The discussion is as old as public housing itself. Still, Jan Willem van de Groep wants to put it on the table again. Should we steer housing construction on the share of affordable housing, or is it more important that it be built at all?
The same reflex pops up in almost every housing debate. When there are too few affordable homes, a greater proportion of new construction should become affordable. Municipalities set quotas. Forty percent affordable, sometimes even more. It sounds logical. But the housing market works less directly than is often assumed.
The first fallacy is that new construction is seen as an end product. As if only the buyer of the newly built home benefits. In reality, the housing market works like a chain. Whoever moves into a new home almost always leaves an existing home behind. That becomes available to the next household, which in turn moves out. One new home can thus cause multiple moves.
So the effect of new construction is not only in the housing that is built, but especially in the housing that is released as a result.
Added to that is a second reality rarely mentioned in the debate. Most starter homes are already in the existing housing stock. This became painfully apparent in recent years when many private landlords sold their homes. Those homes were bought en masse by first-time buyers. So the starter segment was already in the stock; only it was rented out for years.
New construction therefore plays primarily an indirect role. It ensures that households can move on, making those very existing homes available. In the public debate, it is often pretended that market parties only want to build expensive housing. But no developer builds housing for which there is no demand. If there is no demand for a home, it simply won't be sold. At the end of the day, the housing market is simply a demand market.
What does happen is that new homes are regularly offered artificially cheap. Municipalities push down the price to make a project affordable. This seems sympathetic, but has a curious effect. The buyer of such a home is the bacon buyer after a few years. The house rises to market value and the surplus value goes entirely to the first owner.
That value could have landed elsewhere. In better plan quality. In more housing. Or in a larger share of affordable rental housing for the social and lower middle segment.
After all, that is precisely where regulation does have a logical role to play. The market produces owner-occupied housing reasonably efficiently because buyers immediately show their demand. The situation is different in the rental segment. There, institutional investors, regulations and long operating periods play a role. It is therefore not unreasonable for governments to steer for sufficient social renting and middle renting. But that is different from nobly sealing up all new construction production.
Because therein lies the real paradox of the current debate. Politicians try to increase affordability by regulating the end product of projects, while the most important factor for affordability is still the overall housing supply. Segment control distributes scarcity. But it does not reduce that scarcity.
After all, the housing market does not have a shortage of affordable ideals. It has a shortage of housing.
This article was written by Jan Willem van de Groep, program maker, future thinker and publicist. In his Perspectives column, he gives his views on the big picture in construction.
