The housing crisis is the result of a collective delusion

The housing situation in the UK is absurd. Hardly anyone who doesn’t already have a house can afford to buy one. The ONS reported last week that “a quarter of neighbourhoods in England and Wales were off-limits to many prospective homeowners last year because average income in these areas was below the level needed to buy an entry-level property." Sadly, renting is hardly an ideal alternative, with properties expensive, insecure and often poor quality. Countryside reported last year that workers under 30 pay almost half their monthly wages in rent.

If anything justifies outrage at political “elites” it is this. Decades of policy, not misfortune, have put good housing out reach of millions. Given that access to decent housing is one of the most basic hallmarks of an advanced, civilised country, you might have thought this would be considered a scandal that would dominate political debate. In fact, there is only one aspect of the housing market that has any perceptible effect on elections: price crashes cause the government of the day to haemorrhage votes.

That fact points to the heart of the problem. It has become a national myth that rising house prices are good, even though hardly anyone benefits from them. The only winners are those who downsize and pocket a profit. First-time buyers are obviously hit but so too is anyone trying to take a step up or even move sidewise. The higher house prices are the more movers pay in stamp duty and estate agents’ fees. And if the price of houses goes up then the gap between homes also gets wider in absolute terms: instead of a step up being from £200k to £250k, for example, it becomes from £400k to £500k: twice as expensive.

That’s how it looks rationally, but it’s not how it feels emotionally. When you have an “asset” that has increased in value it’s very hard not to feel you have grown richer. No matter how much people intellectually understand the gains are purely on paper, we are prone to what psychologists call “loss aversion” and so home owners find the idea of house prices going down disturbing. And so while relatively benign unemployment, inflation and immigration figures stir up the electorate, damning statistics on housing produce a resigned shrug, while alarming price rises look to many like good news.

That’s not the only reason why engineering house prices down is politically toxic. A drop would leave many with mortgages in negative equity. Housing may be overpriced but when so many people have invested in it, any correction is going to cause pain. So any improvement in housing affordability has to be gradual, which is a tall order given that governments do not have anything like firm control of the house price market. That means they err on the side of avoiding crashes, which in effect means erring on the side on increasing prices.

Then of course there is the problem that there isn’t enough housing in the first place, especially in the south. But large developments almost always run into fierce local opposition, with people worried it will spoil their view, put more cars on local roads, or reduce the value of their own homes. So we want more houses, just not here. But since everywhere is here for someone, somewhere else is as good as nowhere.

A final problem is that solving the housing problem is a medium to long term project, so even a government that did all the right things would probably not get the credit for it. All parties declare they will build many more houses (which people like, as long as they are elsewhere) but electorates rightly know not to trust them on this, which means there is no way of making housing a simple election issue. Headline promises tend to look alike and no one is going to stand on a platform of trying to bringing house prices down in the long run.

Drill down to detail and the problem is that the most immediately attractive solutions aren’t obviously good at all. Part of Jeremy Corbyn’s leadership election platform was a promise of more rent controls and increases in private tenants’ rights. While these could be welcome if done carefully, the danger is that it could cause many landlords to sell-up, which might be good in the long run but in the short term would reduce rental supply and cause a house price shock.

In short, an Englishman's home has ceased to be his castle but has become a prison of his own making. There is no magic solution, only a long-term commitment to policies which will bring the price of buying and renting gradually down. But with little political incentive to put such policies in place and the risk that they might precipitate a crash, no one has been prepared to take such steps yet. The Catch-22 here is that to do what is in the long-term best interests of the vast majority who are not as cross as they should be requires going against the (often merely perceived) short-term interests of people who will be more angry than they have any right or reason to be.

Already many more are harmed by the status quo than are helped, it’s just not enough truly realise it. Our best hope is that more of us wake up and we will snap out of our collective delusion. If we value home ownership, it is crazy to pursue polices that prevent homes from being built and make the ones we have prohibitively expensive.