Friday, 10 March 2017

What should we do to help make our economy work for everyone?

Posted by Henry G. Overman (SERC, LSE and What Works Centre for Local Economic Growth)

The report of the Inclusive Growth Commission, published earlier this week, asks an incredibly important question: What should we do to help make our economy work for everyone?

Despite being one of the Commissioners, I should confess up front that I don’t share the reports certainty in terms of specific policy reforms that would work.

Some I like a lot, at least at the broader level. I support the general argument that the UK remains overly centralised and that further devolution could include some aspects of social policy. I like some of the detailed recommendations around using a small basket of indicators to measure ‘quality GVA’ – although more for the focus on distributional impacts than the proposed re-labelling. I’d like to see greater consideration given to these indicators in policy development and investment prioritisation. I also quite like the idea of a UK Inclusive Growth Investment Fund incorporating repatriated European Structural and Investment Funds (ESIF) – although I’d want to see that sit alongside a more traditional fund, as well as a non-ring fenced needs-based allocation to local areas.

I flat out disagree with some of the other recommendations. I’m very wary about place-based industrial strategies. Particularly if they involve ‘sectoral coalitions’, local jobs for local people or public procurement procedures that emphasise local purchasing over transparency or value for money. I also remain to be convinced on regional banks.

This list is far from exhaustive, and people that are familiar with my thinking can probably guess which of the remaining recommendations fit in which camp. But, for me, none of this matters relative to the importance of three central messages that emerge from the report.

First, as Stephanie Flanders' introduction puts it: “we need to do a better job of measuring what counts”. As the report argues: “Traditional metrics of economic performance, such as GDP or at a regional level GVA, are a poor guide to social and economic welfare. They also do not tell us anything about how the opportunities and benefits of growth are distributed across different spatial areas and social or income groups.” For me, it is the second part of this argument that is absolutely crucial. I am fed up with seeing arguments for (e.g.) ‘high-tech’ strategies for poorly performing places that don’t (and can’t) spell out how particular investments would ever benefit lower income households in the area.

Second, “investment in social infrastructure – including public health, early years support, skills and employment services – should go hand in hand with investment in physical infrastructure”. Back in 2008, the Manchester Independent Economic Review made a similar point. Right then, and right now.

Third, we need to “align social and economic policy around promoting inclusive growth”. Again, this is crucially important. For many parts of central and local government, the key policy interventions for delivering inclusive growth lie far outside the traditional remit of local economic growth policy.

Forget the details, it’s these three key messages that are central to developing policy that will help make the economy work for all.

[This post first appeared on the RSA Inclusive Growth Commission Blog]

Monday, 13 February 2017

Spot the Difference Housing White Paper: have we been here before or is this déjà vu?

Posted by Felipe Carozzi (SERC and LSE) & Paul Cheshire (SERC and LSE)


Given the severity of the housing crisis, the new Housing White Paper is a sad creature. Any policy announcement welcomed by the CPRE almost by definition signals throwing in the towel on the serious reform needed to build more houses. Its aspiration of building “many more houses, of the type people want to live in, in the places they want to live” would be most welcome, if it wasn’t an echo from down the ages.  We find an identical aspiration in every government publication since the Barker report of 2004. In 2008 the then National Housing and Planning Advice Unit issued advice on housing supply and argued: “we must increase housing supply, delivering the right number of new homes, of the right type, in the right place and at the right time”. This exact phrase was invented by one of us as a coded way of saying we needed to be willing to build on parts of the Green Belt!  If we go back a little further to the Green Paper of 2007 Homes for the future: more affordable, more sustainable, we find a whole section on “How we create places and homes that people want to live in?” Even the number of houses we need to build – 275000 a year – in the current White Paper is drawn for the Barker work. While previous proposals had no mechanism to deliver the ‘right’ homes in the ‘right’ places they did at least have a mechanism – albeit a dirigiste one – to get LAs to allocate more land for housing and set targets for house building. There was also some power to see the targets were more or less met.

