Affordable, decent housing is a scarce resource. The economics of housing makes numerous assertions. One is that affordable and accessible housing is good for economic growth because it promotes greater social equality by strengthening the middle class. At least that is the argument of the Keynesians and the stimulus advocates.
Secondly, affordable housing frees up consumer spending, where cash would otherwise be swallowed up by high mortgage payments and high rents. Consumers can spend in other sectors of the economy, benefitting overall economic growth.
A third assertion is that affordable decent housing is essential to a good quality of life, though quality of life is very difficult to measure.
In most capitalist societies, the belief of the political class as influenced by economists is that housing should be left to the free market to manage. The free market is the best decider of the cost and type of housing available. One caveat is that every country is unique in its housing economy. A second caveat is that the free market model of housing appears to benefit those at the top of the wealth pyramid to the detriment of the poor and middle class.
London issues
Now, there are lessons to be learned from London’s housing issues. Years of austere top-down economic policy have left Britain’s poor and middle class in a “spot.” The proverbial wolf is at the door for the United Kingdom’s poor and middle class in terms of affordable housing.
One way of measuring the impact of economic policy on a country’s population is the availability of affordable and decent housing. This can be housing for purchase, usually with the aid of a mortgage, or housing for rent, with the home owned by a private landlord — even government.
The UK Guardian newspaper of Oct. 14 reported that housing in London was only affordable for the top four percent of wage earners — that is, people who earn over $124,000 per annum.
In response to this issue, Opposition Leader Jeremy Corbyn described how he had “received 3,000 e-mails in early October asking him to grill Prime Minister David Cameron on the unaffordability of housing in Britain, especially in the capital city.”
Mr. Corbyn questioned how the price of a new home in Britain, which averaged out at $720,000, could be afforded by an individual, even a couple, with an average income of $40,000. In fact, the average cost of a house in London is $836,000.
High rent
Added to the unaffordable cost of a home in Britain is the double whammy of a 12 percent increase in house rent over the last 12 months. Average rent in Britain for a home is $1,563 a month, and rent in Britain is dramatically outstripping wage growth.
One reason rents have increased in the UK is the government policy of selling off public housing stock. The lack of public housing for rent is a demand and supply issue. The solution to Britain’s housing crisis, according to the experts, is for government to build more homes — that is, to increase the stock of public housing.
Homelessness in Britain has increased by 40 percent in the last five years. This is a direct result of a culture of austerity that believes that supply-sided trickle-down economics can solve the housing challenge. Trickle-down has failed to solve the crisis. Increasing demand for housing has not been met by adequate supply.
The reason for that is partly structural. In Britain, much land is unavailable for development because it is traditionally owned by a wealthy aristocracy. Then there is a culture in Britain where people view their homes as investment vehicles that can only appreciate. This ultimately drives up prices. Homes are put out of the reach of buyers on average incomes. The home becomes a capital asset for speculation.
The CEO of the non-profit organisation Shelter, Campbell Rob, stated recently that homelessness in Britain, the world’s fourth richest country, “painted a grim picture of the devastating impact cuts in welfare and sky high housing costs were having on thousands of families in England.”
Mr. Rob added that the only way for the government to break the cycle of homelessness is to invest in building homes that people on lower incomes can actually afford.
The loss of homes for affordable rent is “the biggest cause of homelessness in Britain,” according to Mr. Rob.
Lessons for the VI
The British housing model has lessons for the Virgin Islands. With the average cost of a home in the VI put at $500,000, homes are increasing unaffordable, especially for young couples. Add to that the fact that economic growth in the Caribbean has been anaemic in recent years, with a difficult job market for the under-30s. Youth unemployment is a global phenomenon.
The laissez-faire idea of letting the free market dynamic between banks and landlords, and buyers and renters, determine accessibility to housing is the dominant culture in the VI housing economy.
For the VI, there are three options with regard to scarce housing. First, there is a case for community housing, where people come together and contribute their resources and skills, with the aid of government, to build affordable homes for themselves and members of the community.
Or government itself could build public housing and rent to those unable to afford to buy or pay high rents. Under public housing schemes, there is another rent-to-buy option, where renters could buy their homes from government, usually after a set period of time living in the home.
The final option is to leave things as they are and hope the market solves the housing conundrum of unaffordability and scarcity. That is not happening presently.
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