In parts of London, the ratio of house prices to average earnings is now 20 to one or even higher, and hardly a day goes by without stories of new luxury flats being snapped up by rich foreigners, who intend to hold them as investments rather than actually living in them – or even letting them out. Meanwhile, elsewhere in the UK, ministers are intending to relax the requirements for new developments to include "affordable" housing. And new "garden cities" won't have to include any affordable homes at all. So does the UK face a crisis of "housing affordability"?
For economists, this is an odd question. Of course houses are "affordable": there's a market, and people buy and sell them at prices that, by definition, they can afford, at least for now. The complaint is not that nobody can "afford" to buy a house in Kensington, Cambridge, or the places that people most want to live. Instead, it's that too many people can afford to pay too much, and that prices are therefore too high, meaning that many other people have to live in accommodation that is either less conveniently located or smaller and less comfortable than they would like.
That on its own isn't enough to prove there's a problem, though – by that measure, Michelin-starred restaurants are "too expensive", since I, and many others, can't eat in them as much as I'd like. But housing is different. The high price of housing has negative consequences, both economic and social. It inhibits both labour mobility and social mobility, and hence makes us a poorer and more unequal society. While the national ratio of unemployed people to vacancies is still about four to one, in some northern cities it is 10 to one, while in Cambridge there are far more vacancies than jobseekers.
But who can afford to move from Middlesbrough to Cambridge? With more, and hence cheaper, houses, Cambridge would grow much faster, providing good jobs for people currently unemployed elsewhere.
Put like that, the response from market-oriented economists – and I'd include myself here – is simple. Requirements for affordable housing in new developments may or may not be desirable for other reasons (creating mixed communities) but they are largely irrelevant to the wider question. Similarly, there is a very strong case for allowing councils to borrow more to build social housing where there is demand; but this will help primarily by expanding the overall housing supply.
The bottom line is that if we, as a society, want lower house prices, especially in the places where the jobs are, the answer is simple. Build more houses: lots more. And to do that we need to address the reason why the market isn't building more houses already. There are obvious market failures: land near Cambridge might be worth £20,000 a hectare as farmland, but with planning permission for housing it would be worth more than 100 times that.
Doing something about this doesn't mean concreting over England – only a little over 2% of England (let alone the UK) is actually built on.
There is another argument. Danny Dorling suggests that the problem is not that we don't have enough houses, but that they're poorly distributed; we have more bedrooms per person than ever before, but the richest 10% have five times as many as the poorest. He argues for a land tax and an increased, much more progressive council tax, to encourage housing to be used more equitably and efficiently.
But these are complementary, not alternative strategies. Building more houses would reduce the price of existing ones, and hence in itself would make the UK a less unequal society. So would higher taxes on land and property. And both would make it less attractive to leave properties empty as an investment rather than using them productively by letting them out.
The good news is that, after decades in which the general consensus appeared to be that (in contrast to all other types of inflation) house price inflation was somehow a good thing because it made people feel richer, there now is a growing realisation that it redistributes money from the young and the poor to the old and the rich, making us a less equal and less dynamic society.
The answer is not tinkering around the edges with "affordable" housing or crackdowns on absentee foreign buyers in Knightsbridge – it is a combination of direct government action to build more houses; reforms to planning and regulation to let the market work; and higher taxes to redistribute the windfall gains that have benefited those who need it least.
