1. Chablino said...

This is exactly right - if there was a shortage of houses we'd see more homeless people. Houses are not like other commodities. So many factors contribute to the decision to buy/invest in a home that in reality the property market has millions of individual supply/demand equations. As a result building more houses in Newcastle will not affect prices in London. However, demand side factors such as low interest rates, increased wealth, tax incentives etc. will tend to impact all these individual supply/demand equations and that is why prices have gone up on average. As a result the demand curve has shifted and people now demand more (and better) houses. In many markets (e.g. central london) supply cannot change dramatically to meet this increase in demand and therefore prices go up dramatically. Its not rocket science but the govt don't seem to grasp it and seem intent on building thousands of homes in places people do not want to live. The govt would be better off spending money on infrastructure (e.g. fast train lines to central london) which linked people more succesfully to places of economic activity than just building homes and hoping people will come. Once underdeveloped areas become more desirable then developers will follow and the government will get the houses it wants without doing anything. Aside from that there is little a government can do to make houses (in the places people want to live) more affordable.