Can the collaborative economy fix the housing crisis?

London is facing a housing crisis. There are too few properties to satisfy the number of people who want to live there. Housing is a scarce commodity, and the way in which markets ration a scarce commodity is through prices. However, unlike for luxury goods, higher prices in housing cause a public policy problem: it is not acceptable to just price people out of the ability to have a roof over their heads.

The most obvious way to solve this problem is to make housing less scarce. This can be done in one of two ways, firstly through building new houses, secondly by better utilising the existing housing stock. There has already been much discussion on the former; the latter deserves a little more attention. Looking at the 2011 Census, the ONS have released data showing how under-occupied properties in the UK are. Focussing on London, 49.1% of households have one or more spare bedrooms. This shows a large amount of excess capacity in housing across London.

The recent boom in the collaborative economy - with the success of companies like Uber, AirBnB, BlaBlaCar etc. - has been caused by the financial exploitation of excess capacity. Through renting out a spare car seat, an idling car, a spare bedroom or couch etc. millions of people are getting better at utilising their assets with the help of these collaborative platforms, and there is massive potential for more: research in Singapore suggests, for example, that the number of cars on the road could reduce by two-thirds if we fully utilise the spare capacity in the existing car fleet.

So, back to the housing crisis. We know there is excess capacity in our housing stock, and we know a market is now developing in utilising spare capacity in the household sector more generally. What we do not know is why so many properties have spare capacity - are they guest bedrooms, are people choosing to purchase more space where they can, or would they prefer to either downsize or increase their incomes from subletting if it were made easier to do so?

The policy question is whether we apply collaborative principles to housing in London? What would be needed to reward people for sharing their property, or downsizing to occupy one with less spare rooms? And if that were done would it eventually raise supply in a way that had the potential to bring prices down?

Oliver Hicks-Pattison, Researcher, Tooley Street Research

July 24th 2014