As we've been saying the solution is to blow up the Town and Country Planning Acts
Britain does not have any shortage of land upon which houses could be built. Britain does have a shortage of land upon which houses are allowed to be built. The solution to ever rising prices for land upon which houses may be allowed to be built is therefore to allow more land to have houses built upon it.
But this is not just a matter of house prices. The problem is sufficiently severe that it is distorting the capital allocation process, even what income is available and who is getting it. We're all aware of Piketty's point that capital is both becoming a higher multiple of GDP and also that capital income is becoming a larger share of national income.
These are the same problem in fact. For the rise in capital income, the rise in capital compared to GDP, is almost entirely a function of the rise in the price of land which may be built upon. As a new paper points out:
This investigation reveals three things about the rise in the US housing capital income share in recent decades. First, it has occurred due to an increasing share of income accruing to owner-occupiers through imputed rent. Second, it is concentrated in states that are constrained in terms of new housing supply. Finally, it is closely associated with the long-run decline in real interest rates and inflation.
My results suggest that the ‘rise of housing’ is intimately linked to the same factors that underpin ‘secular stagnation’ (Summers 2014) – that is, the gradual decline in real (and nominal) interest rates since the 1980s has contributed to a gradual run-up in housing prices, and led to household wealth and income being increasingly concentrated in the hands of landowners. This in turn may have implications for intergenerational inequality, given that the home is a key mechanism through which wealth and income are transferred across generations.
The paper does indeed note that this is not restricted to the US - it is happening wherever there are those restrictions on land being built upon. It is almost entirely about imputed rent to owner occupiers - the cries about it being the finance capitalists who are getting more of the money are simply not true.
The answer is also obvious. Do away with the constraints upon building land and all of these problems solve themselves.
That is, as we've been saying for some time now, we should blow up the Town and Country Planning Acts.