Adam Smith Institute

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This inability to understand markets is remarkable

So, remark we will.

Welcome to the fast-growing world of “build to rent”, an asset class that is shaking up the housing market, luring renters with the promise of more professional management than individual private landlords, and sucking in a flood of money, from banks, pension funds and even retailer John Lewis. Tempted by the prospect of stable returns, these blocks are developed, owned and operated by large companies with deep pockets.

Yet there is growing unease over the boom in this new class of rental property, with concern that the poorest in society will be priced out.

Sigh, every new dwelling created lowers the price that can be charged for every other dwelling in the country. This is how supply and demand works.

Assume, for a moment, that there are 25 million households looking for somewhere to be a household in. A reasonable assumption as that is about the right number. If we have 24 million dwellings inside which it is possible to be a household then prices will rise until 1 million decide to remain in their mother’s basement. If we have 26 million places then prices will fall as there will be empty dwellings and so prices are competitively cut by landlords who wish to fill theirs and damn every other landlord trying to do the same.

This is just how these markets things work. Yea, even with housing. Putting up some £10 million a flat development in Hyde Park still increases the number of potential dwellings in the country by 1 or more. So, the price chargeable on every other dwelling in the country falls by that infinitesimal amount.

If the desire is to reduce the cost of dwellings then the answer is, as the Americans say, to flood the zone. Just build more of absolutely anything, under any terms of tenure or in any price range. More dwellings to be a household in will reduce the cost of a dwelling in which to be a household.

This isn’t difficult, it’s explained on the first two pages of every economics 101 textbook in the world. Want housing to be cheaper? Increase the supply.

As to how to do that as we’ve suggested before the most obvious act would be to blow up the Town and Country Planning Act 1947 and successors. Proper boom, kablooie, blow up. Leave people to build whatever, wherever, and housing prices will fall.

Very serious people do indeed say that it’s just not that easy. But then that’s because they’re not being serious about reducing the price of housing. They’ve other issues at the forefront of their thoughts, other things they’re being serious about. Silly issues like “concreting over the country” when housing is only 2% of it at present. “Protecting the green belt” which is code for we’ve got our country views and you can’t have yours. "Even “planning” itself which is the insistence that the haute bourgeoisie know where the proles should live, in what and how.

Making housing cheaper is simple. It’s just that none of the people currently in control of the housing system actually want to make housing cheaper. Remove the restrictions on building housing and it will, inevitably and provably, become cheaper.