Housing and Planning

What the supply-side deniers at the Guardian get wrong about Britain’s housing crisis


Last Tuesday, the Guardian published an article entitled The end of landlords: the surprisingly simple solution to the UK housing crisis by Nick Bano. It is another exercise in supply-side denial, as the subtitle makes clear: “Mass-scale housebuilding isn’t necessary – there is already enough housing stock”.

The article is easily summarised: Britian has no housing shortage. We have a housing crisis, in the sense of a crisis of housing affordability, but it has nothing to do with supply. The real problem is “landlordism”, i.e. the existence of a private rental sector. Private landlords are snatching up the existing housing stock, and then raise prices for everyone else. Consequently, there is no need to build any houses. We just need to take the existing homes away from the housing Kulaks.

Let’s have a look at Bano’s “arguments”, such as they are.

Homes per household

Bano starts by claiming that Over the last 25 years, there has not just been a constant surplus of homes per household, but the ratio has been modestly growing while our living situations have been getting so much worse.”

“Homes per household” is a meaningless concept. Household formation is endogenous to the housing market. The population will squeeze into whatever housing stock there is, no matter how inadequate. Imagine an alien attack destroyed a quarter of the British housing stock. Would this mean that a quarter of British households would now be homeless?

Probably not. Most of those people would move in with someone else (e.g. relatives), however reluctantly. The number of households would decline in roughly the same proportion as the housing stock, and the number of homes per household would remain roughly the same. If you judged the housing situation solely on this measure, you would conclude that there is no problem, and no need to even rebuild the homes that have been destroyed.

This is an extreme example, but on a smaller scale, Britain’s housing shortage really is suppressing household formation. For example, since the late 1990s, the share of young adults (aged 20–34) who still live with their parents has increased by seven percentage points (from 20% to 27%). I have not found any data on the proportion of young adults who live in flat-share arrangements well past university, but I bet that the British figure is well above the EU average. Given that “a household” is simply defined as people who jointly occupy a housing unit, it already follows that definition that the number of households will more or less match the number of homes.

Homes per 1,000 inhabitants

Bano also looks at the number of homes per 1,000 people, which is a much more sensible measure. (Although it is unduly flattering to the UK, because it is not adjusted for differences in floorspace, and we know that houses in the UK are unusually small by international standards.)

Bano claims:

“In terms of the Organisation for Economic Co-operation and Development countries, the UK has roughly the average number of homes per capita: 468 per 1,000 people in 2019. […] It is impossible to make a case for unique levels of housing scarcity in Britain”.

That is stretching the meaning of “roughly”, to say the least. The OECD average of 468 housing units per 1,000 people is 8% higher than the English figure (UK-wide data is not available) of 434 housing units per 1,000 people. This means that England would have to build almost 2 million homes to catch up with the OECD average!

Bano is right, though, that in a ranking of OECD countries by the number of housing units per 1,000 people, England is not at the very bottom. There are some OECD countries where that figure is similar to the English one, or lower. Let’s have a look at those.

They include Ireland, Australia, and New Zealand. What do these countries have in common? They have seen major increases in house prices over the past three decades, that’s what. So while the data does not indicate unique levels of housing scarcity in Britain, it does show that countries which do similarly badly on housing supply experience similar problems of housing affordability. Very far from showing that supply is irrelevant, this accentuates the YIMBY argument about the importance of supply.

Then there are several Eastern European countries (far from all of them) which have fewer homes per 1,000 people than Britain. These countries are poorer than Britain, which matters, because we know, empirically, that as countries grow richer, people demand more housing space. When housing supply does not increase to match that extra demand, people bid up the price of the existing stock. This is what it means to say that Britain has a housing shortage. It does not mean that the British housing stock is literally the smallest in the OECD, or that it is smaller today than it was in, say, the 1970s. it means that the British housing stock is inadequate given Britain’s income level, and housing demand.

