebuilding, and prices will fall. Everything else is peanuts, which can be discussed in a footnote. The evidence from all over the world shows it, and it is also just plain common sense.

Future generations will look back at out contemporary housing debate with the same bemusement with which we look at the inflation debates of the 1970s.

Dr Kristian Niemietz joined the IEA in 2008 as Poverty Research Fellow, becoming its Senior Research Fellow in 2013 and Head of Health and Welfare in 2015. Kristian is also a Fellow of the Age Endeavour Fellowship. He studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). In 2013, he completed a PhD in Political Economy at King’s College London. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and at King's College London, where he taught Economics throughout his postgraduate studies. He is a regular contributor to various journals in the UK, Germany and Switzerland.

3 thoughts on “Anything but planning: our housing debate is like the 1970s debate on inflation”

  1. Posted 30/11/2012 at 23:02 | Permalink

    I wholeheartedly agree. I’d add however that I wish that the inflation debate had been solved. Unfortunately, alternative explanations of inflation still have far greater traction than monetary causes. That said l, are not the two related? There is surely a monetary aspect to housing prices – perhaps more prevalent in other countries eg Spain, USA, Ireland than the UK. There is a monetary aspect to UK house price inflation – not as significant as planning but surely important?

  2. Posted 02/12/2012 at 21:50 | Permalink

    Very interesting post, but sadly in a world where moral relativism reigns there is no room for “just plain common sense.”

  3. Posted 07/12/2012 at 13:43 | Permalink

    Whig, yes, loose monetary policy can create housing bubbles, as it has in the countries you mention. But as the bubble burst, house prices in Spain, Ireland and the US went back to ‘normal’ almost immediately. In the UK, the dipped, but remained extraordinarily high by any standard. That is the difference between a pure bubble and a planning-induced, lasting increase in house prices.

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