01Introduction
1The housing crisis cannot be understood without considering the economic role of cities. Housing affordability varies dramatically across cities and is most unaffordable in cities with successful economies. For instance, the average house in Brighton costs 14 times the average annual income, while houses in Doncaster cost on average only five times the average income.
Centre for Cities has previously shown that increasing housing costs and housing shortages cause problems for cities’ economic growth and the living standards of their residents.1 However, if successful economies are seeing rising housing prices, then this suggests that not only are housing costs growing for some residents but that housing wealth is increasing for others.
Over the course of any real estate business cycle, cheaper credit will mean that house prices increase as the supply financed by new credit lags behind demand, due to factors such as construction, the time it takes to identify and assemble land for development, and the length of the planning process. In a real estate bubble, prices can increase far above long-term demand, and price corrections can be sharp and contribute to wider financial instability.2
However, if successful urban economies experience local housing shortages as previous Centre for Cities research has established, then it means housing affordability issues are distinct from, and more structural than, those that emerge during an ordinary business cycle. Rather than adjusting to the cyclical performance of the economy, rents and house prices in high-demand cities with housing shortages would instead permanently increase over the long term. This would imply that local housing shortages have negative consequences for inequality as well as economic stability and growth.
Economic geography is also relevant to our understanding of wealth inequality more broadly. Concern is growing that economic inequalities have become a major social, political, and economic challenge, with the launch of the Deaton Review earlier this year3. Experimental analysis by the ONS has established that property wealth is more unequally distributed across the regions than private pensions and physical wealth, and has a similar geographic distribution to financial wealth, which is much more liquid.4 Housing wealth has displaced other forms of capital in a number of developed economies since 1948 and has contributed to growing wealth inequality.5
This report will set out the geographic patterns of housing equity in England and Wales, explain the relationship between local economies and housing wealth, show how housing shortages shape wealth inequality for people across cities for people, address the role of political choices in the planning and financial systems in amplifying the inequality that results, and conclude with a mixture of recommendations and reflections for policymakers and commentators.