In many parts of the world, there is a shortage of available and affordable housing for people to buy.
In many parts of the world, there is a shortage of available and affordable housing for people to buy. For example, in the UK, 190,000 houses were built in 2016 – below the 300,000 needed to meet demand. In New Zealand, the housing shortage has reached 60,000 and is growing by 40 houses per day, whilst in the USA house values in 2017 are increasing at more than double the rate of wages, making it more difficult for people to afford to buy a home.
Evaluate the extent to which any government should intervene in the housing market, for example by using subsidies, or leave the provision of housing to the free market.
Meaning of the government intervention and free market.
There are three main types of economies, Free, Command and Mixed. Most economies are mixed where they have both governmental and private control and ownership of assets. On the far extreme of both there is ‘free’ in which the private sector has majority control and ‘command’ in which the government (public sector) have total if not majority control.
A free market economy is often described as one in which the government reframes from interfering in any way at all. This means in such an economy there is no government intervention as suggested by Kates (2011). Government intervention can range from introducing TAX breaks or TAX increases through to the manipulation of the market to encourage competition and the trade of business growth as stated by the UK Office Of Fair Trading (2009).
This for some economists such as Caron et al (2015) is argued to create problems of inflation, deflation, unemployment and even led to depressions. Therefore, it is widely debated that government intervention can cause a huge negative impact on the economy.
However, Rothbard (2009), has stated to that end that “The free market, unhampered, would not be in danger of suffering inflation, deflation, depression, or unemployment.” Further claiming that government intervention often “creates the tightrope for the economy and is constantly, if sometimes unwittingly, pushing the economy into these pitfalls.”
It is very difficult to find a pure example of a free market economy due to most economies being mixed. However, economy watch (2010) argues “the institution of “free market” or “market economy” is enmeshed in the American system” this is due to most of their enterprises being privately owned. In this economy in recent years the epidemic regarding the shortage of affordable and available housing has been wide spread. Lessons on government intervention can be drawn from the great depression of the 1930s and high inflation of the1970s which caused wide spread chaos.
Issues surrounding shortages of housing in UK, New Zealand, USA, and Sweden and its impact on the economy
Within the UK, New Zealand and the USA there is a governmental concern over the shortage of affordable and available housing. Each economy has suffered at the hand of poor planning and insufficient governmental funding.
Britain’s housing crisis has been described by the UK’s local media as a ‘human disaster’ Guardian (2015). Within this article links as far back as the 1980’s to the Thatcher government has been cited as the key issue for a lack of housing as the local government seeks to protect so called areas of natural beauty and reduce the high rise building in certain areas. The UK government’s use of incentives such as the ‘help to buy’ schemes although providing a certain level of support are also part of the problem as they create future inflation problems.
The New Zealand Herlad (2016) hightlights the increasing problem New Zealand is having in additional with housing. With a majority of concerns also coming from the allowance of foreign investment into the property market and the increasing unattainable prices of a false inflation. To counteract this in recent times the government have placed a ban on foreign buyers who have continued to increase the house prices through competition. This levee on the government to intervene with legislation to limit housing to those that are nationals is hoped to help counteract some of the housing concerns.
Many countries across the world including those with in Scandinavia such as Sweden have also noticed shortages in housing. The Local SE (2017) states that ‘Sweden’s housing crisis is fuelling homelessness’. This is due to an influx of a migration / refugee population. Sweden opened its doors to refugees as an act of humanitarian aid, however, such an increase need for housing was not accounted for and therefore this has led to poor planning causing concerns for the sustainable access to housing. As the world is effective shrinking due to globalisation and as people are more readable willing to travel this crisis can be seen replicated across the world. The main caused of concern are those of an increasing cost of living due to the inflation rising with an unreflective rise in wage brackets teamed with the extra governmental pressures of supporting the refugee population as argued by The Local SE (2017). Issues regarding housing shortages can create long term social issues for communities with an increased rise in homelessness which can also lead to increased issued with crime and social depravity.
It could be argued that those countries such as China that have a planned / controlled economy have less concerns with housing as claimed by Forbes (2015). Perhaps there is something to be said about the level of control they stipulate over their populations to help control this, such as the one child policy which allows for very controlled measures over the population to help slow down and effectively reduce the constant demand for new housing.
In the UK during the 1980s when housing was being planned for there was a lack of understanding to the growing needs of the population. If housing markets are left completely at the hands of the government housing can become ‘cost effective’ which can effectively mean ugly grey building which are not by any means enticing. However, equally if housing is left completely at the hands of the free market we can end up with beautiful attractive looking housing that is unaffordable and out of budget for the average buyer. The Financial Times (2017) argues that it has become increasingly difficult in the UK for those in their 20s and ever 30s to get on the property ladder and although the government has tried to support this with first home owner schemes these schemes effectively increase inflation which in the end adds to the issue as agreed by the Guardian (2015).
Government intervention e.g. subsidies v Free market
To allow for the total control of the housing market to be ran and controlled by the free market could lead to a continued epidemic due to the nature of a profit incentive by the private sector. However, the continual support through government funding and subsidies in a mixed economy can also lead to social issues with increase taxation and rising inflation making housing unattainable. Effective solution must therefore be put in place by both the public and the private sector collaborating for the good of the population and generations to come.
Controlled budgets on spending and more effective planning can be one effective method that can be implemented but as argued by Rothbard (2009) such government intervention can cause a false economy through manipulation that can lead to the slums or depressions and may only be classified as a ‘short timer fix’ not a sustainable development.
One of the big issues for the UK is that of planning permission and planning restrictions on housing. If the UK government is to see an effective end to the housing crisis they are currently facing they must reduce restrictions but in place for the development of new housing. By doing so they will help improve the elasticity of supply for housing making it more responsive to the changing demand of the housing market within the UK as agreed by the Office of Fair Trading (2009). Local authorities in the UK will also require more freedom in being able to borrow funds for the building of housing as in some cases this can be a ‘post code lottery’ to attain the required budgets to allow supply to meet the overwhelming demand of the population.
This is a similar story across the USA where in some areas that have been hit by the recession housing is affordable, but the areas are undesirable such as in Baltimore whereas in other areas such as LA housing is unattainable, and the areas are overcrowded with many living in homeless shelters while waiting on affordable housing. The displacement and levels of inequality across the world has highlighted that housing will continual to be a problem if governments continue to mismanage budgets and not take effect responsibility over planning as argued in Forbes (2015). Tax Credit allowances such as the Obama Frist home Owner Tax Credit has proven to be ineffective in tackling the root of the issue. However, an introduction to policy change is a welcome move by the population as it brings a certain level of attainability to some but unfortunately while helping one side of the community it can effectively harm the other through increased TAX or interest rates to counterbalance the economy.
In conclusion, if the government seeks to make effective improvements on housing within their respective countries they will need to consider the long-term impacts of intervention with regards to sustainability. There is not a perfect model as often times the benefits received by one generation are based on to the next and so there is a constant pendulum swing between improvement for one generation with low tax and low interest teamed with increased affordability and attainability that then leads to higher TAX, higher interest rates and a lack of availability and affordability for the next. The move to a free market economy is not therefore a fix in this case as it would leave those in the weakest position most venerable to homelessness and increased society problems. For an effective solution to be made the economy must find a balance through careful planned intervention and controlled spending that meets the needs of a planned growth in population to allow housing to be both attainable and affordable.