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Too rich to care

29 April 2015 By Edward Hadas

Inadequate housing is a leading contestant for being Britain’s greatest economic problem. Over the last decade, the Lyons Housing Review calculates that the 137,000 average annual new residences in England represented less than half the quantity needed to keep up with population growth. The real shortfall is much larger, because the condition of the existing housing stock is deteriorating. It would take a decade or two of building at a 400,000 annual rate, with substantial investments in related infrastructure, to bring British housing standards up to the German level.

The trend has been in the wrong direction. In the decade that ended in 1980, when population growth was much slower than now, the annual average of completed dwellings in England was 258,000. There has been an annual decline in 30 of the subsequent 34 years.

What has gone wrong? There is a litany of excuses, well presented by economist Kate Barker in her recent little book, “Housing: Where’s the Plan?”. The planning system is wrong, the popular desire to profit from owning property is destructive, the construction industry is dilapidated, government priorities have changed, and the financial system is not fit for the purpose of massive expansion and renovation of the housing stock.

All these obstacles are easily surmountable. Building good housing, after all, is a fairly simple matter. Just train workers, find land and put well-known building techniques to use. If the law, regulations, organisations and financial system need to be changed, change them. The UK is rich enough to pay for a massive Fit to Live In campaign, and there is plenty of unused and under-utilised land. British society is also flexible enough to develop whatever skills and organisational structures are currently missing.

However, the needed political commitment is totally absent. Daniel Burnham, a 19th century American urban planner, stated the required sentiment pithily. “Make no little plans; they have no magic to stir men’s blood and probably themselves will not be realized.” Great plans built or rebuilt the world’s great cities, from the grand monuments of imperial Rome to the largely elegant reconstruction of every flattened city in Germany after World War Two.

Nothing about British housing is stirring the blood in either the ruling Conservatives or the leading opposition Labour Party, which commissioned Lyons. Sure, their patter in the current general election campaign includes platitudes about dealing with the housing crisis. Labour has produced a pathetically modest target of 200,000 annual new residences. However, neither party offers any detailed plans for reversing the trend.

The leaders are neglecting the national good, but they are following the will of British voters. A great majority of them may be in favour of a country which has already built lots of new housing, but there is almost no appetite for the bold action required to get from here to there. Most people feel that their own neighbourhood is not the right place to start an otherwise desirable revolution, that their own capital gains on property should not be lost, and that they would rather go on a nice holiday than invest in housing bonds.

This attitude creates what can be called a rich democracy inertia trap. Grand plans are judged not worth the bother by people who mostly already live in some comfort and peace. In this environment, minor policy changes are often hard and major shifts are almost impossible.

The British housing inertia is a good example of this trap. The inability to decide on how to expand London’s airport capacity, after almost 15 years of bitter debate, is another. And construction is certainly not the only area for economic inertia.

Most European labour markets are also trapped. Unemployment rates are unacceptably high, but so are the number of infrastructure projects which are not undertaken and the number of ill or weak people who would gain from more personal care. To match the excess supply with the unmet demand is conceptually easy. However, the required changes in hiring, taxes and wages are too dramatic to win much political support. The overwhelming majority of voters, after all, already have pretty good jobs and employment prospects.

U.S. healthcare is another example. Almost all experts agree that the system gives poor value for money. France and Germany both have more efficient and effective systems, with similar payment structures. However, the basic American arrangement appears to be politically almost sacrosanct. The inertia makes political sense. Why start a revolution when the overwhelming majority of residents already get pretty good care in a system they are used to?

As economic problems go, the rich democracy inertia trap is pretty minor. Poverty and middle-income traps cause far more suffering, and environmental damage is much more threatening to social welfare. Still, RDITs are frustrating to those caught in them, especially as there is no real prospect of escape. Londoners can moan, but they should probably just get used to thinking that attics and basements are desirable places to live.



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