An economist from a rival consultancy with the splendidly Scottish name of Ian Mulherin has been all over the airwaves postulating that Britain doesn’t need any more houses.

 

He has argued his case well and made some points that are not only backed by the statistics but are probably true. He has shown that for the UK as a whole, market rents have plateaued. And that technically the number of houses have increased faster than the number of households.

 

But his overall contention is wrong and gives a whiff of the sort of analysis that comes from keeping your head buried in statistical text books rather than by backing up the stats by looking out of the window and understanding the real world.

 

The UK has some surpluses of houses in places where people do not particularly want to live, though it would take a good structural survey to confirm that these houses are actually habitable. The official data for growth in the housing stock hints that very few properties have been retired from the housing stock in recent years which in turn means that there has to be doubt over whether some of these houses actually could be lived in.

 

But Mulheirn’s biggest error is to ignore location. The housing crisis in the UK is localised. It is essentially a London problem. The chart below shows how since the Flat White Economy took off in 2008 London’s number of households has grown faster than the dwelling stock. At the beginning of 2017 London has a deficit of 123,117 houses (sorry for the spurious precision). This shortage has put upward pressure on house prices which have risen by over 350% in the past 20 years. Most economists would recognise that a price rise on that scale might just possibly indicate a shortage!

 

The cost of this shortage – which has pushed prices up much faster than wages is that workers in London are being forced to live in backpackers’ conditions. They’ve moved beyond sharing flats to sharing rooms. Five per cent of young accountants are being forced to share bedrooms for purely economic reasons. The excessive cost of housing is by far the single largest driver of inequality in London. The government is right to want to increase housing supply. The key question is whether the new measures announced today will have more effect than any of the other similar announcements over the past 7 years.

 

How London’s household growth has outstripped house supply

 

Douglas McWilliams, President

 

Graph and corresponding data provided by Nina Skero, Managing Economist