LONDON — The UK will need to almost constantly build more homes than it ever has done before in order to address the chronic lack of supply that has helped push house prices in the UK skywards in recent years, a new academic paper released last week argues.
“The increases in housing supply required to improve affordability have to be very large and long-lasting; the step change would need to be much larger than has ever been experienced before on a permanent basis,” economists Geoffrey Meen, Alexander Mihailov and Yehui Wang said in a paper presented to the annual conference of the Royal Economic Society.
With this outcome incredibly unlikely given the consistent failure of consecutive governments to build as many homes as needed, it remains highly likely that housing will continue to become more unaffordable in the UK, the academics from the University of Reading argue.
“The formal conditions required to stabilise affordability are now known; in the long run, the housing stock must grow at the same rate as real household income. This condition is straightforward but probably impossible to achieve — in practice, the housing stock grows much more slowly than the economy as a whole,” the paper’s summary notes.
“Furthermore, the greater is the responsiveness of housing demand to changes in income, the faster affordability is likely to worsen.”
House prices in the UK have climbed drastically since the 1980s, with the period since the global financial crisis seeing particularly rapid inflation. The average house price in the UK is now around £217,000, compared to roughly £150,000 in early 2005, data released by the ONS earlier in April showed.
Much of that rapid price growth — particularly since the financial crisis — is down to the fact that supply is too low and demand is too high for housing, creating an imbalance which pushes up prices and makes buying a home more difficult.
This is a problem recognised by successive governments, which have pledged widespread house building to combat this imbalance.
“The housing shortage isn’t a looming crisis, a distant threat that will become a problem if we fail to act,” a government report released in February said.
“We’re already living in it. Our population could stop growing and net migration could fall to zero, but people would still be living in overcrowded, unaffordable accommodation.”
However, so far, no one has been able to successfully combat the problem, and the paper’s authors do not think any policymakers will be able to do so anytime soon.
Meen, Mihailov and Wang’s paper was one of several focusing on the UK’s dysfunctional housing market at the RES’s conference, including one from
Lancaster University academic Dr. Alisa Yusupova, who suggests that more than being centered on supply and demand, much of Britain’s house price growth in recent decades has been fuelled by speculation and exuberance.
“Neither demand-side factors such as household income, mortgage rates and credit availability, or the supply of new houses explain price rises during some of that period,” the paper’s abstract says.
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