MATTHEW PARRIS
There’s no housing shortage.
It would be ea sier if t here were
las for classier and more expensive models.
Umbrellas became a way of saving — for
old age; for future resale in hopes of a capi-
tal gain; or for a rainy day in both senses of
the word. Those with cash to spare (or credit
available) vied to outbid others. Prices rose.
The rising umbrella price began to leave
more people out of reach of ownership.
But you could always hire umbrellas, so the
demand to rent increased. Owners of second
or even third umbrellas could make good
money from renting out; so people with
sufficient funds started purchasing extra
umbrellas with the sole purpose of offering
them for rent. This new source of demand
pushed the price of umbrellas even higher —
and rental prices increased apace as umbrel-
la owners took a return on their investment.
A curious situation arose. Although
there were in fact nearly enough umbrel-
las to go round, owners were bidding up the
prices of each other’s umbrellas in orderto increase their holdings in this commod-
ity; rental costs were increasing in line with
umbrella prices; and sections of society,
especially younger people, saw a receding
prospect of ever owning one. This caused
popular discontent. A small increase in the
number of the ‘umbrella- less’ and a larger
increase in the number of those struggling
with umbrella costs gave rise to a sense
almost of emergency. There was (people told
their politicians) an ‘umbrella crisis’.
Politicians responded with ‘help-to-
buy’ schemes for first-time umbrella buy-
ers; vowed to increase production of new
umbrellas; and had modest success. But
they were never going to be able to flood the
market, not least because the new umbrellas
made attractive investments for the better-
off, who snapped them up.
The root of the problem was that unless
umbrella supply could leap well ahead of
umbrella demand, umbrella purchase would
always look like a sound investment, saverswould vie to buy, and prices kept rising. And
so it came about that a country with almost
enough umbrellas for everyone talked itself
into near panic about what they started call-
ing an umbrella crisis. And there was indeed
a problem: but a problem of price inflation
largely unrelated to scarcity of supply. As I
write, the politicians are talking about penal-
ising owners of second umbrellas or unused
umbrellas; or banning non- resident foreign-
ers from owning umbrellas as investments.
Enough about umbrellas. You get the
argument. But why do I suggest we do not
face an acute shortage of houses as popu-
lation grows and average household size
decreases? Because I’ve heard no convinc-
ing rebuttal of Ian Mulheirn’s argument that
we’re overestimating by 30-40 per cent the
number of new dwellings we shall need, year
on year, in the years ahead.
Ian Mulheirn is director of consulting at
Oxford Economics and a former Treasury
economist. You will find his posts easily
online. Most striking among his arguments is
a mistake he has identified in official predic-
tions for the increase/decrease in household
formation. The smaller the households, the
more dwellings required, and households
have been getting smaller over decades. But
Whitehall has projected forward this reduc-
tion without adjusting for more recent lev-
elling off. Ministers have relied, too, on old
estimates for population growth, which have
recently been revised downwards, yielding a
million fewer people than projected by 2031.
Current projections take no account of that.
All told, Mulheirn estimated last week
that we’ll need 170,000 new homes per
annum in the years ahead, not the 300,000
the Chancellor estimates — and fewer, not
more, than we’re building at the moment.
Good news? In a way, not. A shortage
of homes suggests its own solution: build
more homes. We know how to do that. But
a distorted pricing structure that skews
the housing market to the needs of inves-
tors, turns homes into savings vehicles and
excludes millions from aspiration and secu-
rity... does anyone know a free-market
answer to that? I don’t.B
ritain does not have a housing short-
age. We have a problem with the cost
not the availability of homes. This can’t
be solved by building more houses, because
it is not caused by an insufficiency of houses.
I’m no economist. My understanding of
the dismal science is rudimentary. I may be
shot down in flames as an ignoramus. But
here goes. Residential property has become
a kind of currency, prized more for value
than utility; and its role as a financial asset is
messing with its ability to perform the func-
tion of actually housing people. Straining to
increase the supply of housing will no more
restrain price than straining to increase gold
production would make much difference to
the price of gold. Supply being constrained,
and appetite sharpened not by need but by
acquisitiveness, even the most strenuous
attempts to boost production will not bring
prices within the reach of an increasingly
large part of the population.
To pursue my argument, I ask you to
take an imaginative leap into a Magritte-like
dreamworld. Just pretend.
Imagine everyone needed to have an
umbrella. Don’t ask why: they just did. To
lack this item was universally acknowl-
edged as serious deprivation. To pos-
sess it was a fundamental human need.
And imagine it was not possible to import
umbrellas: they had to be made here; and
they were difficult to make, and took ages.
Even if we doubled production, the nation-
al umbrella stock would only be increas-
ing by about 1.5 per cent per annum.
Imagine that there was no physical short-
age of umbrellas — yet curiously this did not
dull the demand. Why not? Because we’d
grown confident that an umbrella’s value
could only rise because the market was
assured and supply was restricted: a one-way
bet, so in a million individual decisions, we
collectively took it. We aspired to umbrellas
as rural Africans aspire to cattle: not to eat or
milk, but as a sign of wealth, and tradeable.
Thus the purchase of an umbrella became
a kind of investment, prized for its value
as much as its utility. People with money
might buy more; or trade up their umbrel-
The most strenuous attempts
to boost housing will not bring prices
within the reach of large numbers