The housing crisis is usually discussed in terms of social fairness: young people unable to get on the housing ladder, families crowded into inadequate accommodation, keyworkers priced out of the communities they serve. These are real and serious consequences. But they understante the economic damage.
The Productivity Cost
Workers can only be productive where they are located. When a software engineer cannot afford to live in London, they commute from further away — losing productive hours. Or they accept a lower-paying role in a city where housing is cheaper. Or they leave the UK.
The accumulation of these individual decisions — repeated millions of times — represents an enormous drag on aggregate output.
The Investment Distortion
British households devote a higher share of their income to housing costs than almost any other developed economy. Money spent on rent and mortgages is money not available for saving, investing, or consuming other goods and services.
The extraordinary concentration of household wealth in property has distorted investment patterns across the economy, drawing capital into an asset that produces nothing and contributing to the underinvestment in productive business assets.
What Would Actually Help
The evidence from international comparisons is reasonably clear. Countries with high housing supply — Japan, Germany, Switzerland — have more affordable housing despite having desirable cities. Supply works.
The planning system reforms currently working through Parliament are modest by the standards of what is needed.