The White Paper’s diagnosis of the problem is broadly correct – the affordability problem is caused by insufficient building. And the primary cause of this long term lack of building is restrictions on the supply of developable land. However, the White Paper’s claim that “The housing market in this country is broken, and the cause is very simple: for too long, we haven’t built enough homes” does get it the wrong way round: our lack of building is a symptom not a cause of a broken housing supply process. This supply process includes the planning system, local government finance and the monopolised structure of the development industry that these two broken systems have created.

We have a tax system that effectively fines local communities if they allow houses to be built as the increase in the number of households puts additional strains on local public services. That does not seem a good starting point. House building is then helped along by a planning system that is cumbersome, uncertain in its decision making and subject to political pressures and expediency. As a result, whether there is a local plan or not, developers can have no idea of the likelihood any application will succeed and even less idea as to the cost of the ‘planning obligations’ that will be imposed if it does. Then – above all – LAs are prevented from delivering enough land both by the religious exclusion of economic ideas in the system they use to determine how much land to supply and by direct restrictions in the form of Green Belts and heights on their ability to supply it. The paper’s repeated emphasis on upholding Green Belt boundaries bars the possibility of development in previously unbuilt areas. Likewise, little reference is made to new incentives for local planners to modify existing building height restrictions.

These are the fundamental causes of why we have consistently built too few houses over more than 40 years. And about these fundamental causes the White Paper proposes to do precisely nothing. Our estimates of the accumulated shortfall of house building between 1994 and 2012 were between 1.6 and 2.3 million. Since then we have built some 125 000 a year too few. So since 2012 we can add about 0.5 million to those numbers. And we have consistently built the wrong sort of houses in the wrong sort of places.

Among the White Paper’s ‘solutions’ are more local plans – but these plans are very fallible guides to actual decisions about actual proposals. They are often overridden by immediate political pressures and community lobbying, and hence are at best only weakly enforced. We need a ‘rule-based’ system, such as a Master Planning or Zoning system. Indeed, we already have one element in the house building process that successfully works in that way: Building Regulations. Then, the White Paper claims bringing forward more brownfield sites and better use of public land will solve the land supply problem. Well, we have been saying the same things about brownfield and public land since the late 1990s and have excellent data on both (see example here). As we have consistently argued this cannot solve the problem; nor will it. Too much of the brownfield land is in the wrong places or too expensive to build on sensibly. And anyway there is far too little to catalyse the real competition between sellers needed in land markets.

A standardised system of forecasting local housing ‘need’ might conceivably help to address the coordination problem implicit in local authorities free riding on each other. But the real problem with our system for deciding how much land to supply is that prices are determined by the interaction of supply not with need, but with demand and demand is largely driven by income. The number of households – even if accurately forecast – which is not possible given that the numbers of households in a LA are themselves determined by the relative price of houses  does not much affect demand, so it has surprisingly little influence on price. Indeed a LA can always price households out of its area and so have no unmet ‘need’ at the observed price of housing. Moreover, close reading of the White Paper reveals the proposal to standardise the method LAs use to forecast housing need is not in fact a proposal. It is a proposal to consult about a proposal. Any actual change would require a consultation period, a review period and then bringing forward changes in legislation. And then finally rolling out these changes and implementing them successfully at the local level. There is little hope any actual changes could be in place in even the medium term, even if having a standardised method to forecast need would help: which it would not!

This White Paper emphatically represents yet another missed opportunity. Not a single proposal will have any measurable impact on the supply of houses by 2020 and most will never have an impact. There are a few useful suggestions. The Housing Infrastructure Fund is welcome and could make a difference. But that was announced some time ago and the more sceptical of us would want to examine the books very closely to satisfy ourselves it really was new money. A provision for New Town Corporations might help. But again this is for thought not action. Taking steps to improve the transparency of ownership of land and of options to develop it is a good idea: but again it is not action, only possible action. And, of course, the need for it is only because the shortage of building land is so acute that land prices are now so high they financially justify the complicated legal and financial shenanigans such options on options on land represent. One thing is totally clear, however; they represent a deadweight loss to us all.

