The battle over planning between the build-more-homes lobby and the forces for countryside conservation is extremely important. It will define, at least in part, where people can live and what our treasured land looks like in the future.

It is essential that we have a planning system that efficiently, effectively and more importantly fairly balances the conflicts between development and conservation.

But right now the debate over planning is a massive distraction from the real and immediate issue – money.

There are exceptions, but generally the disinterested public tends to hold one idea on one subject at any one time, if they are motivated to hold a view at all.

This is not to be disparaging. I include myself within that public. The world is too complicated a place to be an expert on everything with a nuanced opinion that takes account of all the relevant available information.

So if the public were asked today, why are we as a nation not building enough homes to meet the demand, what would the poll figures point to?

I suspect planning and/or nimbyism would rank high on that list.

That is the way the debate is being characterised. So the view that planning is at the heart of the growing housing crisis will in large part shape the political agenda.

But in point of fact we are building enough homes to meet demand (more or less). Indeed we may be even be meeting the effective demand more fully than we have for some while.

Low demand not high demand is the problem.

But the twisted irony is that while effective housing demand is at an historic low, real housing need is, arguably, at an historic high and growing rapidly.

While the population expands faster than for many generations, fewer homes are being built.

The understanding of the housing debate is not helped by a regularly made and extremely lazy conflation between need and demand. They are two very different things if you are using them in an economic context and the distinction is critical in the debate on housing.

In economics, demand is the desire to own anything, the ability to pay for it, and the willingness to pay. For reference, that was taken from wikipedia and it certainly fits my understanding of demand.

The desire to buy homes is no doubt great, but the willingness and/or ability to do so are very much limited. Hence the demand is low.

This point appears often to be lost, along it would seem with an understanding of what constitutes supply in the housing market context.

Supply is “a fundamental economic concept that describes the total amount of a specific good or service that is available to consumers,” says investopedia.

And most supply in the housing market (about 90%) comes from the second-hand market, which means house builders contribute a relatively small proportion and are, by and large, price takers.

Regularly we hear the notion of a housing shortage applied to supply. The shortage is within the stock and the issue is how this impacts on the quality of life of individuals and families and our national economic prosperity and wellbeing.

The supply of homes in the market has a relationship with the stock of homes in the nation, but not a very strong one. There is, more or less, the same number of homes now that there was five years ago, but the supply has pretty much halved as it has followed the fall in demand.

So, if supply (the number of homes genuinely up for sale) and demand (the number of homes people are willing and able to buy) more or less fall equally you get what we are seeing now, pretty much flat prices and a lower quantity sold.

Let’s take this train of thought further. If house builders expanded their production we might reasonably assume some sellers of second-hand homes might retreat from the market leaving the supply more or less as it is. But we do get the bonus of an increase in the housing stock.

If you’re deadly serious about boosting supply in the short term and at any cost, the quickest way is probably to ramp up interest rates aggressively. That would change the economics for a host of homeowners and prompt many more to sell up. This really would expand supply, however unwise and brutal it might be as a policy approach.

Hopefully the above illustrates the need to be cautious about how economic ideas are used in the housing debate.

The truth is that the immediate problem is creating economic demand not meeting it. There is no shortage of skilled workers, no shortage of materials and land isn’t an immediate pressing issue.

House builders may have less of the stuff than they had five years ago, but they have more if measured as a ratio of land with planning permissions to the current build rate. At peak a major house builder might have had four years worth or land supply, today they probably have six.

So meeting demand is not a problem. Meeting desire and, more importantly, need on the other hand is a major problem.

The answer clearly lies in “the ability to pay and the willingness to pay”, whether this comes from the private sector or the public sector.

It all gets back to money.

We will only resolve the immediate and growing housing crisis by finding ways to increase the finance available to build more homes.

Once we ramp up production of housing, the conflicts over planning will become more pressing. Hopefully they will be resolved.

But solving that problem must not deflect from the immediate priority which is to boost the finance for housing, whether this is from the private or the public purse.

Recessions are ugly things. Why not exploit one of the few benefits they bring rather than wasting the opportunity as we are?

Every 100,000 homes built during this recession is potentially worth more than £2 billion to the Treasury in employment tax and reduced benefits – and, lest you forget, that money is yours and mine.

Topics