Michael Henderson suggests

Email registration

Free weekly email update

Great products and special offers for Spectator readers

Click here for great value events

Click here for exclusive articles, offers, tasting notes and discussion

House Prices

Thursday, 31st January 2008

It's all over the newspapers, house prices have risen precipitously and they're going to fall: gloom on the way up as youngsters couldn't afford the mortgages, gloom on the way down as we tumble into recession from the choking off of consumer spending.

However, house prices haven't changed at all (or rather, simply in line with general inflation). No, what has changed is the price of land upon which you may build a house.

The replacement cost of building a house where you already have planning permission has been stable (except for that general inflation). Only if we get this initial analysis correct can we start to do something about influencing prices. If it's not the building of them that's making the total price go up (it isn't) then there's no market failure which is making them unaffordable. Further, if there's no market failure then there's no need for government intervention in the form of special building schemes.

Rather, if it's the price of land with permission to build that's going up then we need to look at either land prices or the price of the permission. Land prices have risen but with farmland still just a few thousand pounds an acre that's not it. It must be the cost of the permission to build upon that has risen precipitously then.

And who controls that? Government, through the planning application process. The problems of the young being priced out of the housing market are not then, in fact, a market failure. They're a government failure.

It's entirely usual when something goes wrong for people to start screaming "market failure". They do indeed happen at times, but I do wish that people would also pay attention to the other side of the coin, government failure: it's vastly more common and disruptive.