The fundamental problems with housing remain the same as in the last fifteen years and of those the most fundamental is the lack of land for development. Only fundamental reforms of our housing supply process will help and this proposes none. Indeed it in some ways goes backwards. It goes from a set of (not very good) mechanisms delivered in 2007 with the Regional Spatial Strategies to a set of aspirational gestures. Frankly the Secretary of State could build more houses with a magic wand.


Friday, 20 January 2017

Can a new generation of political leaders tackle Britain’s regional inequalities?

A guest post by Stephen Clarke of the Resolution Foundation


2017 will see the UK begin its departure from the European Union. However, as the UK seeks to shed some politicians in Brussels, we will be getting some new ones at home. Greater Manchester, Liverpool, Tees, West Midlands, Bristol and Bath, and Cambridgeshire and Peterborough will all go to the polls to elect mayors and will gain new powers over transport, housing, business support and skills.

Unfortunately last week it was reported that the Sheffield City Region would miss out. That’s a concern as new research by the Resolution Foundation shows that the area has some pretty fundamental living standards challenges that need to be addressed. Our analysis find that the city region is the low pay capital of Britain – with typical workers earn £43 less a week than the UK average. The region desperately needs to get devolution back on track.

Sheffield may be the low pay capital, but the problem of low pay affects the vast majority of cities in the Midlands and the North of Britain. It is well known that country’s economy is skewed towards London and the South East but the chart below emphasises this. Gross hourly pay was 36 per cent higher in inner London compared to the UK average between 2012 and 2016, whereas it was 13 per cent below the average in the Sheffield City Region.



Note: Difference in gross hourly pay is calculated as an average of the years 2012-2016 using data from the Labour Force Survey. Multiple years were rolled together to provide enough observations to estimate the differential in a regression model. East Anglia and South West contain the devolved areas of Bristol and Bath and Cambridge and Peterborough. 

What accounts for the pay penalty experienced by Sheffield and other areas outside of the South East? Partly it reflects the fact that these areas tend to have a greater proportion of employees who are paid less (part-time workers, those on Zero Hours Contracts, etc) and a greater share of firms that pay less (those in the retail and hospitality sectors for instance). However it is also true that like-for-like workers earn less in these areas than in the rest of the country. In essence there is both a compositional and a productivity problem.

To estimate how important each of these factors are we ran a series of regression models in which we estimate the difference in gross hourly pay between workers in these areas and those in the rest of the UK controlling for a range of job, workplace and personal characteristics. We find that in all the areas above pay gaps remain even when we compare like-for-like workers. This ‘residual’ reflects differences in productivity and other factors that we cannot directly measure. The relative importance of the two factors is given for each region in the chart below.



Note: Analysis carried out using the Labour Force Survey, full details of models can be found in Annex 3 of our paper, available here

In all areas compositional and residual factors play a part, however there are differences in the relative importance of the two. Outer London does have more high paying firms and higher paid employees, but higher productivity seems to play a bigger role in this area. In Sheffield, compositional differences and lower productivity each play an equal part.

Productivity is particularly low in the Sheffield City Region. In fact it is the lowest of any major city. The chart below shows how much each sector in the Sheffield City Region contributes to this productivity deficit:



The retail, manufacturing and office admin sectors are all large employers in the region and correspondingly all significantly contribute to the region’s productivity deficit. Education is the only sector that meaningfully raises the productivity of the region compared to the rest of England.

The scale of the challenge facing the South Yorkshire region is clear. This challenge is just as much a task for national politicians as it is one for local leaders. Nevertheless devolution would have bolstered the chances of local leaders starting to get to grips with it. Despite the limited powers on offer, devolution does provide greater control over how the scarce resources available for economic support are spent. An effective mayor also provides a figurehead who can convene large employers and key businesses. Changes to transport and housing can make an area more attractive to firms and high skilled workers.

