Inside Housing commended Raglan Housing for promoting social integration. Since then Raglan has made it clear that the development was not in Sandbanks at all. But the question remains: should there be social housing in very rich communities such as Sandbanks? I argue not, for two reasons.

The first is basic economics. The foundation of economics is ‘opportunity cost’, which says that the cost of something is not the monetary cost, but rather what else you can do with the money. If you go swimming, the cost is not the ticket price, it is whatever else you would have spent the ticket price on.

A two-bedroom fl at in Sandbanks would sell for more than £500,000. There is a wide selection of good quality two-bedroom flats elsewhere in Poole for a third of this cost. A housing association could sell a Sandbanks fl at, and buy three flats elsewhere in Poole.

The cost of social housing in Sandbanks would not be the £500,000 cost, nor is it the £330,000 additional cost of the fl at compared with those nearby. The real cost, the opportunity cost, of social housing in Sandbanks is that two families would be left on the housing waiting list.

In effect, one of those three families has won the jackpot. They get to live in a £500,000 fl at. But the other two are left in poor housing. We do not know who they are, nor do we know their exact housing circumstances. They may be living with family or friends, hidden homeless. But given the length of the housing waiting lists across the country, we can be pretty sure that they are deserving cases living in very unsuitable housing. Is that really a price worth paying?

Not only does leaving these two families in very poor housing make little sense in terms of social priorities, but it is almost certainly incompatible with the choices that people on housing waiting lists would make themselves.

Let us imagine that a housing association got the three families together and offered them a choice. Option one is that one family will get  a fl at in Millionaires’ Row, and the other two will be left in their current poor quality housing. Option two is that each family get a decent home somewhere else in Poole. The three families are given a choice, and they do not know which family will be the lucky one if they pick option one. Philosophers will recognise this as a Rawlsian ‘veil of ignorance’ in which people are forced to decide the nature of society before they know whether they will personally win or lose from the choice. Do we really think for a moment that the families would pick option one? Since such an exercise has never been tried, we cannot know for sure, but it seems unimaginable that these three families would ever choose option one.

The second reason for believing that social housing needs to be careful is the reaction of a builder onsite, quoted in the media. He noted that no matter how hard he worked, he would never live in Millionaires’ Row.

He is not alone. You do not have to believe that all single parents should be sent to the workhouse to question the sense of spending more than £500,000 of taxpayers’ money housing one family of two people.

By building social housing in expensive places, housing associations can do a disservice to the whole sector, because they have undermined the legitimacy of the excellent work that so many social landlords undertake.

If the public believes that social housing agencies often spend this sort of money per family, then popular support and ultimately funding for social housing will fall, and fewer social housing tenants will be properly housed. We should not take risks like that.

It is no good supporters replying that such flats would not really cost £500,000 because it was section 106 money. The flats can be sold, and the money used to buy three flats and house three families. The money is real, it needs to be accounted for, and it needs to meet value for money criteria.

No one believes that poor people should all live in ghettos. But that does not mean that each and every road, no matter how expensive, needs to have social housing.

Instead we need a serious attempt to think through which areas make sense for social housing, and which do not.

The right way to do this is to offer prospective social housing tenants choices along the lines of this Rawlsian experiment.

Dr Tim Leunig is an academic in the department of economic history at the London School of Economics