Comment on: Why Patrik Schumacher is wrong about housing
Thanks for writing this important response Paul.
Patrick, I have just read your Adam Smith essay. The economics that you haven't explained is that house prices are high due to low interest rates. Everyone can borrow more on the same salary, so the same property swells in price. All this extra value has gone into the land, as you rightly point out, and as we are not spending any more on build costs, we are not improving the appropriateness and generosity of the homes that we build. The affordability crisis that you talk about is caused by this under-taxed disconnect between land value and salaries. The reason this is not going to be impacted by increasing supply, as you suggest, is because you have not explained the locational factor in the value of land. Land value is increased by the proximity to transport infrastructure, industry and communities of workers - what Henry George called the “collective” efforts of the increasing population. I would strongly recommend you read ‘Rethinking the economics of land and housing’, an excellent book by Toby Lloyd et al. which succinctly captures these uncomfortable truths.
As James Murray explains, 80% of the homes we build are affordable to only 8% of Londoners, and we can no longer expect the existing housebuilder land-banking model to deliver housing that is affordable to the majority. The answer has to be to tackle the land issue, and to do this we need to look to long term investment structures, with patient investors and landowners, looking for returns over longer time periods collaborating to create communities, and well-designed places people want to live.
The last time we built lots of housing quickly, and of dubious quality, we ended up pulling lots of it down again.