Increasing housing supply - Catch 22?

by Malcolm Frodsham, Real Estate Strategies 

Catch 22 , written by Joseph Heller and published in 1961, is often cited as one of the most significant novels of the twentieth century. The housing crisis is certainly one of the most significant problems today and my mind often drifts back to the novel when listening to politicians out-bidding each other with schemes to ‘solve’ the housing crisis. Housing policy epitomises the type of bureaucratic reasoning justifying actions in Catch 22 - the political imperative to avoid any housing policy that actually makes houses affordable!

The housing crisis is real, and solving it requires house prices to fall, either through massive new supply or a reduction in demand.   But there is a catch: politicians know that a fall in house prices will be unpopular with homeowners. Housing is the nation’s chosen store of wealth, so reducing housing costs equates to reducing the stock of wealth. So we have a Catch 22; action must be seen to be taken on the Housing Crisis, but on no account should this action result in lower house prices.

So politicians compete with each other on promises to build more ‘permanent dwellings’, but only ‘affordable’ ones, or in other words, homes that will not actually impact the prices of the rest of the housing stock.

Building any homes is of course tough and unpopular locally, so in order to have a policy to announce, the Government subsidises the buying of houses (Help to Buy). This has the benefit of actively supporting house prices and therefore perpetuating the crisis. This political wheeze would sit happily with any of the absurd notions in Heller’s classic novel.

An achievable solution to affordability, is to switch taxes away from income and instead tax housing wealth. The investment motive to own housing is reduced, encouraging occupiers of homes with more bedrooms than required to trade down to smaller houses (there is a an astonishing 1.8 rooms per person in Great Britain, which is a very peculiar housing shortage indeed).  This would boost housing supply and reduce prices.

Will this happen? Yes, under Labour’s ‘progressive property tax’. Will the electorate vote for such a tax, or is it Catch 22?