Westminster Blog

It’s taken months and years for anyone in Labour to admit that the government’s housing policy has been based on false assumptions. Time after time, ministers claimed that there was a desperate under-supply of housing in the UK; ignoring the role of speculation and cheap debt in the housing boom.*

But Ed Balls came close on this morning’s Today programme.

Here is what the education secretary said:

“There was a pretty strong view that we had a growing demand for housing in this country and a rising population, but we had much lower levels of house building than we’ve seen in previous generations in the private and the public sector.

“Therefore, there was a pretty strong view, which may still in part be true, that the real level of house prices had gone up, because there was more demand and less supply.”

In politician speak this is code for: we are distancing ourselves from the old line. Maybe 2009 will be year when the government drops its target of 3m new homes by 2020.

* This is what I wrote on the subject as far back as March 2005

“Housebuilders have been too sluggish. That, at least, is the view of Kate Barker, whose March 2004 report is wielding vast influence over policymakers – to the point that John Prescott is urging the building of more than a million new homes in the next decade. Toytown housing developments are set to pop up like mushrooms across the south-east.

But what if this entire policy is misguided? You do not have to be a tree-hugging environmentalist to ask the question.

What if property companies are taking undue risks by building homes for a demand that may evaporate?

The Kate Barker report makes interesting reading, in particular its contention that fewer homes are being built each year than in the past. Its name provides a few clues as to where the government may be going wrong: Ms Barker’s remit was to write a “Review of Housing Supply”.

But as any economics A-level student could point out, the government should have looked at the other side of the coin – demand.

Perhaps supply has seemed so constrained for the last few years because demand has been so rampant.

In 1996, before the housing boom began, only 25 articles in national newspapers included the phrase “housing shortage”. Last year, with prices soaring, there were 214 such reports.

But demand is likely to wither if property is not only overpriced but also falling. If house prices start to slide, those supply-demand dynamics may shift the other way.”