It remains to be seen if the six regions that are going to the polls this May will use these new powers effectively. What is certain is that South Yorkshire will not – yet – get the chance to.

Thursday, 24 November 2016

The (New) Northern Powerhouse Strategy

Posted by Neil Lee, Geography & Environment and SERC


The headlines from yesterday’s Autumn Statement were mainly about the grim economic forecasts, post-Brexit. But there were also some significant developments around the Northern Powerhouse (see my paper on the topic). There had been concerns that this agenda was going to end when George Osborne, who led it, left the Treasury.

Yesterday’s announcements suggest there is life in the agenda yet. While there was little new money, the government did publish a Northern Powerhouse strategy – a cheap way to confirm ongoing interest.

The strategy suggests some shift in focus. Under Osborne the Northern Powerhouse had four "ingredients" - transport, science and innovation, devolution, and culture (the poor relation). The new "strategy" seems based on: connectivity, skills, enterprise and innovation, and trade and investment. Culture is now justified mainly as an attempt to attract and retain skilled workers.

The focus on skills and education is important. SERC research has highlighted the importance of skills in regional disparities, but skills were - as I argued earlier this year - missing from earlier iterations. IPPR North released a sobering analysis of the problem faced and a review has been conducted. The success of these policies will have long-term implications. [Updated: As Alex notes here, there was no mention of skills in Hammond's actual statement.]

Second, the initial focus on innovation has broadened out to include enterprise. While few people are against enterprise, many firms are not the wealth creator politicians imagine (see Alex and Paul’s work here) and there are cautionary tales about the creation of lots of poor quality start-ups in lagging regions. The focus needs to be on quality, not quantity.

Finally, one critique of the Northern Powerhouse has been that it is a political brand rather than a genuine economic strategy. But the branding element is now an explicit goal of the policy (see this whizzy video), with the aim of using the Northern Powerhouse branding to attract trade and investment.  Given the state of the post-Brexit economic forecasts, let’s all hope this works.

Thursday, 3 November 2016

Fear of Fracking: house price reactions to fracking in Britain

Posted by Steve Gibbons (LSE, SERC); Stephan Heblich (University of Bristol, SERC); Esther Lho (Duke University); Christopher Timmins (Duke University, National Bureau of Economic Research) 



Earlier this month, the government gave approval for exploratory drilling and hydraulic fracturing – ‘fracking’ – for shale gas at two sites in Lancashire. This follows a similar decision for North Yorkshire earlier in the year.

Some will see these as landmark planning decisions marking the way to a low-cost energy future for the UK, with shale gas becoming a major new source of energy in countries across the globe. For others, particularly those who live locally, they will be seen as leading to potential environmental catastrophe. These fears are fuelled by many reports from the United States about the risks associated with shale gas extraction by fracking – water contamination, earthquakes – plus concerns about the local impact of traffic and extraction infrastructure.

Our recent research investigates whether these fears affect what people are prepared to pay to live in areas affected by fracking, by tracing out the impacts of shale gas licensing and exploration on house prices in England and Wales.

Although commercial shale gas development has not yet taken place in the U.K., exploration licenses have been offered since 2008 and many exploration wells have been drilled. Our findings suggest that this licensing and exploration in itself had little or no impact on house prices throughout most of England and Wales. See the map below for licensed areas.


Note: The map shows blocks that were licensed for gas exploration in the 13th round in 2008 (red) and previous rounds (blue). Grey shaded areas have shale gas potential according to the British Geological Survey (BGS).

The one exception is the one site in the UK where exploratory fracking for shale gas has taken place (shown as a red dotted area in the North West on the map). Here we find that prices fell by up to 5% after fracking commenced. A specific trigger for this was the occurrence of two highly publicised earthquakes in 2011 which were linked to the fracking.

