Do we need 240k houses a year?

At the last election all the major parties agreed that there was an urgent need to build more houses. They varied a bit on the detail, but the overall target figure was generally around 240,000 houses per year. 

The figure is generally quoted in a sentence along with the phrase "housing shortage" or "housing crisis". But what does that actually mean? 

Kate Barker, author of the 2004 Barker report, interviewed recently on BBC Radio 4's More Or Less, points out that the notional target represents the point at which supply starts to meet demand and prices stabilise. 

The argument runs that in a market economy, where the aim is to allow people to choose the houses they live in and where in the country they live, a shortage of popular housing in high-demand areas will lead to rising prices. As the housebuilding sector failed to deliver the 240,000 houses a year - even in the housebuilding boom of 2007 - that analysis was proved completely correct as house prices have soared over the last decade. 

Is this good news? Yes, for many.  But not universally.  Not for those people who don't own a house and see the possibility of doing so move further out of their reach; not for those living in private rented accommodation whose rents rise with housing value; not for employers who need to pay higher salaries simply so their staff can afford housing; and, importantly, not for the government facing an inexorably rising housing benefit bill. 

So, if you think that house price stability is desirable, and Kate Barker is right in her conclusion that house price stability will only be achieved by increasing supply, we are back to that 240,000 target. The current government's policy to boost housebuilding numbers is to increase demand and their interventions to support mortgage lending have certainly stimulated the market. However, as it has done little to increase supply, the result is further increases in house prices. 

And if the only people with the money to build new houses are the relatively few remaining private housebuilders, you have to acknowledge that they would be commercially foolish to build enough volume to ease the lucrative shortage. 

Surely it's time to give up on the fantasy that everyone can - or should - own their own home and invest in decent public sector housing once again. Clearly it would be a brave government that directed its own funds to that end, but it could be achieved by allowing councils and housing associations to borrow more and make social housing a sound investment proposition for the city. 

Continuing with a policy that focuses purely on generating demand in the private sector could be seen as creating a mountain of unsustainable mortgage debt. And we've been there before, haven't we?

Posted by Anna Hern