Via Tim, Raedwald has a silly piece suggesting that the 30% collapse in new-build flat prices, rather than being the outcome of a speculation bubble, came because developers were required to build 30% social housing as part of the development.
However, this doesn’t fit the facts, or what we know about economics.
If the new-build flats sold for 30% more than existing Victorian and Edwardian properties nearby, that’s because buyers believed the new flats were worth 30% more than existing Victorian and Edwardian properties nearby – otherwise, prices would have converged.
In fact, the most likely reason the new build flats listed for 30% more than existing properties is that builders across the board granted a discount of just over 30% for buying off-plan. Which also means that any fall in real new-build flat prices should be measured from 30% below list price, not from list price.
But we all know you can’t get something from nothing – so how were the ‘affordable’ flats funded? Well, the marginal cost of building them compared to building the same development without a social housing element, which is low (e.g. adding an extra storey to the block), is covered by the money that’s actually paid by the social housing body to the builder.
So who’s paid for the difference between the cost of building and the theoretical value of an HA flat? As long as you assume that the purpose of the planning laws is to protect local residents from overpopulation, the answer is other local residents: in the space where the developer would otherwise have been given permission to build 20 full-price flats, he’s received permission to build 20 full-price flats and 8 affordable ones.