Can we fix it?

WITH Britain’s property market fizzing, the obvious cure for bubbly prices is to ramp up housebuilding. The Conservative government wants to get the country building 200,000-250,000 homes a year, up from the current rate of about 140,000. Reaching that target is seen by many—including the Labour Party, which had an almost identical aspiration when last in government—as the acid test for any government’s housing policy. A bill approved by the House of Commons on January 12th contains a number of measures to boost construction.

The idea that Britain needs to build 250,000 houses a year comes from an official review of housing supply carried out in 2004. It reckoned that such a level of private building was consistent with “real” (ie, inflation-adjusted) house-price increases of 1% a year. To get Britain up to the magic number of 250,000, the government will loosen planning rules and offer subsidies to boost the construction of “starter homes”, properties costing up to £250,000 ($360,000), or £450,000 in London. The bill also grants central government more power to bulldoze opposition to housing projects from sluggish or NIMBYish local councils.

Even if these plans succeed in spurring on the builders, prices may continue to gallop upwards. For one thing, Britain is bad at putting houses where they are most needed. Since 2009 prices in the south-east have risen twice as fast as the national average. Land in the south-east is already intensively used, making development particularly difficult. New houses also mean building new infrastructure, such as schools and parks; the “green belts” of protected land that encircle most cities make it hard to squeeze all this in, says Adam Challis of JLL, a property company. Over the next two decades London is expected to require 50,000 new homes a year. Last year the city built less than half that number.

On January 4th the government announced that it would supply building companies with publicly owned land where planning permission is already in place. Happily, most of the proposed sites are in overheating parts of the country, such as Northstowe, a proposed development near booming Cambridge. Yet some economists suspect that even this may fail to tame prices: a recent paper from the London School of Economics found that new developments may actually increase the value of housing in their surrounding areas, by bringing in new infrastructure and boosting the local economy through extra spending on shops and services.

What to do? The focus on housebuilding overlooks a bigger potential source of supply in the form of existing homes. Although overcrowding (as measured by the number of people per bedroom) has been drifting upwards for 20 years, more than one-third of households have two or more spare bedrooms. Allocating housing more efficiently—encouraging elderly couples to downsize after their children fly the nest, for instance—would free up some of these 16m or so rooms.

Turnover in the second-hand housing market, though, is slow. In the late 1980s more than 2m properties were bought and sold each year, twice as many as change hands today. As the population has aged, the average homeowner has become less likely to want to move, says Bob Pannell of the Council of Mortgage Lenders, an industry body. Moreover, with prices rising fast, people are not rushing to sell up. Stamp duty, a tax on housebuyers, has risen steeply over the long term, providing another disincentive to moving: someone buying an average-priced home in London faces an upfront bill of £15,000.

Abolishing stamp duty would boost transactions by 8-20%, according to different estimates. Mr Challis reckons the government could boost transactions further by supporting bridging loans, in which a bank offers short-term finance to someone to buy a home before they have sold their current one. The government is beginning to act to accelerate the building of new houses. To bring prices into line, it must next free up the supply of old ones.