‘Affordable housing’ may lead to less housing and thus higher prices

It is a requirement that builders who wish to create large new developments that they must include a certain amount of ‘affordable housing’. The idea is to ensure that more housing is created for those who are less well off. There may also be an idea that it is desirable in various ways to mix rich and poor together in the same localities. But as with many attempts to legislate that good things should happen, there are unintended consequences.

An article by Robert Bailey in the London Property Review suggests that one of these is that builders develop fewer homes. I guess that one reason is that they will receive less money and therefore there are projects at the margin which cease to be attractive because of the cost of providing the affordable housing at below market value. But more specifically he suggests that some developers create small numbers of huge luxury flats in preference to large numbers of other flats because in this way they can avoid the requirement to create affordable housing. If that is correct, then the affordable housing rules are causing fewer homes to be created which, logically, should result in the average price of housing being higher than it otherwise would be. A higher price for housing disproportionately disadvantages those who are less well off.

  1. “And while a generation ago only one in ten families in social housing had no-one working, this had risen to one in three by 2008-09.” The section on housing and social care in the Comprehensive Spending Review
  2. Fifteen per cent of new housing is built over old housing, including gardens
  3. Now THIS is a social housing programme: 36 million new homes!
  4. More detail on the changes to social housing
  5. Another social housing disaster
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