Emily Carver is Head of Media at the Institute of Economic Affairs.
The past couple of weeks has demonstrated how tricky communicating free market ideas can be. They are often complex, if not counterintuitive.
It’s all well and good standing up and saying you want “growth, growth, growth”, but if you can’t explain the ‘why’ and ‘what for’, let alone ‘how’, you’re facing a losing battle. GDP means very little to people. Wages and prices mean a whole lot more.
This is why it is a mistake for the Government and its spokespeople to bandy around terms like ‘supply-side reform’ as if they’re talking to the Hayek Symposium, rather than the millions of people they hope will re-elect them in two years’ time.
Given the free-market case has barely been made by politicians for over twenty years, it’s important to cut the jargon and crack on with explaining why these measures will help the average person on the street (and perhaps, given where the polling is, think twice about announcing a fiscal statement on Halloween – the headlines write themselves).
It is, also, a harsh reality that a gung-ho attitude may risk this administration getting few, if any, of their major reforms through Parliament. Even with all the goodwill in the world (which there isn’t) it’s important, when faced with two years till the next general election, to figure out what can be done for the maximum economic benefit, at the least political cost.
As we’ve seen, even with a large majority in Parliament, the political roadblocks are very real.
Nowhere is this more important than when it comes to planning reform.
Simon Clarke, the Levelling-up Secretary, has reportedly written to Liz Truss with proposals to ‘boost house-building and drive economic growth’. One of the proposals is to relax requirements to build affordable homes by raising the threshold at which they must be built from developments with ten houses to those with 40 or 50 houses.
On the face of it, a policy proposal like this sounds bad. Why would the Government decide to stop prioritising ‘affordable’ homes?! Surely, during an acute housing crisis, they need to be encouraging more, not less affordable housing?
But this is a perfect example of how important it is for those who want supply-side reform, including deregulation, to be able to spell out the benefits, plainly and clearly.
Currently, the affordable housing requirements mean house builders are forced to sell below market rates. This helps some who can access them, but overall it means fewer developments and higher prices. In other words, it’s a direct trade off – the more required ‘affordable’ homes (many of which are no such thing), the less economical a development, and the fewer overall houses can be built.
Put another way, let’s say you have a concert venue with 10,000 seats, but there are 15,000 people who want to go. This means that whichever way you allocate the seats, 5,000 people will go without. Sure, you can allocate them through pricing or rationing, but you can’t get round the basic economics.
You could force the stadium owner to set 1,000 seats aside for low-income earners at discounted prices and call them “affordable seats”. That way, some people benefit. But this is inevitably a zero-sum game – those who get the cut-price seats benefit at the expense of someone else.
This could be desirable, if you value the economic wellbeing of the beneficiaries more than the economic wellbeing of those who lose out. But it remains a zero-sum game all the same.
State-mandated “affordable housing” is therefore very much like social housing, even if it’s within the private sector. It means carving out a section of the housing market, and exempting it from the price mechanism. Instead, you allocate that bit through political criteria, and, of course, waiting times.
This all ignores the fundamental issue: there aren’t enough properties available in places people want to live.
House prices always get the most attention, but those who are renting are finding it near impossible to find somewhere affordable in places they want or need to live. SpareRoom, the rental site, found last week that there are a record high of 106,000 people looking for rooms in London, and only 15,000 rooms up for grabs, a record low.
Housing where people want to live is absolutely essential for Truss’ pro-growth agenda. Indeed, rising rental prices may have something to do with the shortages we’re facing in low-salaried jobs, such as in hospitality.
Relaxing affordable home requirements is only one very small example of the planning reform that will be needed – the key will be releasing more land, and overriding NIMBY resistance. Leaving social and cultural issues aside, there is absolutely no way the Government can continue to oversee high levels of immigration without doing so.
There may be more immediately palatable options the Government could pursue to encourage development, like introducing street votes to encourage densification, or finding ways to financially reward communities that support more development.
However, all this remains politically contentious, to say the least. That’s why, it’s essential to explain the ‘why’ in a way that makes sense to people. If the Government doesn’t do that, we’ll get Zarah Sultana in Number Ten by 2032 – because the housing crisis means that fewer and fewer young people will ever grow out of their teenage socialist phase.