The British housing market: contained and exploding1

The author would like to thank Emily Adler who painstakingly obtained and ordered the data. The author takes sole responsibility for any remaining errors.

Abstract

While the long run trend in housing prices in the UK has been upwards since the mid‐1950s the post 1998 boom represents short term volatility and threatens stability in the wider economy. This paper argues the fundamental reason driving both the rise in the real price of housing and its increased volatility is the increasing constraint on the supply or urban space applied by the British system of land use planning and its attempts to contain urban areas. Housing is an economic good and the supply of available housing space is allocated through the market. As incomes rise people try to purchase more space. This not only drives up the price of space and so housing but it also makes the supply of housing more inelastic and so the price more volatile. Housing increasingly behaves like a financial asset marker rather than a market for housing services.

Keywords:

• housing markets
• planning (zoning)
• land supply
• financial assets

Notes

Correspondence Address: Paul Cheshire, London School of Economics, Houghton Street, London WC2A 2AE, UK. Email: [email protected]

The author would like to thank Emily Adler who painstakingly obtained and ordered the data. The author takes sole responsibility for any remaining errors.

This would be unlikely to be true of housing markets in which space was in elastic supply; and indeed was not true of the British housing market in the decade before World War II (see Cheshire & Sheppard, 2004).

Additional information

Notes on contributors

Paul Cheshire

Correspondence Address: Paul Cheshire, London School of Economics, Houghton Street, London WC2A 2AE, UK. Email: [email protected]