What happened is illustrated succinctly in the Figure below, which plots the trend in adjusted house prices at quarterly intervals up to and after the earthquake event in 2011. The solid line represents the earthquake zone, while the dashed lines show trends in other licensed areas and where licenses specifically mention shale gas. In this picture, prices are scaled relative to the beginning of 2011. Clearly there was quite a marked fall in transaction prices in the months after the fracking and earthquake event.



These earthquakes were minor and would not have caused personal injury or damage to property. So the most likely explanation for any impact on house prices is that the earthquakes reminded people of the potential risks, and so reduced demand for homes in the vicinity.

The implication is that there are ‘psychological costs’ associated with fracking, which should be compensated. An existing industry Community Engagement Charter already recommends payments to local communities by drilling and exploration companies, of around £100,000 for exploration, plus 1% of revenues during extraction. The government has recently consulted on a new Shale Gas Wealth fund that proposes using 10% of revenues from shale gas to fund payments with a maximum of £10 million per site, to communities and individuals affected by extraction. But aggregate costs per site implied by the house price reductions are far in excess of these – over £100 million!

Compensation to communities could prove to be very costly, if local objections to fracking are to be overcome by those who see fracking as the answer – at least in the short term – to securing Britain’s energy.

Monday, 17 October 2016

Do we value the London Congestion Charge?

Posted by Cheng Keat Tang, LSE Geography and Environment 


It may have gone unnoticed to many, but the London Assembly recently sought ideas on how to tackle congestion in the capital. One of the submissions from the London Chamber of Commerce and Industry (LCCI) calls for a radical rethink on the congestion charge and questions whether it is serving the purpose for which it was intended.

Although, contrary to some media reports, the LCCI submission does not advocate ‘ripping up’ the congestion charge, any hint of of removing the one congestion pricing system that has been successfully implemented in the UK will cause dismay amongst most economists. Congestion charging is, at least theoretically, an economically optimal way to reduce congestion, even if implementation can be practically and politically challenging. Greater use of road pricing was one of the policies advocated by the recent LSE Growth Commission report on transport infrastructure.

Of course there are many debates about how effective the London congestion charge has been in reducing congestion and at increasing the wellbeing of the capital’s residents. Surprisingly though, there is little rigorous empirical evidence on the question.

My recent research on the congestion charge addresses this gap by estimating the impact of the introduction of the charge and subsequent price hikes on traffic flows, and the consequent effects this had on house prices in the area – house prices being a useful metric of how much residents value the changes.

The headline finding is that the original congestion charge and the short-lived Western Extension reduced traffic. Homeowners valued these better traffic conditions in the western extension of the zone, where prices rose by around 4% when the congestion charge was implemented.

Background 


On the 17th of February 2003, London introduced the Congestion Charge Zone (CCZ) in Central London. A flat fee of £5.00 was levied on commuters driving into the zone between 7:00am to 6:30pm from Monday to Friday, excluding public holidays. The demarcated charge zone covered a total of 21 square kilometres and encompassed the financial centre (Bank), parliament and government offices (Palace of Westminster), major shopping belts (Oxford Circus) and tourist attractions (Trafalgar Square, Westminster Abbey, Big Ben, St Paul Cathedral) (See Map below). These are areas with the heaviest traffic flow. The rationale for the charge is not only to mitigate traffic bottlenecks and improve traffic flow and commuting time, but also to generate revenues to improve the public transport system.

