Will economists and social scientists ever speak the same language about housing?

I ask myself this question when I write about housing as a ‘commodity’. It does seem at times that economists and social scientists, allegedly sharing the same academic faculty of the Humanities, are destined to speak at cross purposes. Which, for clever people, seems a bit odd.

A social scientists reads ‘commodity’ as a bad thing – it is a public good which has become privatised, such as having to pay a toll or fee to go across what was previously common land.

But an economist talks about commodities as products which used to be an expensive and famous brand but are now being made very cheaply, which for most people is a good thing. Current examples would be DVD and MP3 players. It also covers goods such as milk, potatoes, eggs, where there is virtually no brand power.

An alternative phrase to commodity would be talk about housing as a ‘utility’, but we run into the same terminology problems as above because of the current culture of privatisation, at least in the UK.

OK, slightly interesting, but does this really matter?

Yes – just consider the difference between the cost of housing and the price of housing. The average UK purchase price for a family house is now around £250,000. But the cost of building that family house is much less. Most building firms keep this figure a commercial secret, but with economies of scale and using more modular offsite manufacturing of the complicated rooms such as bathrooms and kitchens, a house build cost of under £60,000 is perfectly feasible. The big difference between price and cost is made up from sales, tax, land and profit.

Up to 2008 when house prices were rising rapidly, central and local government benefitted from extra tax income, and the private sector benefitted from growing land receipts and from profits through sales, but mostly based on private credit. Of course, the housing market is different now, especially outside of London and the south east of England. And linking affordable housing to employment is now a significant challenge across the UK, where it is often a stark choice of one or the other but not both.

But, if by housing as a utility or a commodity we mean that it should be cheap and affordable, then now is the time to look at new models of delivery. This could probably start in the social housing sector because prices and costs can be more readily controlled. It would involve a long-term switch of funding from revenue to capital, from Housing Benefit towards house building. It would also impact on the housing market generally, reducing upward pressures on private rents and purchase prices. It would look at economies of scale, possibly by consolidating social housing building micro programmes at a city or regional level, using a client-managed consortium of suppliers to balance the risk of non-delivery.

Alongside house building, the significant amounts of empty property could be incentivised back into use by a market shift whereby empty property would have reduced income as an unused asset but significant income growth via rent. Higher taxes on empty property would help push this trend, as would lower taxes on rent.

So finally, perhaps economists and social scientists could agree that: yes, housing is already being used as a commodity, and the next phase is to make it an affordable commodity.

Disclaimer: private views, as ever. Tony previously worked at the Centre for Construction Innovation based in Manchester.

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