Wednesday, 14 September 2011

Empty homes not to the rescue

Simon Jenkins attacks the NPPF again, and as before the effect is to make you wonder if it's such a bad idea after all. But I just want to pick up on a couple of points he raises. First, there's this:
As for housing, it might seem odd in a recession for a chancellor to be directing savings (and bank loans) from productive investment into the housing market.
That's a bit backwards. Investment in new housing supply is productive, because it's producing something - new houses! There might be more productive investments around, but given the lack of business investment at the moment the idea that spending on new homes would have a big crowding-out effect is way off.

Speculative investment in housing or land assets is not productive, so maybe that's what Jenkins is thinking of. But increasing housing supply to a higher and hopefully stable new level would be a way to reduce this non-productive type of investment, while increasing the productive kind.

Jenkins then honours a time-honoured tradition by arguing that planning reforms are not needed to boost housing supply because of the "750,000 houses lying long-term empty, thanks to the chronic inadequacy of property taxation". This is wrong in two ways. First, in pure factual terms the recorded number of long-term empty homes (i.e. empty for six months or more) in England is 300,000 rather than 750,000, which is roughly the overall total including short-term empties (see table 615 here).

Secondly, and this is something which hardly anyone who raises the specter of empty homes ever properly addresses, the fact is that the places with the most empty homes are also the places with the least housing demand. This really shouldn't be that surprising when you think about it. Broadly, empty homes tend to be most common in areas with an excess of supply over demand, which are obviously not the same as those places which have the greatest excess of demand over supply.

The chart above illustrates the point. There is a clear negative relationship at the regional level between the rate of long-term empty homes and average house prices. Southern regions (including London) tend to have high house prices and low rates of vacancy, while Northern regions tend to have (relatively) low house prices and high rates of vacancy. We can't move all those empty homes to where the people who want housing are, and the people who want housing are strikingly reluctant to move to where the empty homes are, so maybe we do need to build homes where people want to live after all?

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