When you look at the major real estate markets around the world we have seen some massive increases in the cost of property over the years. Indeed if you look at areas such as London, where the average property is now priced at over £400,000, it seems inconceivable that the average working public would ever be in a situation to afford such property. This then begs the question, should governments around the world control more housing stock?
This is something of a double edge sword because the fact that the vast majority of worldwide real estate markets are “free markets” attracts significant investment which would likely go elsewhere if there were greater restrictions. What would happen if governments around the world took on more housing stock in order to bring down the cost of property and make it more affordable to the masses?
Large taxpayer investment
Initially there would be a massive taxpayer investment in real estate in order to fully accommodate those looking for affordable property. This would cost billions upon billions of pounds around the world and would effectively leave taxpayer funds invested in long-term assets with limited funds available for other “needy areas of the public sector”. True, governments could effectively borrow money off their housing assets but surely this would be like selling todays housing stock further down the line in order to fund liquidity for public services today – while building up more debt?
Quote from PropertyForum.com: “After the 2007/08 financial crisis the UK government set up a committee to consider what if any additional tools the Bank of England could use if a similar event was to occur in the future.”
A change in housing laws
If you look at any real estate market around the world you will see governments and local authorities introducing an array of regulations regarding affordable property. In many cases, where there is a new property development, a percentage of the houses which will be made available to the general public must be made available to “social housing associations”. In effect this is something of a sell-off because governments and local authorities effectively give planning permission on the proviso that private housebuilders will make some of their properties available to social housing associations. Does this blur the lines of what is right and what is wrong?
Whether or not you believe that assigning a proportion of new property developments to social housing is right or wrong, the fact remains that this ensures that significant government funding can be spent elsewhere. There are also strict regulations with regards to social housing to ensure that these properties will remain “affordable” via an array of government-sponsored routes.
Would this kill the free market?
Whether governments invest directly into affordable housing or introduce an array of rules and regulations about the percentage of new properties which must be made available to social housing associations is neither here nor there. Either of these options will reduce the long-term profit for private housebuilders and as these issues become more prominent in years to come this looks like a recipe for disaster.
Perhaps the only real option is for governments around the world to abolish an array of restrictions on the number of new properties which can be built in any one year. True, this would play into the hands of the private housebuilding sector, allowing them to build more developments and make more money, but this would also take some of the pressure off the rental and purchase markets. The simple fact is that the more properties available the more competition from a rental price and a selling price point of view which should help us to avoid the significant price squeezes we have seen in years gone by.
If we look at the UK government in particular, successive governments have reduced the amount of housing stock held by local authorities and indeed we have seen a number of buying schemes offered to those previously living in council houses. This has brought in much-needed money for successive governments which has been spent elsewhere to protect public services going forward. The simple fact is that governments cannot have their cake and eat it, many around the world have sold large portions of their social housing portfolios and now they are looking to introduce laws to obligate private housebuilders to “give” part of their new developments to social housing associations.
If we take a step back and look at the cold hard facts, private housebuilders will only build properties that will make them money and the more pressure to place larger and larger portions of these developments into the hands of “social housing associations” the less appetite there will be in years to come. In summary, the less opportunity for private housebuilders to make money the less chance they will actually invest their funds.