Figure 1: Map of the Original Congestion Charge Zone (CCZ) & the Western Extension Zone (WEZ) (Source: TfL) 


Effects of the London Congestion Charge 


Is the charge effective? My research show that indeed it is. Relying on traffic data at a road level, I find that vehicular flow fell by 6% to 9% after the CC is first introduced in 2003, and 4% to 6% when the WEZ is implemented in 2007. Subsequent hikes, other than the initial increase in charge in 2005 (from £5.00 to £8.00), has a less discernible impact on traffic. This is understandable as marginal increases in the charge are less likely to dissuade drivers from commuting into the zone than its introduction. Commuters are now required to pay £11.50 to drive into the cordoned area when the CC is up. With less driving in the CCZ, air quality has also improved, according to others’ research. The implementation of the CC was associated with a 12 per cent reduction in air pollutants as such PM10 (Particulate Matter) and NO (Nitrogen Oxide) in the zone (Beevers et al. 2005). Roads are also much safer with a decline in accident and casualty counts (Green et al, 2016). The success of the original congestion charge led to the subsequent extension of the congestion charge zone to central west London (WEZ) in 2007 that covers Kensington and Chelsea borough - one of the most expensive and sought after estates in London.

How much do residents value these benefits?


So do homeowners pay for these benefits? To examine this, I restrict the analysis to properties very close to the congestion charge boundary (within 1 kilometre) to exploit the sharp discontinuity in traffic flow induced by the charge between roads just inside the zone and roads just outside (as drivers are deterred from driving into Central London). This ensures that properties in and out of the charged zone are almost similar other than being affected by the charge (or receiving the benefits from improved traffic conditions).

Comparing house price changes before and after the CC is implemented, my findings show that homeowners do pay for these benefits. When the WEZ was implemented, house prices rose by 4 per cent (about £30,000) relative to comparable transactions outside the zone. However, similar price increases did not occur in the original CCZ when it was introduced in 2003. There are several reasons for this. The initial introduction of the CC was not well-received by the residents. Many were unsure whether the charge was able to achieve its intended aims. Furthermore, based on census data, residents in the WEZ are more likely to own a car and drive more to work, stay further away from their workplace and earn much higher wages. All these factors could explain a larger willingness to pay to avoid traffic congestion.

Conclusion 


My findings show the effectiveness of the congestion charge and that homeowners appreciate these benefits by paying more for homes in the zone. Despite the success associated with the charge, it still faces vehement opposition from the public, who perceive it is as an extra tax. As a result, few cities are able to implement the charge, despite high levels of congestion. Some exceptions include Singapore, Stockholm, Gothenburg, Milan and Dubai. Having said that, for the charge to achieve its intended aims, drivers must be provided with a reliable public transport system to induce them to switch from driving.

References 


Beevers, Sean D, & Carslaw, David C. 2005. The impact of congestion charging on vehicle emissions in London. Atmospheric Environment, 39(1), 1–5.

Green, Colin P, Heywood, John S, & Navarro, Maria. 2016. Traffic accidents and the London congestion charge. Journal of Public Economics, 133, 11–22.

Monday, 10 October 2016

A housing failure: it’s not more rental stock we need; it’s more of the right kind of houses

Posted by Paul Cheshire, LSE & SERC 


The RICS recently called for a big boost to building houses specifically for rent because, they claimed, there will be an additional 1.8 million households looking for rental property by 2020. This misses the point and will not address the causes of our housing crisis. Our problem is not a shortage of rental housing; it is a shortage of housing - full stop. All houses are owned and occupied, vacant or rented and renting is a substitute for owning. As a result in the long run rents and prices tend to move more or less in step for a given type of house. But we have not only a shortage of houses but an unbalanced offer of houses. They are on average too small, not well enough designed or built, and in the wrong locations. That is cramped houses in places people do not really want to live. But because there is such a shortage both prices and rents have been rising consistently in real terms for two generations.

My LSE SERC colleagues and I have been generating the evidence of this shortage and identifying its causes for years now (see here, here, here or here). The uncomfortable reality is that the total unfitness for purpose of Britain’s planning system and how that interacts with our system of local taxes, seriously restricts the supply of new housing. This reality is somehow too disconcerting to confront. Politicians offer magic wands to build 1 million homes by 2020 or 55,000 a year in London but deliver no mechanisms to achieve it. They know that politically they cannot say they do not want to build more houses but they feel incapable of tackling the vested interests benefiting from both the causes of our desperate housing shortage and its results.

