Tuesday, April 29, 2008

Why Is It Difficult to Increase Supply of Housing?

One feature of the recent housing boom were the constraints on supply that often existed, especially focused in certain areas. This meant that house prices rose rapidly, especially in some areas where house prices rose far above the National average. The reason is a classic example of self interest by existing homeowners.

If you live in a local community you have everything to gain by preventing new houses being built.
  1. If planning restrictions occur then the shortage of supply will drive up prices. You will see a gain in wealth, and the only thing you need to do is prevent new houses being built.
  2. Less congestion on roads and public amenities
  3. Will be able to enjoy unspoilt views across the countryside.
  4. Planning restrictions on building houses reduce the value of land. Therefore, other uses of the land in that area become more profitable.
  5. Environmental arguments. In addition to these reasons, supporters of planning restrictions can also use environmental arguments e.g. protect green belt land. These arguments are not without merit; nobody would want to see England covered in concrete. But, often environmental arguments can be used as a mask for the real reason which is desire to see house price rise. It is possible to build houses without destroying too much green belt land.
There is a strong political bias to planning restrictions. Existing residents are the ones who are voting. Other people who would like to come into the community, cannot vote in these local elections. Therefore, the electoral process will invariably support the candidate who supports planning restrictions. They may be a small % of first time buyers who would like more houses being built. But, the majority of the electorate are already homeowners and so object.

It is local politics that explains why it is so difficult for the government to meet its national target of building more houses. Everybody agrees we need to build more houses, it is just that we don't want them to be built in our local area. ( a similar idea to nuclear power).

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