I saw a first sneak preview of Corbynmania about two years ago. It had nothing to do with Jeremy Corbyn, whose existence I was blissfully ignorant of at the time.

I took part in a panel discussion on the UK housing market, organised by a London university, for an audience of students and young academics. I was up against three left-wingers and a middle-of-the-road conservative. The first left-wing speaker’s contribution could be loosely summarised as: “You, young people, are getting a rough deal. You pay through the nose to live in a mouldy shoebox. Clearly – clearly! – the free market has failed you. Neoliberal dogma has failed you. But I’m sure Kristian here will tell you that everything is fine, because the free market always works perfectly.”

The second left-wing speaker’s contribution could be loosely summarised as: “You, young people, are getting a rough deal. You pay through the nose to live in a mouldy shoebox. Clearly – clearly! – the free market has failed you. Neoliberal dogma has failed you. But I’m sure Kristian here will tell you that everything is fine, because the free market always works perfectly.”

The third left-wing speaker’s contribution could be loosely summarised as: ‘You, young people, are getting…”

You get the gist. What the conservative speaker said, I can’t remember.

I was trying to make the point that Britain’s housing market is currently light years away from a free market. Britain’s land use planning system is one of the most restrictive ones in the world, and there are dozens of empirical studies which show that the severity of land use planning constraints is the most important long-run determinant of housing costs (see pp. 38-39).

I pointed to a recent study on the English housing market, which estimated that excessive planning constraints account for more than one third of the average house price. I talked about the entrenched resistance to new development from vocal NIMBY groups, and politicians’ unwillingness to confront them. I compared our housing market to a system in which the government makes it almost impossible to grow or import hops: if, as a consequence, beer prices explode, and beers become flabby – would it make sense to claim that “the free market” has failed?

I normally find it hard to judge whether a presentation goes down well with an audience or not. In this case, it was clear that it did not. I failed to get through to that audience. What I said made no sense to them.

Most of them probably really did pay through the nose to live in a mouldy shoebox. To them, the line that their problems were the result of runaway free-market capitalism seemed intuitively persuasive. And, crucially, that perception fed through into a more generalised hostility to free market ideas.

This is not too surprising. Most of us do not form our opinions on economic matters by studying textbook models, but by extrapolating from our own experiences as participants in economic life.

Most of those experiences are positive. It would be hard to whip up an anti-capitalist frenzy by telling people how they are being exploited by greedy profiteers selling them iPhones, coffee, shoes, laptops, pizzas, glasses, medicines etc. (although I could think of people with whom that might work).

But the housing market is not just any market. Rent or mortgage payments are the single biggest item of expenditure in most people’s budget. A dysfunctional housing market is much worse than a dysfunctional beer market. It severely undermines our living standards, and it has the potential to cancel out many of the good things that happen elsewhere in the economy. And it has a much bigger impact than any other sector on our perception of whether “the system” works for us or not.

In this respect, my hop analogy does not work. Suppose we really had a policy like this, creating an artificial hop shortage. You are not an economist, and you are not aware of the existence of that policy. You just notice that whenever you travel abroad, the beer is much cheaper, and tastes much better. But you have no clue why that is.

Even so, you would probably not conclude that there is something fundamentally wrong with “capitalism” as such. You would conclude that there is something wrong with this one specific sector. You would not conclude that a socialist revolution is required to sort it out.

The housing market is different. If the housing market does not work, it is much easier to conclude that “the system”, as a whole, does not work, at least not for you. A dysfunctional housing market breeds anti-capitalist resentment.

This is not an original insight. In the 1950s, a West German politician observed that across Western Europe, the share of votes going to communist parties is inversely related to the number of houses built. By keeping a tight lid on house-building, successive governments have, more or less, managed to keep the NIMBYs quiet. But they have created a socialist monster in the process.

 

This article was first published by CapX.

Head of Health and Welfare

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.

2 thoughts on “How the housing crisis has created a generation of socialists”

  1. Posted 02/08/2017 at 19:14 | Permalink

    You make a very good argument, Kris, and I suspect that you are right.

    My proposal would be to introduce a planning presumption in favour of residential buildings of up to and including 4 or 5 storeys – to stop councils insisting on toytown low rise developments that use land inefficiently. Then I would gradually introduce a land value tax element into the Council Tax so that Council Tax bills become relatively lower for multi-storey land-efficient properties, so that buyers are incentivised to demand such properties.

  2. Posted 18/08/2017 at 21:59 | Permalink

    OK, so the planning system doesn’t work terribly well.
    NIMBYs are always blamed, yet they are often experts in the local conditions.
    Builders don’t build on land they own unless it suits them. And then they build a few houses at a time. I’m thinking here of the time we had Regional Building policies whereby Local Authorities had to plan for their regional allocation. That all took a lot of time. But the builders didn’t start work for many years. And then only built a few hundred houses at a time. So, the greenfield site for 30,00 houses looked is still uncompleted 12 years later.
    Maybe the planning appeals are to blame – too slow, with no time limits.

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