Boris Johnson’s prime ‘primeministerial’ mission is to ‘level up’ the UK economy. By that, he means improving the lot of the ‘left-behind’ areas. Can’t argue with him there. A secondary, but not-too-far-behind, mission is to build more homes and make them more affordable. He’s not alone in wanting to see that happen.
Specifically, he wants to build more homes in areas where people want to live. Very considerate of him, but how does he know where people want to live? Has he undertaken a nationwide survey to ask them? Course not. He’s using an algorithm. Oh no – the dreaded “A” word!
This algorithm will pinpoint where people want to live by dint of local house prices. Basic supply-and-demand economics – the higher the price of homes means the higher the demand, ergo that’s where people most want to live, and that’s where the bulk of the new homes will be built. The hope is that by building more homes, i.e. increasing supply for the same demand, will force prices to drop and more people can afford to buy a home.
Simples!? No. Nothing is that simple.
Alarm bells started to sound when it was announced that many target zones for new homes were well-off suburban and rural areas, whereas some urban areas would see their new-build allocations reduce from current requirements. In other words, the home-building algorithm would stimulate the wealthys and stagnate the left-behinds.
Hmmmm – aren’t BoJo’s two prime missions pulling in opposite directions?
Leaving that question hanging for a mo, let’s go back to basics with another question, which is: because house prices are determined by supply AND demand, wouldn’t it be more effective to REDUCE DEMAND as well as INCREASE SUPPLY?
Sounds good as a soundbite, but what about in practise?
Factors that affect housing demand include 1) economic growth, 2) consumer confidence 3) number of buyers and 4) mortgage availability. Regarding 1) and 2), the thought of any government limiting economic growth and subduing consumer confidence on a wealthy-area-by-wealthy-area basis borders on the hysterical. But what if the Government turns this daft notion on its head and, on a left-behind-by-left-behind basis, stimulates these local economies and consumer confidence by facilitating investment in sustainable employment opportunities, e.g. green industry, infrastructure and services, and providing desirable homes for all income brackets. This would in turn attract buyers away from the wealthier areas, i.e. increase the number of buyers in the left-behinds by reducing the number of buyers and therefore prices in the wealthys, all with one strategy.
Covid has, perversely, helped here. There are an eye-watering number of urban offices lying empty with sufficient desire to keep working from home and reduce the financial, time and carbon costs of travel. These offices are ripe for conversion or redevelopment, with utilities already connected and nearby, extant retail units waiting to spring back into life. Now THAT’S what I call shovel-ready.
Simples?! Getting there.
What about demand-factor 4) - mortgage availability, specifically the size of mortgages offered? Increasing the salary multiplier from 2.5 x sole-income to, say, 4 x joint-income has fuelled house-price inflation more than any lack of supply ever did. It’s obvious that if the amount buyers are allowed to borrow increases, then the more they can afford to pay increases and, in competition with other buyers, the price of that commodity also increases. Further, given that the higher salaries are paid in the wealthys, house prices have obviously risen more there, exacerbating the economic divide.
From the Barker Review (2004) onwards, Government ‘advisers’ and politicians have refused to point the finger of house-price blame in the mortgage direction, to the detriment of the young, lower paid and left-behinds. But the banks and developers were happy to see prices rise, so that probably explains the myopia. Sigh.
A word of warning - what should not be done is rejuvenate working class areas to the point of gentrification. For example, I was shocked to see that the once bastion of working-class pride, Salford, is now the home of Media City yuppies, luvvies and the Metropolitan urban elite – not a flat cap or pinny in sight. No point gentrifying if only the gentry benefit!
To sum up: my message to BoJo is, invest directly in the left-behinds, and house prices in the wealthys will automatically become more affordable. Not an algorithm in sight.
Now that is indeed Simples!
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