This question is prompted by a comment on the radio today, in which it was stated that house prices in the UK are about 10x average earnings (compared to the historically safe ratio for a mortage of about 4x), and that this is why there is a problem with affordable housing. One solution proposed by politicians and commentators is to coerce housebuilding companies and developers to build new houses rather than "sit" on land whose value might rise.
My question is this: as far as I am aware, house building businesses do not make "super profits", and are often heavily geared (heavy borrowings). The heavy gearing is because housing development is "up front" in terms of costs - you pay huge outlays, and only get them back if the project completes on time - hence excessive interest on those borrowings - and the dwellings are then sold. Importantly, borrowings are often secured not just on land, but also by covenants based on share price (in turn usually based on profits + dividends, in other words, the company must broadly maintain its expected profit levels).
So the political and social issue is not about housing stock. It's about housing price (10x earnings). Short of market controls over house sales prices, any remedy of the affordable housing situation would require that substantial new housing is developed and sold for about 40% of its current price, to solve the problem. It's clear that this could be done by local authorities, who can build at a loss if subsidised or if agreed by central government, but less clear whether it is remotely feasible to achieve it any other way.
(House rental pricing and part-ownership rates are largely fixed by house values, so we can discount that solution - if house prices remain too high, it's likely that rental prices will also be too high, to impact the problem, and if prices fall enough to solve it, then we will not need rental market changes to be imposed - they will fall as well.) Market controls on non-new housing sales would be politically unacceptable as well as impractical - house owners could not realistically be compelled to lower asking prices to about 40% of current prices at any realistic future time.
How can governments politically approach this issue? What possible structural solutions could a government deploy?
It seems, in simple terms, that the essential problem is that as wages won't rise by 2.5x any time soon, a substantial stock of housing at 40% of current prices must be made available, otherwise whatever else is done, it won't actually be affordable. But equally, if a housebuilder was directed to make a large part of their housebuilding available at 40% of current prices, that goes far, far beyond any kind of gain from land hoarding or profits they make. As a sector, they simply couldn't afford anything like that and still remain in business. Land prices don't have that level of flexibility either, no matter if brown or green locations. Interest on borrowings is at a historic low-ish point, so that can't be cut much either, and actions that significantly affect profits and dividends going forward, will impact borrowing covenants of heavily geared companies. Forced to cut the price that a large part of new housing is sold at - which is what has to happen one way or another - their business would go insolvent and if by some chance it didn't, the only other way would be that the direct costs of building a house would have to fall hugely - in other words every employee and contractor in the construction sector suffering a massive pay cut (order of magnitude 50%??) - which isn't going to be feasible either.
In short, politically it's essential that the "affordable housing" situation is addressed. But how on earth can it politically be achieved without gutting a major sector of the economy and its employees?