Richard Harrington is MP for Watford. His article is the third in a seven part series of articles by Conservative MPs, each discussing the Coalition's policies to get more people into good homes.
The incoming Coalition Government faced many pressing problems, the most important of which was the stagnating economy. Obviously some of the factors causing this were international or macro economic in nature, but in my view an important cause was the long-term problems in the housing market.
It is important to remember what growth actually comprises. It is the aggregate of a series of decisions made by individuals or entities to enter into greater economic activity than previously. Obvious examples are to get a new job, expand a business by recruiting a new person, buying a new house and so on. All of these decisions require confidence and the ability to achieve them. When taken, the decision needs to be facilitated by capital and the availability of other resources to achieve it. A factor in deciding is the price and availability of accommodation . The shortage of housing in the private and public sector over the last decade has been a fundamental problem inhibiting growth.
How did it happen? It was caused by severe deficiencies on the supply side of the equation brought about by the absurdly complex planning system, which led to huge inflation in land prices and the lack of affordability for first-time buyers. Although demand has been dampened in the short term by the economic situation, a significant constraint has been the reduction in loan-to-value percentages by those institutions offering mortgages to purchasers, meaning higher deposits. This has prohibited buyers taking advantage of low interest rates.