This is also the reason why the comparison with the OECD average, although damning enough on its own, is not ideal. The OECD average contains middle-income countries, such as Turkey, Mexico, Colombia and Chile. A more meaningful comparison is with the EU average, and catching up with that level would require the construction of 3.4 million homes in England alone. And if we restrict the comparison to Western Europe and North America, the UK is very close to the bottom of the ranking.

The size of the private rental sector

Bano claims, wrongly, that Britain is roughly average in terms of housing supply (it’s really not), and that therefore, supply cannot be the issue. If this were true (again: it’s not!), this would be a fair argument. If the housing crisis is a specifically British problem (or at least, a problem which is worse in Britain than in most comparable countries), it has to be explained by some factor that is specific to Britain, not a factor which Britain has in common with most other countries.

That, however, immediately rules out Bano’s favoured culprit: the private rental sector. Because in that respect, Britain really is very average.

The private rental sector accounts for 17% of the English housing stock. That is about the same proportion as in Norway, Austria, Belgium, Finland and Denmark. It is less than in France (22%), and a lot less than in Switzerland (56%) and Germany (60%). So if the presence of landlords makes housing unaffordable, why is it that the latter three countries have not experienced anything comparable to Britain’s house price explosion? And why is it that Ireland, which has a much smaller private rental sector (just 10% of the housing stock), has housing affordability problems that are quite comparable to the UK’s?

“Landlordism” is a complete red herring. Bano seems to think of landlords in a Maoist way: he seems to think that they act like a gigantic cartel, who stick together, and collude to force up prices. They don’t. Landlords compete with each other, and they can only charge what the market will bear. If “what the market will bear” is a lot, then that is the result of market fundamentals, i.e. demand and supply – precisely the issue which Bano claims is not the issue.

Why?

While Bano and the people sharing his article enthusiastically probably think of themselves as edgy Maoist rebels against “the landlord class”, all they will achieve, in practice, is furnish NIMBYs with yet another excuse to block housebuilding. I guarantee you that within the next couple of months, some NIMBY group will cite Bano’s work as “proof” that houses are overrated. How can he not see that?

Unfortunately, for most of the political Left, politics is all about vibes and status. That makes them hostile to YIMBYism.

There is obviously nothing “right-wing” or “neoliberal” about building houses, which is why you can easily find left-wing YIMBYs, and right-wing NIMBYs. YIMBYism is, however, compatible with a liberal agenda of deregulation, and with improvements within the capitalist system. Therefore, large sections of the Left feel obliged to be against it. Some right-wingers think we should build houses, therefore, houses are right-wing, and “cringe”. So a good progressive must be anti-housing.

Ironically, in doing so, they end up bolstering the most reactionary force in British politics: NIMBYism.

 

Head of Political Economy

Dr Kristian Niemietz is the IEA's Editorial Director, and Head of Political Economy. Kristian 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). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).


2 thoughts on “What the supply-side deniers at the Guardian get wrong about Britain’s housing crisis”

  1. Posted 03/04/2024 at 15:09 | Permalink

    Just because we can doesn’t mean we should!. I despair at the crass comment “landlords can only charge what the market can bare” This mentality is exactly why councils are going bust under the sheer weight of homeless families. Landlords arnt selling Tv’s! This is the difference between a child having a roof over their head or not doing. A child having decent clothes and food in their stomachs! There’s a urgent need for less greed in this sector and that goes for the financial institutions making landlordism possible also. Wake up and realise profit should not come before humanity.

  2. Posted 11/04/2024 at 15:39 | Permalink

    Good article. However I think the author misses something fairly important about the Guardian and left-wing economic illiteracy in general: For the leftist, the less one knows about economics, the better. It is not hyperbole to say that people like Nick Bano simply believe that all economic facts, logic and knowledge are all nothing more than falsehoods manufactured by a nefarious cabal of politicians and businessmen to normalize poverty and prevent the creation of utopia. It is vital that free-marketers realize this, if we wish to maintain capitalism.

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