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Markets Do Actually Work – No, Really

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Apparently building more houses doesn’t make housing more affordable. This is an impressive claim:

Yet the housing developments championed by Jenrick do nothing to increase the number of affordable homes. Developers don’t want to build cheap starter homes. They prefer five-bedroom, low-density housing – hence the hunger for greenfield sites, especially those near beauty spots, which are massively more profitable. Meanwhile developers shun available brownfield sites that CPRE estimates could support building 1m new homes.

Well, why are they more profitable? Because that’s the sort of housing that people want to buy because that’s the sort of housing people want to live in. Demand does have that little bit to do with prices, you know?

But think on a little more too. Say that the UK requires 25 million units of housing – not all that far off the truth given the 25 million-sh households. So, we build some more 5 bed rural homes. That means we’ve now got 25 million and three houses. This makes every house in the country that little bit cheaper.

Really, markets do work. Increasing supply into static demand reduces prices. Further, the more fungible the market the more it is the marginal unit that determines the average price.

Of course, we have something more complex here, changing demand and changing supply and it’s really a series of local markets with the national supply not being entirely and quite the point. But that just increases the necessity of taking markets into account. Localities where prices are high are exactly where we should be putting more houses. Because that’s where, by definition, demand is higher.

As to why this isn’t happening:

Ros Coward is professor emerita of journalism at Roehampton University

This doesn’t work as well as having the economists teaching journalism. On the grounds that you do have to know how to write to do economics but clearly, from the example on offer, you don’t need to know any economics to do journalism.

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