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Housing crisis is market failure

In a league table of capitalist market failures, housing comes pretty near the top. The market’s distortions and extremes are so enormous that it is heading for its own internal collapse.

The inability of the system to provide decent affordable homes for everyone is underlined by a new report that warns of a “lost generation” when it comes to access to a roof over their head.

For a long post-war period, local authorities built millions of homes for rent, enabling most new households to find somewhere to live. Rents in the private sector were controlled.

Since the early 1980s, a housing market driven primarily by the obsession with owner-occupation has replaced state intervention. That was the policy of the Thatcher years and the subsequent New Labour governments.

It coincided with the deregulation of the financial system that provided anyone who wanted it with endless amounts of credit. Not enough money to pay your mortgage? Don’t worry, just borrow five, six or seven times your annual income.

In the ten years to 2007, real average house prices doubled while disposable income only rose by 15% in the same period. In London, prices soared by over 350% over the first decade of the Blair government.

It couldn’t last and it didn’t. Come the 2008 meltdown, mortgages dried up while the house price bubble was maintained by a shortage of supply. Now the housing market is reduced to those already in it. New entrants need not apply, unless they can find 25% deposit. In London that’s well over £100,000.

The National Housing Federation (the NHF) today blames a “chronic under-supply of homes” for a crisis that is forcing many young people into expensive rented accommodation (a typical small flat in the capital now costs around £1,000 a month).

A report for the NHF predicts that owner-occupation totals will continue to fall, private sector rents will rise by 20% in the next five years and that six in every 10 Londoners will live in rented accommodation by 2021.

The NHF wants government action to force developers to use hoarded land and build more homes. This is hardly a solution, however. Even the NHF’s own member housing associations have yielded to government pressure to build homes for sale rather than rent, adding to the crisis.

In the 19th century, Frederick Engels wrote about the “so-called housing shortage, which plays such a great role in the press nowadays” and asked rhetorically:

How is the housing question to be solved then? In present-day society just as any other social question is solved: by the gradual economic adjustment of supply and demand, a solution which ever reproduces the question itself anew and therefore is no solution.

In other words, capitalism has a way of recreating shortages over and over again. In place of the market, we propose:

Paul Feldman
Communications editor
30 August 2011

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