Is the West’s housing obsession damaging the economy?

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“A man’s home is his castle”. This edict has governed Western policy objectives on housing for decades and has propped up the ailing American dream. But has this policy led to a disastrous housing crisis and growing inequality throughout the world, and is there any alternative? Housing is the most valuable asset most of us will ever own and hence, it’s an incredibly valuable investment. The average house price has risen from less than £10,000 in 1977 to an eye-watering national average of £250,000. Even when adjusting for inflation, this illustrates a 350% rise in real house prices in little over 40 years during a period of wage stagnation and limited growth. And these astronomical house prices have continued to rise during the Covid-19 pandemic. An increase in house prices during one of the most turbulent times in recent history clearly illustrates an issue that cannot be explained through any rational theory.

So how have we got to this dangerously inflated position? Despite austerity measures brought in under the British coalition government, they proceeded to implement a “help to buy scheme”, pumping tens of billions into the housing market at a cost of £800 per taxpayer. This was implemented after the 2008 sub-prime mortgage crisis, which should have demonstrated how dangerous an obsession with housing is. This inherent risk posed by the housing market and the cataclysmic impacts that it can have begs the question, why do so many Western societies dogmatically encourage house ownership?

Proponents of high levels of home ownership may claim that ownership of ones own home incentivises development and expansion of the property, citing Singapore as a flagship example. But this is a naïve claim; the OECD’s Better Life Index shows no correlation between satisfaction and quality of housing with the overall housing ownership rate of the nation. Moreover, high house ownership rates can prove detrimental to social mobility and lead to regional inequalities. Owning a house makes it 60-70% less likely to move between cities. On a national level, this lack of labour mobility can stifle growth in high demand industries, whilst condemning local residents to lower incomes without any tangible benefits or escape plan.

There is no iron-clad law illustrating that higher home ownership rates are a symptom of development. Nepal, Russia and Mexico all have home ownership rates of over 80% whilst 96% of Romanians live in owner-occupied housing. But these are not the sparkling metropolises that people envision of high ownership rates. By contrast, Switzerland sits at a low 43% and is considered amongst the most developed nations worldwide. The UK ownership rate of 65-70% illustrates a potentially dangerous level of ownership that may not be beneficial to our economy or society.

But the real damage is inflicted through the barrage of policies which encourage home ownership and a damaging culture of an all-out pursuit of property. Policies which encourage home ownership fail to combat the underlying issues of a lack of supply in Anglo-Americanised nations. In fact, the UK is one of the clearest examples where these policies lead to heightened prices and a destabilising housing shortage across many regions in the country. Higher home ownership can actually lead to less housing availability due to the presence of so-called “Nimbys” or ‘not in my back yard’ residents. These home owners are doggedly determined to maintain their idyllic suburban lifestyle and work to stifle development in their area. This protectionism is due to the dominance of home equity over their assets and the dangerous loan-income relationship that can strand many new homeowners in unsustainable debts.

So what can be done? Of course, we live in a liberal democracy. Should someone wish to own their own home, they should. But this policy objective should not and must not be pursued and promoted at all costs, whilst renters and those who are not wealthy enough to afford house deposits are being left to their own devices. Instead, in order to protect residents, the help to buy system needs to be scrapped immediately and we need extensive education for people to assess a cost-benefit analysis on whether it is worthwhile to purchase their own home. This will lead to a richer, more prosperous societies that protect home-owners and tenants alike.