Published: 14 Jun 2016 by Toby Lloyd

What with the EU referendum hotting up, hooliganism stalking Euro 2016, and Donald Trump enraging half the world, there’s not a lot of unanimity at the moment. But almost everyone now agrees that we need to build far more homes in England. Happily the government does too, having recently increased it’s ‘ambition’ to build a million new homes this parliament to a full blown ‘commitment’ – which Westminster-watchers assure me is a significant shift. The word on Whitehall is that Secretary of State Greg Clark sees this target as analogous to the challenge that Churchill famously gave to the young Harold MacMillan of building 300,000 homes a year, saying that it would either make or break his career. MacMillan fretted – but believed that that ‘every humble home will bless my name, if I succeed’ (which he famously did).

Targets are one thing, but as last year’s Comprehensive Spending Review made clear, the Chancellor is also prioritising house building, and has found a pretty impressive amount of money to deliver it. Keen observers will have noted that we at Shelter have had a few less-than-positive things to say about some of the government’s other housing initiatives, particularly the attacks on genuinely affordable homes in the Housing & Planning Act 2016, as we must now learn to call it.  But despite these concerns, the commitment to addressing England’s historic undersupply of new homes remains a hugely important step towards tackling the housing crisis.

So it was a little galling on several fronts to read yesterday’s new report from Civitas: Restoring a Nation of Homeownership, by Peter Saunders, which robustly rejects the idea that building more homes will improve affordability. My first problem with this report is just how well written and argued it is: if people are going to challenge our hard-won consensus, I’d prefer it if they would be less eloquent and well informed about it. But it must be said – Saunders is quite simply right that building more homes on its own will not bring the price of homes down to a level ordinary families can afford.

This is a terrible truth that many – myself included – are reluctant to admit in public, for fear that it will undermine the argument for more homes. We fear that NIMBYs and naysayers will seize on this admission as proof that we don’t need to build any more, and certainly not round their way. They’d be completely wrong, of course, because it’s perfectly possible to have BOTH an affordability crisis and shortage of homes, without assuming that fixing one problem will automatically solve the other. In fact, I’d say that’s exactly where we are: the lack of housing supply has undoubtedly contributed to booming house prices, but it’s certainly not the only factor. Improving supply therefore can’t be the only solution required.

To be clear, we do urgently need more homes. Back in 2004 Kate Barker’s seminal review of housing supply showed that current building rates implied that all new homes would last 1,200 years. Even the Queen doesn’t have a house that old – so we’d need to increase supply just to replace the existing, aging stock, let alone meet the needs of frustrated first time buyers, overcrowded renters or those suffering the nightmare of homelessness. For all these reasons, we need more homes.

But as Saunders says, even the most ambitious house building programme can’t add much more than 1% to the stock each year, so the bulk of homes for sale at any one moment will always be older properties, not new builds. This means that general house prices are actually set in the second hand market, which new build can only influence at the margin. So it’s not the raw supply of new homes that determine prices, but how much people are prepared to pay for the homes that are already there.

As we’ve long argued, there is simply no silver bullet to the twin problems of the housing shortage and the affordability crisis: we need a whole range of solutions addressing the land market, the construction industry, the planning system, public taxes and subsidies, the housing market, tenure options and financial regulations – and that’s just on the supply side of the equation. But Civitas are entirely right to draw attention to the other side of that equation: we also have to address the problems of housing demand, because it’s this that really determines house prices.

I’ll review some of Civitas’s interesting suggestions for tackling housing demand in another blog later today.