How awful would the market for cars be if we treated them like houses?

The market for housing in the UK is perverse. By comparing it with the market for cars, Duncan Stott, affordable housing campaigner for PricedOut, shows just how mad our system is:

Imagine if every car that got made had to get planning permission to be manufactured, with the aim of protecting the environment and avoiding congestion. The government would assess 'transport need', then plan for only a specific number of cars to be made per year.

However, in practice the government tends to underestimate how many cars are really needed, and its own targets for car construction are routinely missed. This creates a car shortage and car prices are pushed up. Car-makers then realise that rising car prices means more profit on every car they sell, and the car planning system means other car-makers can't enter the market and make cars to satisfy the pent-up demand.

So they build as few cars as they can get away with, with huge margins on every car they sell. And they needn't improve the cars they build - people who need a car will be forced to drive whatever the car-makers churn out, so they build the worst quality cars the government will let them get away with.

The government then realises that younger people who haven't bought their first car can't afford one, and the price of cars faces a massive correction when young people simply give up trying to get on the driving ladder. So they come up with a scheme called "Help To Buy", which allows them to take out huge car loans, but this just means the few cars that are available go up in price as all the desperate drivers try to buy one of the few cars available for their needs.

What younger people really need is for the government to increase its car targets, however older car-owners realise this might bring down the value of the car they worked all their life to afford. So they lobby the government to avoid more cars being built, citing concerns about the extra strain on the road network. This whole scenario may seem ludicrous, but it's exactly what we have done with the UK housing market.

In July, house prices hit a record high as the average asking price hit £253,658. In London average prices have soared to £515,379, 29 per cent higher than five years ago.

Nicholas Crafts, professor of economic history at the University of Warwick, argues that by liberalising planning we could not only see house prices fall, but also deliver economic growth:

With more liberal planning rules, the equilibrium housing stock might increase by 2m. Building these houses over a decade would help construction, add about 2 per cent to GDP each year, make houses more affordable, and address a real social need.

A house building-led recovery, stimulated by de-regulation rather than fiscal largesse, seems attractive to many economists.

(Full article)