(without really improving affordability). New Labour did much to improve the standard of social housing, but far too little to expand supply, or to regulate the quality and appropriateness of private newbuild.
Some have argued that housing is so fundamental to asset inequality, and home ownership so embedded in the British psyche, that Labour should aim for 100 per cent to become homeowners. Even if this were achievable, it would be undesirable. A former cabinet minister’s ill-fated call in spring 2007 for British bankers to visit the US and learn how to help more low-income families into home ownership could not have been timed more ironically. The mortgage market’s decades-long move from a relational activity to a transactional one has been identified, rightly, as a ‘weak link’ in the financial crisis.
The British dream of home ownership has profound political and electoral implications, but it does not rise up from the soil; it is in our life experiences, not our DNA, to recognise that private renting is insecure, social housing is undersupplied, and house prices have tended, long-term, to run ahead of inflation. We may obsess about cash value, but it is the subjective values of security and independence which really drive our national desire to own, and on which policy must focus.
This stark divide between owners and the rest has created a lobby which has led to privileging of houses as an asset class, through capital gains tax exemptions, overlooking housing wealth when calculating most means-tested benefits, exclusion of house prices from the inflation target, and a cap on tax-free savings which can be wholly circumvented through a current account mortgage. At the same time, we have under-regulated the private rental sector, and underprovided social homes, compounding the original problems.
This doesn’t mean giving in to lazy ‘continental model’ talk – home ownership is lower in the UK than in Italy or Spain – but it does mean more creative policymaking. Housing is a relatively unproductive asset class, lowering real incomes as more is spent on servicing debt in the UK than abroad. This sucks away investment from commerce and industry, and reduces our international competitiveness. Constantly rising prices for a roughly fixed stock of assets – used largely to fund future purchases as people trade up, or pass their wealth down their families – would be condemned as a pyramid scheme in most other sectors. One of the starkest points made at the recent Progress housing event is that if prices had risen only by inflation over the last 50 years, the average home would cost £41,000.
For some, starting a business would be a better decision than buying a house. As we encourage banks to lend, enterprise should be a higher priority than simply restoring the old mortgage glut. Many are already choosing home ownership instead of a pension, storing up a future policy crisis (making equity release a more trusted process for older people would help).
Highly geared mortgages and negative equity hobbled many families when the crisis hit and they were unable to move to where there were jobs. Some economists argue that there is an optimal rate of home ownership in post-industrial market economies, of around two in three houses. This would mean overall home ownership across the life cycle at a slightly higher rate, since even those advocating a 100 per cent target are unlikely to believe, for instance, that undergraduates should buy their student house.
Radical and imaginative policy is needed. Sometimes, this will mean supporting coalition policies. Land auctions are such a good idea that Eric Pickles, now implementing them, once called them ‘communist’. Neighbourhood planning has been overhyped, and will disappoint many communities in practice, but the principle is sound. In other areas, the coalition is risking an infrastructure deficit and a planning free-for-all with proposals which devolve too far, too fast, to bodies without the capacity to pick up their new responsibilities – to say nothing of the impact of cuts.
In principle, though, devolution is right. Britain’s housing crisis is better seen as a string of linked housing crises. Solutions will differ around the country: building mixed communities with a bias to social rent in London; expanding and improving the private rented sector in growing university towns; bringing jobs and finance to areas with a tired but plentiful housing stock in the north; clamping down on excessive concentrations of holiday-homes in Devon and Cornwall which have turned thriving communities into ghost towns; supporting attractive, environmentally sensitive new building in and around rural market towns; and cooperative councils backing mutual housing solutions.
Nationally, a reformed tax system should better differentiate between those building new housing, those bringing old properties back into use, and those simply using property like any other investment. Real-terms house prices should be managed downwards, with growth lower than inflation, but not a disorderly collapse. More should be done to tackle the linked challenges of young people who can ill afford market rents, let alone ownership, and isolated older people short of help and companionship, rattling around an oversized family home but reluctant to move.
Security, localism, mutualism, and a focus on relational, rather than transactional, markets. Sounds a bit blue Labour, doesn’t it?
Much of the article is sensible, though, as someone with experience of the private rental sector, I would not say it was under-regulated. The problem of the bad tenant ought not to be under-estimated, because it inhibits a lot of potential rental provision. May I make a few points, which do not appear to have been covered in the article? 1. House price rises over the last 40 years have arisen largely from de-regulation of the banks, excess credit creation and lax lending practices. This has led to the obnoxious concept of “the housing ladder”, where people speculate with the properties they live in (and, possibly, over-buy). 2. The level of interest rates over the period (perhaps because Britain has been living on borrowed money to an unreasonable extent). This feeds into rental levels, because many landlords have high borrowings (rental is a classic easy-entry small business). 3. Foreign ownership (and under-occupation) of London residential property creates high prices and shortages for the rest of us. This spills over into higher prices in the suburbs and country. City money does also have some undesirable consequences. 4. Stamp duty on the transfer of a property can inhibit market liquidity and lead to people being over-housed. (When a previous Chancellor radically raised the rates, I was told by a minister in the government that “he couldn’t resist an old-fashioned swipe at the rich”, or words to that effect.) 5. Correspondingly, tight regulations and, in particular, the confiscatory level of Inheritance Tax for near relatives means that the concept of a family home has not developed in the UK (cf India). This has implications for care of the elderly. On this subject, nobody seems to have developed the idea of shared equity for residential homes for the elderly. It is absurd that people have to sell their houses in order to have the money to pay rent (even if wrapped up in a “fee”) when they need care (cf Southern Cross).
For the editor, again, sorry. Item 2 would read better with “2. The high level…..” I think the word “high” slipped out as I was transcribing.