Chronic housing shortage in Britain ‘evident everywhere but the data’

Britain’s weekend media was packed with stories reporting how a housing shortage is fuelling surging property prices.

Most newspapers cited the IMF’s warning that house prices pose a risk to the economy. The Mail on Sunday said Chancellor of the Exchequer George Osborne will hit a “home run” by outlining plans this week to ease red tape for construction.

The Sunday Times declared May’s 3.9% jump in prices a “humdinger”.

Deputy prime minister Nick Clegg joined the worrywarts yesterday by committing to investing to end what he called a “chronic lack of housing”.

But what if there is no housing shortage after all? That would undermine the conventional wisdom. It’s the case made by Andrew Brigden, chief economist at Fathom Consulting in London and a former Bank of England economist.

He echoes Nobel laureate Robert Solow’s quip of the 1980s that “you can see the computer age everywhere but in the productivity statistics”.

Brigden said in a May 29 report that the shortage of housing is “evident everywhere but the data”.

He attributes the surging prices to historically low mortgage rates and government subsidies for borrowers.

The firm’s analysis shows the number of dwellings rose by 0.6% in 2012, the most recent year for which data is available, maintaining pace with population growth. The amount of housing per capita has been broadly stable for the past 15 years.

A lack of homes would also push up inflation-adjusted rents, and they’re not. Instead, they gained just 2.2% in the year to the first quarter with house- price inflation at 8%, said Brigden. He also suggested that the quality of the houses that are being built may be rising to meet the needs of buyers, favouring four-bedroom houses over two-bedroom flats.

If there isn’t a shortage then the government should do away with its programme aimed at easing affordability and prices will correct anyhow once interest rates begin rising, said Brigden.