I WANT to hammer home a point that we made in a piece a few weeks ago. Whenever economists talk about the British housing market (which by some measures is the world's most expensive except Monaco) they will have a simple solution to bubbly prices: build more houses. The logic is impeccable: there is high demand for housing, but not enough supply. That leads to high house prices. Increase the supply of housing, and prices will fall. Simple.
This explains why successive governments have had a housebuilding target of around 200,000-250,000 a year (in the last decade Britain has built on average about 160,000 houses a year).
I think economists' obsession with building new houses misses the point. For one, it's not immediately obvious that Britain is suffering from woefully inadequate undersupply of housing, at least at the national level. In the EU there are on average 2.3 people per private house, the same figure as found in Britain.
If overall supply is not a problem, then what is? Think about what determines house prices in a given year: the...Continue reading
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