I was recently involved in a short project for the Joseph Rowntree Foundation looking at the issue of housing market volatility in the UK, but from the perspective of local areas. Inevitaby, the report doesn’t actually tackle what hardcore economists would term as volatility (i.e., the standard deviation of housing price change) but looks at how different areas and types of area in the UK fared in crude housing market terms.
Two simple messages stood out for me.
The first is that the most recent boom-bust cycle in the UK’s housing market — which was the longest in recent history — allowed the opening up of very significant disparities between different parts of the country. There is some support for the notion of a ‘ripple’ effect, led by London and the south east of England, but by the time its benefits were reaching other parts of the country, the good times came to an end. Housing market volatility (or, at the very least, patterns of house price change) is now a very different experience depending on where you live, in what type of housing, in what sort of neighbourhood, etc. This is in contrast to the previous (shorter) cycles which tended to work in unison across the country (see graphic).
The second important point is that all of this spatial variation seems to closely track a slew of demand side indicators related to household wealth; local economic change; migration; and so forth. This calls into question the rather blunt supply-side instruments we have tended to use to try to control volatility in the housing market. Where we have intervened in the housing market it has often been on the supply side: growth targets, speeding up the planning system, designing new types of ‘intermediate’ tenures. All important, perhaps, but pointless unless we also address the fundamental underlying causes of changes in the demand for housing.
It reminds me of something that David Webster wrote back in 1998 in a conference paper looking at the issue of low demand for housing in the north of England. He said that, “the emphasis should generally be on rebuilding the blue collar employment base of low income neighbourhoods in the cities and coalfields” (Webster, 1998, p. 47). Whether this is realistic or not – or what constitutes ‘blue collar’ now – is of course open to debate, but I think that Webster was right in saying that we need to give the demand side – at the local level – much more consideration when we think about trying to sort out the problems of the housing market.
Webster, D. (1998) ‘Employment Change, Housing Abandonment and Sustainable Development: Structural Processes and Structural Issues’, in S.Lowe, S.Spencer & P.Keenan (eds.), Housing Abandonment in Britain: Studies in the causes and effects of low demand housing, pp.47-60, Centre for Housing Policy, University of York, ISBN 1 874797 87 0.