Calls for Osborne to build homes won't fix UK's housing crisis

Two lobby groups have called for chancellor George Osborne to introduce house building as a central plank of his 20 March budget. Our reporter Cathy Adams:

Business lobby group the CBI today urged the government to kick-start the housing market in its upcoming Budget.

The lobby called for 50,000 new affordable homes to be built, at a cost of £1.25bn, generating £18bn for the wider economy and creating 75,000 jobs.

The British Chambers of Commerce also called on Chancellor George Osborne to support the building of 100,000 new homes.

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What is the special quality of the construction industry that means we should want Osborne to spend on house building? It is the record of past crises that state efforts to making housing more affordable have led to bubbles, that subsequently burst in spectacular ways. Homebuilding efforts by governments often provide some of the most spectacular examples of the failures of central planning:

Where the government planned these complexes to be as cost-effective as possible, streets and pathways took odd shapes and designs, dwellings were built on top of each other to maximise the amount of housing in the small space, and the buildings lack character.

Consequently, crime is high on such estates, as thieves can get away easily, if pursued, through alleyways and random streets, and residents lack personal space, leading to confrontation.

There is no special case to support construction over other industries, the special case for government homebuilding is one of the scarcity of housing stock. Tight planning rules have kept the market inflexible as well as artifically inflating costs. Construction firms that know best how to play by the rules of the planning process gain a competitive advantage, and the costs of this regulatory swamp get passed on to those who want to buy their own home.

Rather than having Osborne try to calculate how to build 50,000 to 100,000 homes, he should seek to liberalise Britain's construction sector. At present only nine per cent of land in the UK can be developed, a constraint on the supply of houses that has seen prices increase. Setting entrepreneurs free to provide new homes would see house prices fall without the need for government money.