Cameron’s housing speech: terrible economics, but not even good politics
After the financial crash of 2008, a group of IEA authors argued that the lesson to be learned was not that we should abolish financial capitalism, and turn our back on international financial markets, as the popular narrative of the day had it. Rather, the appropriate response was to sort out some of the boring, technical stuff, such as capital adequacy ratios, risk rating procedures, liquidity provisions and bankruptcy laws.
Similarly, environmentalists insist that problems like pollution and climate change can only be solved through ‘big picture’ solutions: We have to overcome the ‘dogma of perpetual economic growth’, abandon our consumerist lifestyles and materialistic values, and adopt a completely different way of structuring our economic relationships. Free-marketeers, in turn, point out that narrow, focussed and targeted solutions (like Pigouvian taxes) are not just workable, but also far more cost-effective than the alternatives.
In recent years, Britain’s housing shortage has also – erroneously – come to be seen as a ‘big picture’ problem. The discontent with the high cost of housing feeds into the prevailing anti-market mood, it blends seamlessly into the familiar narrative of ‘austerity’, bankers’ bonuses, inequality, the 1%, NHS ‘privatisation’ and tax avoidance. Viewed in this light, the housing shortage becomes just another symptom of an economic model that only works for a few at the top. Unsurprisingly, those who peddle that narrative insist that there can be no targeted solutions, such as simply building more houses. Instead, we need to ‘think big’, and call everything that happened since 1979 into question.
None of this is true. The housing crisis tells us zilch about ‘our economic model’ (whatever that is) as a whole. The way to solve it is not to bring back Arthur Scargill, reopen the coalmines and renationalise British Airways. It is to roll back the greenbelt, deregulate planning, and ignore the whining of the Nimbys. But try to explain that to an angry student audience, copy of the Guardian in one hand, and Russell Brand’s or Owen Jones’ book in the other.
The housing shortage has become grist to the anti-capitalist mill, and this is not a new phenomenon. A leading post-war politician – I cannot remember who – once said that the annual number of houses built in a country was inversely related to the share of votes going to socialist parties. Housing shortages benefit the political left.
With this in mind, one could have been forgiven for expecting a bit more from David Cameron’s housing speech. But as always, Cameron has followed the well-known script for a politically harmless statement on the subject: Talk about housebuilding in the abstract, but at the same time, send reassuring signals to the anti-housing lobby, showing them that you don’t mean it. Rule out touching the greenbelt, and reheat the brownfield myth. Say nothing tangible unless you talk about demand side subsidies and other gimmicks.
Hence Cameron talked about low interest rates (demand side), the Help to Buy programme (demand side) and the Right to Buy programme (demand side). Unless it involves an increase in the number of planning permits, the talked-up ‘starter homes’ initiative will not lead to a net increase in housing supply either, but merely to a relabelling of development projects that would have taken place anyway. Exempting developers from the Community Infrastructure Levy and Section 106 payments may lower prices for buyers, but presumably, central government will have to compensate local governments for the ensuing shortfall in revenue, which would turn this measure into just another repackaging of costs. Reserving homes for first-time buyers, at the expense of Buy-To-Let landlords, will benefit the ‘marginal first-time buyer’, but since it does nothing to stimulate overall supply, this has to come at the expense of the rental sector. Cameron has offered precisely nothing that could reverse the long-term decline in housebuilding.
Number of dwellings completed per 10,000 inhabitants, 1969-2013
-author’s calculation based on ONS figures
Cameron’s speech was terrible economics, but it was not even good politics. Of course, saying something meaningful about housing – questioning the failed greenbelt dogma, repudiating the brownfield myth – would come at a short-term political cost. The Campaign to Protect Rural England would hyperventilate, and Simon Jenkins would scream bloody murder (much like now, in other words). But the refusal to address the issue will only embolden an already existing anti-market mood, especially among ‘Generation Y’, which will ultimately be far more dangerous than the wrath of a few Nimby hysterics.