Is there a housing shortage? A post-Keynesian economics approach to the financialisation of housing in England
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Date
2019
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AESOP
Abstract
The overwhelming dominance of neoliberal economics has come under question following its failure to understand, let alone predict, the barrage of global financial crises that began in 2007/8. Heterodox economic theories, Post-Keynesian school of thought in particular, have since assumed much greater significance during the last decade as much broader and more encompassing theoretical conceptualisation of economic behaviour is established. Land and property development stands at the centre of these debates due to the fundamental importance of property in providing collateral to the private banking system when money is created. Furthermore, the neoliberal exclusion of the role of debt and financialisation in determining the growth of the global economy has encouraged a fundamental misallocation of resources. The significance of excluding debt has permitted a deepseated narrative to evolve amongst policy makers, in which the high price of land and homes in most developed countries is indicative of a shortage of supply, whereas it is likely that the role of debt driven demand is a more plausible culprit. This paper explores the role of financialisation and money creation in the UK to better understand the impact of debt upon the presumed shortage of housing supply in England. The unswerving belief of a housing shortage in the UK is beginning to be questioned. Between 2016 and 2018 the UK government substantially reduced its 25-year projections of increased household requirements by some 1.1 million units, reducing annual needs by more than 25% to 159,000 units. The implication of such a substantial and sudden shift in projections will inevitably have a broad impact on urban planning requirements and highlights the usefulness of heterodox economic thought in untangling the complicated transition of urban planning to meet future needs.
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heterodox economics, financialisation, mortgage debt, house prices