Economics of Building Houses

should the government build houses itself, encourage the private sector to build more houses, or play no part in the housing market at all? (justify your answer)

Arguments for Government Building Houses

• House prices are currently too high due to a shortage of supply. If government increase the supply it will help overcome the shortage and keep houses affordable for first time buyers. If the government don’t build houses there will be a continual shortage and the market will be subject to fluctuations.
• Shortage acute in certain areas. The government need to target house building in certain areas.
• Inequality. The high price of UK houses means that it is increasing inequality. People leaving university have to either pay high rent or pay alot for a mortgage. This means that many young workers have low discretionary income. There is an increasing wealth gap between people in their 20s and people in their 50s. Government supply of houses could help low income earners.
• Help Key public sector workers. In London there is a shortage of teachers and police because of the difficulty of finding a place to live. Government provision could help local councils to retain staff.

Arguments against Government Building Houses.

• Government failure. Government may have poor information about where to build houses.
• Expensive and requires higher taxes.

Benefits of Encouraging Private Sector Building

• Government want to encourage private sector to build more to help overcome shortages and high prices.
• However, building new houses could cause environmental problems such as loss of green belt land and increased congestion.
• To overcome this the government could encourage house building on brown field sites and increase housing density.