Cutting public investment has consequences: house building

A post inspired by this from Alex Marsh

Here are two charts that tell their own story. The first comes from this site.

The second shows UK house prices from Nationwide.

Almost everyone agrees that UK house prices are currently much too high, and (partly thanks to you know who) getting higher. It is also clear that if you cut back on supply, but pressures on demand remain, prices will rise. In the first half of the 1980s, public sector house building effectively came to an end. Mrs Thatcher’s government did this, despite knowing that demand for housing was going to carry on increasing, as Ed Conway discovers (from the just released archives) in this post. In 1984 her housing minister advised against cuts on the scale actually made. Presumably Mrs Thatcher and her advisers hoped that the private sector or housing associations would fill the gap, but they did not, so prices started rising. [1]

Cutting back on public investment, and just hoping the private sector will increase their investment to compensate. Does that sound familiar? Cutting back on public investment, and paying for the consequences later. Does that sound familiar? Never mind, just keep repeating 'private sector good, public sector bad', and continue to get your facts from certain newspapers.

[1] Just to forestall an inevitable comment, the problem may well have been all those restrictive regulations we call planning, and the largely Conservative voting rural areas that use those regulations to resist new housing. (Or maybe it’s a bit more complicated, as Alex Marsh suggests.) But as every economist knows, if you remove one ‘distortion’ (public house building) while leaving others in place (planning), you can end up worse off, which seems to be what has happened.