The fact that Britain has a housing crisis has (finally) become well-established; the last few years seem to have witnessed a sea change in the media and politicians’ willingness to talk about building more homes, to the extent that the government’s recent housing white paper was previewed for weeks in advance of its early February launch date. (Of course, whether this has led to meaningful action to make housing more affordable is a different matter.)
Although it is great that the issue now receives so much more attention, we need to keep things in perspective. That can be challenging when it comes to house prices, because they have changed so much over the last few decades that comparisons with the recent past dramatically underestimate the extent to which the problem has got worse. So, how much have house prices changed in your area?
When you look into Britain’s housing crisis, it’s very important not to fall into the trap of adopting a “shifting baseline”. This is a psychological theory which attempts to explain why human beings are often poor at noticing and reacting to long-term changes in their surrounding environment; the concept was originally developed by an oceanographer called Daniel Pauly (you can see a TED talk he gave on the subject online).
Essentially, he argued that you can measure the deterioration in the quality of the Earth’s oceans by comparing the sizes of different species of fish which have been caught from them over time. But fishermen tend to underestimate how much this has changed because they have relatively short memories, which means they only compare the sizes of fish species in today’s catch with the (relatively similar) ones they caught a few years before, whereas if you compared them with pictures of the fish that were being caught 50 years before you would notice how much smaller they have become.
What has this got to do with Britain’s housing crisis? You could argue that our national debate about housing tends to be full of references to shifting baselines, which often obscure the extent of the problem and mask the inadequacy of our attempts to fix it. Most reporting of both house prices and housing output tends to make comparisons across very brief time periods, often comparing the current year with the previous one, which means it is generally insensitive to the fluctuations of the business cycle, and tells you little about the major long-term changes in affordability that have taken place.
One of the best examples of this phenomenon is the annual figures on housebuilding, which are often promoted by politicians when they go up as a sign that they are doing something about the housing crisis. A press release last year from the Department for Communities and Local Government praised the government for the fact that new housebuilding completions had increased by 6% over the previous year; but, while that may have sounded impressive, it said nothing about the fact that total new housing completions across the UK that year were barely half the level they had been at 40 years before, as long-run data illustrate. Short-term fluctuations in these kinds of data are presented in a way which is designed to make them look like harbingers of lasting change, when short-term fluctuations are often all that they are.
How much has housing affordability changed in your area?
Fortunately, one of the great advantages of discussing public policy problems in the UK is that everyone has access to a virtually unparalleled wealth of long-run data from the Office for National Statistics (ONS) and other sources.
One of the ONS’s most recent housing-related publications put changes in housing affordability in their proper long-term context by demonstrating how it has changed over the past 20 years. This publication contained the striking statistic that the average working person could expect to pay about 3.6 times their salary to get on the property ladder in 1997, whereas now the typical ratio is 7.6, over twice as high. If you are interested, the ONS release includes a tool which enables you to look at how housing affordability has changed in your local authority area during this time period.
The current debate about the housing crisis is very welcome, but it needs to be informed by accurate information; an important part of that is ensuring that we really are making meaningful comparisons across time.