Let’s not beat around the bush – Britain has a full-blown housing emergency and it’s affecting everything you can imagine, from marriage and birth rates to the much-discussed productivity gap that’s holding back our economy.
Housing has long been a pre-occupation of all those worried about young people and their dosh. Young people still aspire to own their own home, not because they’re easily hoodwinked into believing a capitalist conspiracy designed to keep them down but because they just want a secure, solid asset that they can call their own.
The problem is that while demand for housing remains so high, how can we ever hope to bring down its cost? And surely tumbling house prices would negate the very benefits (capital growth etc) that we all want to suck up (plus we all want to avoid the ugly spectre of negative equity, don’t we?)
We’re talking about a continuum here, however. A full-blown crash would certainly be one way to make housing “affordable” but this would seriously hurt those who have already just got on the property ladder with fairly massive debts. And ultimately, we do want house prices to be buoyant, just in tandem with our wages, yah?
Not as far down that continuum is a rational correction where house prices are within distance of working people who save up for a while and correlated with wages/economic opportunities in the area. That sounds about right to me.
It seems to me that a series of bold measures aimed at the root causes, while maybe not individually doing a great deal to bring about this change, would collectively make a huge change.
Sadly, the Autumn Statement promised the same old strategies for sorting out the housing emergency. Business as usual folks.
More Help to Buy, more Right to Buy and modest promises to build more homes. It’s just not enough.
Philip Hammond recognised that Britain’s housing emergency (or “challenge”, as he euphemistically put it) is one of Britain’s economic weak spots. He obviously believes that greater infrastructure spending in places like the Oxford-Cambridge tech corridor will have the dual benefit of accelerating jobs growth and productivity in that region while also easing house prices in the ludicrously expensive Oxbridge cities.
However, the Autumn Statement was curiously bereft of any significant help for aspiring home buyers, bar the announcement that letting agents will have to charge landlords rather than tenants. This is to be welcomed in as much as that package of costs will not be immediately felt by hard-pushed renters, though it seems unlikely that landlords will simply take this one on the chin. If they have to pay the costs, they will surely pass on the cost to renters at a time when measures curbing buy-to-let investment might already be creating unintended consequences.
So here is what a truly revolutionary Autumn Statement for the housing market might have looked like, although it is far from comprehensive. It’s an horrendously complicated issue and you might not agree with all the suggestions but they are certainly worth pondering.
1. Build more houses
Yes everyone keeps banging on about this but with good reason. Hammond promised to build “up to” 100,000 more homes, with 40,000 affordable homes in the pipeline. The words “drop in the ocean” spring to mind. To create a substantial difference, we would need to commit to about 250,000 new homes A YEAR according to the economist Kate Barker, who was asked by Gordon Brown in 2004 to assess the state of the housing market. House building may be at an eight year high but think about the fact the Britain routinely built more than 300,000 homes per annum in the years following the Second World War. We are roughly at half that level now. And one thing we could do to return to these post-war glory years is…
2. Fine housing developers who sit on land
Planning permission is on the rise, showing that we getting there in terms of unwinding all the red tape that stops big housing projects getting the green light. But developers are sitting on precious land as they try to boost its value and thus their profits in the long-term. The Local Government Association says 475,000 homes with planning permission weren’t completed in 2014-2015, arguing that council tax should be paid on homes not built before initial planning approval expires. It’s a thought, isn’t it?
3. Scrap housing benefit
Controversial one, this one. But there is an argument that housing benefit props up high market rents, which might just collapse if tenants weren’t being subsidised to pay higher amounts to landlords in areas that would otherwise see a correction based on weak income growth/job opportunities.
4. Scrap right to buy
Right to buy reduces supply of housing, selling it off in the private sector at a time when there is a shortage of council housing and a failure to build enough homes to plug the gap.
5. Scrap stamp duty
Stamp duty is probably the most retrograde, unnecessary and unfair tax I can think of. It piles thousands of pounds on top of an already huge purchase, and scrapping it would be hugely welcomed by those trying to get over the finish line. Most economists and commentators I have come across agree this is the single most helpful thing that Hammond could do for aspiring house buyers.
6. Scrap the Lifetime Isa/Help to Buy
Do these schemes simply inflate demand for housing while doing nothing to address the underlying supply problems? Do they only help those who are well on their way to getting a home, giving them a nice little subsidy from the taxpayer that they really don’t need? Does the Lifetime Isa muddy the waters when it comes to retirement savings, detracting from the big reforms needed to get the pensions industry fit for purpose? Will the Lifetime Isa be couched in so many caveats to avoid mis-selling that one has to wonder whether it’s too complicated to work properly? All these are pressing questions that are being asked across the financial sector right now and it’s a shame that we might never have the opportunity to properly revisit this issue, with the Lifetime Isa being introduced in April 2017.
What do you think? Let me know!