Blog Post

So, WHY can’t you afford a home?

Occasionally you read something that challenges your firmly fixed views. Like most in housing, I fall easily into the simple analysis that there is a direct link between our inability to build new homes and the housing affordability crisis. If only we built more then everything in housing would gradually come right.

josh ryan collins

Josh Ryan-Collins’ new book ‘Why can’t you afford a home?’ definitely makes you think in a different way. The traditional analysis fails to explain why the crisis has emerged in so many different countries at the same time despite widely varying policies and approaches. He says this outcome is based on two pillars: the priority given to private home ownership as the dominant housing tenure and what he calls the ‘self-reinforcing feedback cycle’. On the first of these, most countries have promoted housing as an (unearned) source of wealth rather than just somewhere to live by reducing property and capital gains taxes on housing compared to other investments. On the second, Ryan-Collins asserts that it is no coincidence that the crisis has mushroomed since the deregulation of financial services. No amount of fiddling with the planning system or blaming migrants can moderate the huge global forces that have been at work.

The ‘self-reinforcing feedback cycle’ works like this:

‘In order to afford a home, most people need a mortgage. But when mortgage credit is extended to buy an existing property, it inflates house prices as bank lending involves the creation of new money. If house prices rise faster than incomes, the demand for mortgages increase, banks lend more, prices go up and so on’.

Strengthened by the perceived global public debt crisis, which constrained direct building of homes by the state, governments increasingly looked to the banking sector to find new ways of satisfying both housing demand and the clamour for individual home ownership. Thrifty banking was replaced by almost unlimited lending relative to incomes. Bank lending, previously focused on business investment, became concentrated on lending for residential purchase. Banks liked it because loans had collateral, and, unlike business, there was no limited liability. Worst of all, after an initial consumption effect (people buying houses tend also to buy furniture and white goods etc) residential lending did not lead to much growth – mainly adding to price inflation. People were effectively borrowing against rising values, so everyone gets a stake in keeping values rising. But the system becomes more unstable and volatile, inequity between those who manage to buy and those who don’t rises, and more people become priced out. Productive investment is frozen out in favour of speculative lending, and economies become more vulnerable to economic shocks.

Solutions therefore need to be much broader than those that governments and central banks have attempted to date. Crucially, Ryan-Collins argues, ‘land and credit markets need to be shaped to create public value: in this case affordable, decent quality housing.’ He notes that some successful modern economies have been rather less dependant on rising property prices, notably Germany, Japan, Korea and Singapore. Priority must be given to lending for productive investment by business, guiding credit away from property. Property taxes are needed to make it less attractive as a financial asset, including a land value tax, and we should learn from those countries where more land is publicly owned.

Curiously, after this long analytical journey, during which Ryan-Collins challenges my simple notion that the answer to unaffordability is that we must build more, he confirms my other long-held and deep-seated simple assertion when he says that one structural solution is “supporting alternative forms of tenure such as renting, social housing and cooperative home ownership where housing is viewed as a place to live, not a financial asset.”

This is a stimulating read and the book (which also benefits from not being as long as most economic tracts) delves into areas of economic and financial policy that deserve far more scrutiny. I would have liked a little more analysis of market changes in the UK since 2003 which have led to a decline in home ownership and the resurgence of private renting. However the book’s strength is that it goes beyond description and analysis to promote possible solutions. These are inevitably long-term and international but they could begin to influence government policies in the here and now.



Josh Ryan-Collins is a Senior Research Associate at the Institute for Innovation and Public Purpose, University College London. ‘Why can’t you afford a home?’ is published by Polity Books. If all else fails, it is available on Amazon.

In November Josh Ryan-Collins will be giving a talk about the book for UCL Institute for Innovation and Public Purpose (IIPP). Details here.

4 replies on “So, WHY can’t you afford a home?”

There’s something of a cottage industry these days producing arguments why increasing supply is not the solution to the housing crisis, with the market leader Ian Mulheirn, who you might also want to follow. The most persuasive argument is generally that high price are best explained by changes on the demand side, e.g. liberalisation of credit market, but also reduced interest rates, changes in disposal income, misguided government policies such as help to but. It’s along list, and they all play a part. What’s missing are analyses of why changes in supply doesn’t have a comparable impact. The main reason here is simply that supply doesn’t change anything like as fast as these demand factors, so its impact is drowned out when looking at time series. OTOH, if you look cross sectionally, you do see variations in housing costs across the country. Given the ‘location, location, location’ mantra in property, you’d have people would pay more attention to spatial economists rather than those who focus on national aggregates.

I first registered Ian Mulheirn’s work thanks to a nice clear number he gives for the negative impact of supply on prices, which is exactly what standard economics would expect. But if for whatever reason, new supply isn’t happening, then all the price action will be driven by the demand side, and that is what time series focused economists will pick up on.

Another approach is to ask how the cost of housing to the buyer or renter is so much higher than the what it costs to build. Why don’t developers build? For would-be local authority developers a problem is that they are not allowed to raise the finance to do so, although that is not the only barrier they would need to over come, since like private sector developers, they need to get sites through the planning system. We do need a planning system of some sort, although I’d prefer a sort in which local authorities actually lead, rather than respond to proposals which come their way.

Instead, sufficiently few new homes emerge from our planning system that developers are able to get the fancy prices they do, and a nice mark up, although, thanks to the Land Compensation Act of 1961, it’s more the original landowners who make out like bandits when development happens.

It’s all pretty well known, and there is no great reason to revise your previously fixed views

Not doubt many would have blamed banks or state regulation for the high price of slaves/labour, rather than questioning that there might actually be something immoral with owning humans as property.

Same with natural resources, like valuable locations, their selling price being but a measure of economic injustice.

Ryan Collins doesn’t ask the fundamental questions regarding land, so his conclusions will always be wrong,.

Leave a Reply

Your email address will not be published.