In 2014 my reasonably informed estimate was that the accumulated house building shortfall in the 19 years to 2012 was between 1.6 and 2.3 million homes. The problem is long term, not short term. We should not be London-centric but to illustrate with London: we were building around 75 to 80,000 houses a year in the GLA area in the 1930s; nearly 30,000 a year even in the 1870s. But since 1980 house building in London has only occasionally reached 20,000 a year. The only effect of raising ‘targets’ since 2000 – up progressively from 14,330 to now 55,000 – has been to increase the shortfall between promise and achievement. And given his policies Sadiq Khan will be no more successful at delivering on his targets than Boris Johnson was on his.

House prices have roughly doubled in real terms in every decade since the 1950 and since 2005 have risen by 47.4% But over this more recent period rents ‘only’ rose by 18.4%. This is not a ‘long period’ – the one in which we are all dead – but still the close link between prices and rents seems to have weakened.

Houses are a peculiar form of ‘good’ because they perform two functions at once. They provide a flow of housing services; they are places to live. But they are also investment assets. In a world of stable prices a sensible person would choose whether to own or rent on the basis of their circumstances and preferences. They might be young and mobile so want not to have the fixed costs of ownership. Their hobby might be do-it-yourself so they would want their own house to perfect. They might be scholars or inveterate travellers who did not want the ties of home ownership. From the investors’ point of view they might want something like a ‘bond’: a safe and secure asset, albeit not very liquid, providing a more or less guaranteed flow of income in the form of rents.

This world of stable real house prices is not an economist’s fiction. It is more or less the situation in Germany or Switzerland. Those countries have pretty sensible planning and local tax systems and they build enough houses to satisfy demand. Britain is, of course, different. We have a dysfunctional planning system and an almost equally dysfunctional system of taxes when it comes to land and housing. So both housing but even more land to build houses on, are in short supply and have been in increasingly short supply since we started to ration space by imposing Green Belts in 1955. Getting permission to build houses on a hectare of farmland on the northern fringes of London would increase its price from perhaps £20,000 to £12 to 15m: a clear signal of the loss of value imposed by not letting more people live where they really want to and could be most productive. So if you live in a world planned on British (as opposed to German or Swiss) foundations, a world in which the real price of houses nearly doubles in every decade, then of course you have a big incentive to be a home owner. Miss out at 25 and you risk permanent exclusion from the housing wealth ladder provided by our ever rising house prices. Home ownership as a tenure steadily rose from 32% in 1953 to around 70% in the early 2000s, but has now dropped back to less than 64%. For people born in the 1950s the homeownership rate nudged above 70% before they got to 34; in the past 12 years, however, homeownership rates for the under 34s have fallen from 59% to 34%. Younger people have been priced out of ownership, even become YIMBYs. This pricing out of ownership partly results from the ever rising price of houses relative to incomes but low interest rates have significantly offset that hurdle since 2007 because the annual mortgage payments fell with falling rates.

The growing hurdle for the young would-be home owner has just been getting a deposit together; especially in the face of competition – prices have after all risen relative to rents – from the fortunate cohorts born in the 1950s or 1960s withdrawing equity to get a buy-to-let as a pension. The median landlord only owns one rental property but given what has happened to returns on other assets, if you want a bit of income, letting out has become seriously attractive. So would-be owner occupiers have been squeezed out by wannabe landlords whose incentive is the extraordinary low returns on those assets normally financing pensions and the capital gains they have made and expect to make from owning homes in a market like Britain’s. This pushes up house prices but increases the supply of rental stock.

The problem is that unless we really step up house building all we do is redistribute an almost fixed stock between alternative buyers: buy-to-let landlords or owner occupiers or just a few second home owners – British or foreign – who do not occupy their houses very much. We do not need to build more rental stock; we need to build more homes.