Build baby, build. That’s about the intellectual limit of the government’s housing strategy. Millions are under-housed, so let’s “bulldoze” the planning system and build more homes. But it’s not nearly so simple.
As soon as anyone challenges the policy, the government brands them a nimby – another of the crude truncations that pass for debate on this issue: nimbys versus yimbys. So before I go further, let me state that I want to see lots of new social and genuinely affordable housing built as part of a massive programme to solve the worst housing crisis of any wealthy country. I’ve been making similar calls for years, not least in the report I co-authored for the Labour party in 2019: Land for the Many. I oppose Labour’s current approach for a different reason. It will fail.
The plan to build 1.5m homes over five years now depends on just six volume housebuilders. No other mechanism is proposed at scale: Labour’s extension of the home building fund to incentivise small and medium housebuilders will deliver only 12,000 homes. But volume builders have an incentive to limit construction to the “market absorption rate”: in other words, they won’t dent their profits by building enough homes to reduce the selling price. They also minimise the release of affordable homes: they tend to promise them, then pare down their promises as development proceeds. Unaffordable homes are more profitable. The government has proposed no measures sufficient to change these incentives.
Moreover, in the absence of policies to reduce the cost of housing, even if 1.5m new homes were magically built, this would have little impact on the key determinant of whether or not people are well housed – price. One study suggests that building 300,000 homes a year in England for 20 years would reduce prices by only 10%. That is, to put it mildly, a highly inefficient means of solving the problem.
Why is price so unresponsive? Because “effective demand” for housing (demand backed by purchasing power) bears little relationship to need. As the professor of economics and finance Josh Ryan-Collins points out, since 2016, more homes have been bought as “additional dwellings” (second homes, holiday homes, Airbnbs, buy to lets, and so on) than by first-time buyers. Almost 1m homes in England are left empty, and the number of vacant properties has risen 32% since 2016. The measures the government proposes to address this scarcely touch the sides.
Many of those buying homes for investment here are based overseas – foreign property buyers alone have increased house prices in the UK by 17% since 1999. The financialisation of housing is a major driver of the fivefold increase in prices since the 1980s. You cannot simultaneously ensure that housing remains a lucrative investment and that everyone is well housed – yet this is what the government seeks to do.
Yes, extra supply is urgently needed. But there will be no significant change in affordability unless demand is also addressed by using the tax and planning systems to suppress demand from investors, releasing homes for first-time buyers and social renters. This would make homes for people on low incomes available far more quickly, cheaply and efficiently than new construction.
People find this hard to believe, but there is a massive housing surplus in this country. We have a higher ratio of bedrooms to population than ever before. The problem is that it’s woefully maldistributed: prosperous couples and single people knock around in mansions while families are crammed into tiny flats. Most of the expansion of housing supply in the UK since the 1980s has created extra space for wealthy people, rather than new homes for those who need them. About 8.8m homes in England are underoccupied. There’s already more than enough housing, by a wide margin, to meet everyone’s needs, if effective incentives for redistribution were created. But the government tells me it has no such plan.
Among the reasons for these dysfunctions is our farcical property tax system: council tax banding is stuck at 1991 levels, which means that there is now almost no relationship between the value of a property and the amount that the occupiers must pay. If, for instance, all property were taxed at a percentage of its value, with rebates for poorer and younger families, this would create a powerful incentive for the over-housed to downsize, releasing larger homes for those who need them.
Moreover, without either a capital gains tax on the value of primary residences or rent controls, housing is almost a one-way bet – a near guarantee of making money without effort. Rent controls are dismissed out of hand by ministers, who claim they would reduce the size of the sector. But experience in other countries suggests this is a myth. Instead, as private rents continue to soar, the government has frozen local housing allowance, ensuring that people on low incomes will struggle even more to find a decent home. So much for its housing policy being driven by concern for the poor.
Just as mindless is the government’s belief that housing can be made more affordable through mortgage market liberalisation. Only last week, in response to government pressure, the Financial Conduct Authority proposed that mortgage rules should be further loosened to increase home ownership and promote growth. But if you flood an asset with money when returns are guaranteed, its price will rise. Are ministers really so simple-minded, or do they just pretend to be?
So what the government intends to do is leave the dysfunctional system intact while building more homes. Result? A larger dysfunctional system. Oh, and massive environmental damage. Again, where we might hope for thoughtful and effective policy, we hear crude and ignorant pronouncements. For instance, the housing minister, Matthew Pennycook, talks of targeting “low-value scrub land”. Denigrating scrub is a sure sign of ecologically illiteracy. It’s a rare habitat of great ecological value, essential for a wide range of treasured species, such as nightingales, song thrushes and dormice. But a bulldozer policy demands bulldozer rhetoric. I suspect these are intelligent people posing as morons for political purposes.
The government’s housing policy creates an impression of action by tearing up the countryside while, thanks to a perennial fear of upsetting powerful economic interests, failing to address the underlying causes of the problem. The likely result is trashed landscapes, unmet housing need and soaring rents. Had it set out to destroy people’s faith in democracy and hand the next election to the far right, it could scarcely be doing a better job.
