Sunday, 5 June 2011

Property-owning democracy or home-having democracy?

I'm fully on board with Andrew Rawnsley's call for more housing supply, but I question some of the assumptions he's making.

First, he argues that Harold Macmillan's success in getting new homes built in the 1950s was motivated by the conservative dream of a 'property-owning democracy', which implied that "the working classes would turn away from socialism as property ownership infused them with conservative values".

Well, maybe, but if Supermac really expected his housebuilding program to result in a property-owning democracy he was playing a very long game, because three quarters of the 1.1m homes built in his tenure as Housing Minister (1951-54) were council homes (see table 241 here). I don't know much about Macmillan's stated beliefs on this subject, but based on his actual record he looks more like a pragmatist who believed in a 'home-having democracy', where people who badly needed decent, affordable homes got them, and getting them built was much more important than who owned them.

In fact, it's tempting to conclude from the historical record as shown in the chart above that if the government really wants to get some homes built the most effective way is to do it itself through a large programme of council house building. The catch is that the conditions that facilitated that policy in the past, such as relatively cheap land and labour and a very high proportion of people living in crowded or otherwise inadequate housing [1], may no longer apply.

Rawnsley argues that truly widespread home ownership should still be the goal of any sensible political party in Britain. It's not just that nearly everyone wants to own their own home, but that in doing so they are effectively forced to save and build up assets, which they can draw on later in life if they need to or pass on to their children if they wish. So property ownership spreads the wealth, promotes financial prudence, and most important of all it just makes people happy.

This is an attractive vision, and one pursued (with some success, as measured by home ownership rates) by governments since Thatcher. But as Rawnsley goes on to note, there was a problem, as a "steep rise in values made British homes very pricey relative to income".

This run-up in prices is presented as just one of those things that happens, but what if it was no accident but an unintended consequence of the promotion of home ownership? Simply put, a large number of home owners in an area means a large number of people whose major asset may decline in value if there is too much new housing supply in the area. Contrast that with the situation of renters, who should (all else being equal, which of course it often isn't) welcome new housing supply insofar as it tends to lower equilibrium rents. So if government policy is to turn renters into owners, then maybe it shouldn't be surprised if people start being more hostile to new supply.

As Rawnsley says, people do indeed aspire to home ownership. But who doesn't want to own a valuable asset? The problem is that one person's valuable asset is another person's sky-high housing costs.

[1] I'm well aware that there are a substantial number of people living in overcrowded households. But it's nowhere near the levels of overcrowding seen in the 1950s.

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