One Reason Homes Cost So Much
In the UK and many other countries houses are expensive, very expensive, prices have been rising consistently for many decades. In England, prices rose by 4255% between 1971 and 2011. If the price of a supermarket chicken had inflated by the same rate it would cost £51.18p by now.
Around 1950 you could get a three-bedroom house in Northwest London on the northern line between West Finchley and Woodside Park for just £1,050. This was two and a half times the average wage of four hundred pounds a year; the head teacher of the local school could very comfortably have bought this kind of house with a total mortgage somewhere around twice their annual salary. Today, a similar house in the same area would cost close to £1,000,000, forty times the average income, it's nearly ten times the salary of the local head teacher. House prices in the UK haven't just increased they have skyrocketed.
But why is housing so expensive? The cost of houses has very little to do with the building materials. The value is almost all in the land on which the house sits. So why does land cost so much?
One reason is that demand for housing keeps growing, the UK population increases by between 300 and 400 thousand people a year and also the number of people in each household is getting smaller. More people live alone or just as couples without children so the demand for accommodation is growing all the time.
In order to keep up with the demand the UK would need about 240,000 new flats and houses a year. It's building less than half of this. That's not just a UK problem, France is building only 330 of the 500,000 new homes needed per annum. Major cities fare worse, London will face a shortfall of over 700,000 homes by 2030.
In response to the cost of housing crisis, governments have tried to intervene to help people to buy their own home. In the U.S. there are schemes like the Federal Home Loan Banks and the Community Reinvestment Act. In the UK there's help to buy and there are interest-free loans in France. The underlying idea is that people would buy houses if only they had the money, but really most governments are just crying crocodile tears about property prices, they know that the bulk of their voters actually like expensive houses, a lot.
The number of people who want new houses at any time is very small, only 10% or so in relation to the huge numbers who already have a home, and therefore, the property owning side of society has a vested interest in seeing the value of homes go up.
Creating easy credit doesn't actually make housing more affordable. The real issue is one of supply, if you simply ease credit without increasing supply you'll just stoke house inflation, which is precisely what's happened. It's the same with a big expansion of mortgage lending, you may be able to borrow more but so can other people, you're all chasing the same limited number of homes so this just pushes prices up and up. So why is building houses so difficult? Well, because there's enormous opposition to the building of new homes and great restrictions on the use of land. There are lots of immediate answers to do with planning regulations and zoning but dig deeper and what we have really are society-wide fears of new housing, for one large reason above all others, because almost all new housing developments are very very ugly and no one in their right mind wants a new development anywhere near them.
Most of the large housing developments built in the south east of england in the last 25 years share one common, generally undiscussed feature, they're very ugly or to be more precise, they're far uglier than the countryside that they've replaced.
In the mid 18th century people looked on without dismay as the hills around the little town of Bath were given up to Queen Square the Royal Crescent and Somerset Place. Likewise, a little further back, when the wetlands scrubby reed beds and sandy islands at the mouth of the River Po were sacrificed to urban expansion, few people were likely to have raised protests given what would come to replace them, the city of Venice.
History shows us that people don't object to new housing per se, they object when the houses are less beautiful than the natural landscape they have devoured. This starts to isolate the cause of expensive houses, as well as point the way to a solution to the issue. It is literally ugliness that is largely to blame for the current social catastrophe of high house prices. What seems like negative and entrenched NIMBYism (Not In My Back Yard) is at heart an inarticulate disguise but understandable plea for grace, elegance and a touch of grandeur in architecture.
We love towns and cities, when they are attractive, but we've no confidence we can make today the kinds of places we actually really like and the reason for that has nothing to do with prices.
The argument isn't that we should build replicas of georgian crescents, let alone rows of canalside gothic palaces, any more than it would be an idea for someone who loved the english language to begin addressing strangers in Shakespearean dialect. The answer is to create housing developments in the best architectural idiom of our times, places like, for example, the exceptional Accordia housing scheme in the suburbs of Cambridge, to which unsurprisingly, no one objected.
Solving the housing crisis requires that we get better at grasping the nature of the problem we're facing. The issue isn't stubborn selfishness, it's a longing that we shouldn't build unless we can build beautifully. Crack that and no one will mind the felled trees too much and mortgages will come down too.
So what's the solution? It's to stop thinking that creating credit for house purchases does anything, it just stokes house inflation. What we should be doing is creating not-for-profit housing corporations that are incentivized by volumes rather than prices reached, and most importantly, we should build so beautifully that no one minds a patch of land near them being developed. Tantalizingly, all this could be done.