In our livestream tonight we focused on two issues in market failure - the growing use of zero emissions zones in towns and cities in the UK. And market failure and policy responses in the UK housing sector. You can download the presentation below.

🔑 Overview: Market Failure

• Definition: Market failure occurs when the free market fails to allocate resources efficiently, either partially (e.g., externalities, asymmetric information) or completely (e.g., public goods).
• Justification for Intervention: If market failure exists, there's a strong rationale for government intervention, though policies must balance effectiveness, efficiency, and equity.

📘 Air Pollution Case Study

• Negative Externalities: Air pollution causes severe external costs—28,000–36,000 premature deaths annually in the UK, $6 trillion global economic loss.
• Policy Response – Zero Emission Zones (ZEZs):
  • Charges on polluting vehicles; EVs enter free.
  • Corrects externalities (internalises MEC).
  • Encourages innovation and dynamic efficiency.
• Evaluation:
  • Regressive impact on low-income groups.
  • Effectiveness depends on price elasticity of demand (PED) for polluting vehicles.

🏘️ UK Housing Market Failure

• Symptoms: Undersupply of affordable housing, long social housing waitlists, homelessness, rising rents, land hoarding.
• Causes:
  1. Information asymmetry (e.g., property quality, rent contracts).
  2. Market power/oligopoly (large developers limit supply).
  3. Mixed externalities (positive for affordable housing; negative from overcrowding).

🛠️ Policies to Improve Housing Allocative Efficiency

1. Public Investment in Social Housing – targets under-provision of merit goods.
2. Shift from Demand- to Supply-Side Subsidies – corrects structural supply gap.
3. Skills Investment and Land Reform – boosts SME productivity and market entry, promotes modular/off-site building.