The Guardian once ran an entire readers’ letters page dedicated to planning policy under the heading “There’s no point building homes that people can’t afford.” John from Norfolk explained that the housing crisis “is a crisis of affordability not supply” and that new development “should focus on social housing.”
It is a common refrain from those opposed to new development. Setting aside the copious evidence that increasing the supply of new homes improves affordability across the market as a whole, it also misses a fundamental feature of the housing market which explains how even building big, expensive homes helps both first time buyers and the less affluent - moving chains.
The people that move into new homes - even expensive, luxury ones - vacate a home somewhere else, making it available to a new buyer. That buyer, in turns, frees up their own former home, and so on all along the chain of moves. These moving chains are what we more typically describe as the housing ladder - and it very quickly increases the availability of less expensive homes, increasing housing choice for those on lower incomes.
To most of us, filtering is what you do with coffee, or in GCSE science classes. But it’s also the somewhat unhelpful word used in academia to describe the operation of the housing ladder.
Modelling the impact of new homes on moving chains requires high quality data - ideally you would follow individual properties and individual families over a period of time. In England, our data is poor so it’s very hard to do that. Much of the academic literature is therefore from other countries. But, despite that, it is still very helpful – it shows the housing ladder operating in basically the same way in countries which are very different, indicating its robustness.
Two of the more recent papers looked at filtering in the USA and in Finland.
In the USA, a study of 52,000 residents of multi-family buildings in America found that building a new high-end, high-priced building to house 100 families ultimately resulted in between 45 and 70 people moving out of below-median income neighbourhoods within three years - and therefore freeing up those homes for other families on lower incomes. These moves occurred across whole metro areas, not just the neighbourhoods near the new development - so the benefits of the new homes were felt city wide with the moving chains they initiated creating connections between low- and high-income areas.
A similar pattern can be found in Finland, with a study of moving chains in Helsinki finding that, by the third move in the chain, 60% of movers come from neighbourhoods in the bottom half of the income distribution. This isn’t simply wealthier residents leaving those areas either - by the fourth round of moves, half of movers have below average incomes. Overall, for every 100 new market-rate homes in expensive areas, around 31 homes became available in the poorest 20% of neighbourhoods (and 66 homes in the poorest half).
Earlier this year, Public First looked at how the housing ladder operates in England. Using over 20 years of Land Registry data, their report concluded that building more larger homes actually does more for affordability than building smaller ones – it triggers longer moving chains, allowing buyers at all levels to “climb up” the housing ladder. Even a modest increase in the number of larger properties makes entry level homes around £2,500 cheaper.
Triggering these moving chains by building new homes isn’t just about improving affordability either – it is about improving housing quality too. A study in Sweden found that municipalities with higher construction rates delivered an improvement in the quality of housing - in terms of both the age and size of homes - across the entire income distribution as a direct result of those moving chains. Poorer households saw the largest improvements in housing space.
Nor does building those new homes “price out” existing residents. Research in San Francisco concluded that building new homes doesn't displace existing residents - it actually reduces prices locally and reduces the chance of someone being displaced by 17%.
So the evidence tells us that building more “luxury” homes initiates moving chains that very quickly free up homes in less expensive neighbourhoods which would be accessible to those on lower incomes. It also results in better quality homes for everyone, and without existing residents being priced out.
We should worry less about the types of homes we are building, and concentrate more on increasing supply.