Spatial consequences of the housing affordability crisis in England

This paper discusses the impact of housing affordability on the spatial distribution of productivity and wages. The key theoretical contribution is to phrase the problem as an issue of the composition (rather than the level) of housing demand and link it to heterogeneous preferences and characteristics of households. Using a simple simulation methodology, the study estimates levels of amenity values and wages that would make current house prices as affordable as they were in 1995 in all English local authority districts. Although average wages would be unlikely to increase if housing was more affordable, productivity across England would probably be higher as the spatial distribution of economic activity would change. The key conclusions are that (1) unaffordable housing has significant economic implications; and (2) policy aimed at improving housing affordability should consider targeting housing demand as well as supply.