The Government’s Housing Policy: A Critique

The housing crisis?

Of course, we all know what to do, says new Valuer contributor and author David Garnett

Everybody knows that Britain has a housing problem, and everybody knows that a lack of supply is at the root of this problem.

More than ten years have now passed since the Barker Review

alerted us to the historic shortfall that needs to be addressed.

In 2004 Kate Barker highlighted the need to build some 250,000

homes a year in England alone if we were to avoid the social and

economic difficulties associated with housing market volatility

and achieve decent, affordable homes for our children and

grandchildren.

Housing market volatility is affected by a number of interrelated

factors. As these include income, wealth and the availability

of lending, the market is clearly sensitive to overall economic

conditions. The financial crisis in 2008 had a significant effect,

with house prices falling in the UK as a whole by some 15% from

January 2008 to March 2009. In addition to this, the number of

property sales in the UK almost halved from a peak of 1.67 million

in 2006 to 0.86 million in 2009. Since then, the number of sales has

recovered somewhat and reached 1.07 million in 2013. Financial

markets have regained their stability and in the post-crisis period, it

is unquestionably the low level of supply that has become the key

feature of the current “housing crisis”.

In the decades following the Second World War, the UK built some

300,000 new homes a year. In recent years we have managed

about half that number. This is not only low in terms of historical

comparison, it is also low compared to other developed economies.

In May 2014, Mark Carney, governor of the Bank of England,

pointed out that house building in the UK was half that of his native

Canada, despite the UK having a population twice the size. The

consequences of this low level of supply vary across the country

– but in all cases they are negative in nature. In certain districts

overcrowding has re-emerged as a social problem. In some

pressured areas prices are rising much faster than incomes. In many

areas, social housing tenancies are becoming difficult to acquire

and virtually everywhere would-be first-time buyers are being

frustrated. In addition to these regional problems, the construction

industry is failing to fulfil its potential as an engine for national

economic growth.

The consequences of building barely half the homes needed is

particularly damaging to younger people. With house prices now

ranging from seven to eleven times average incomes and rental

affordability for decent accommodation under pressure, access

to housing is one of the most important issues for people in their

twenties and thirties. Now that post graduation debt has become

an established feature of British society, housing affordability is no

longer a problem that is restricted to low-earning or unqualified

youngsters. Many of those who do not have access to the “Bank of

Mum and Dad” have given up any hope of home ownership and

have become what is being termed “generation rent”. As a result,

one significant change to the housing system is that private renting

has experienced an upsurge. The private rented sector is now

larger than its social rented counterpart. One consequence of this

tenure realignment is that it is bringing to the fore questions about

how private renting should be regulated in order to make it fit for

purpose in the twenty first century.

All political parties have publicly recognised that supply

deficiency is the key housing issue. The last coalition government’s

housing strategy “Laying the Foundations”, made an unambiguous

statement about construction. The foreword, signed by the then

Prime Minister and Deputy Prime Minister, stated:

“One of the most important things each generation can do for the

next is to build high quality homes that will stand the test of time. But

for decades in Britain we have under-built.”’

In his 2015 Housing Review, carried out on behalf of the Labour

Party, Sir Michael Lyons suggested that we face the biggest

housing crisis in a generation. Again, the Lyons Report indicated

that decades of under provision lay at the seat of the “crisis”. The

Labour Party has declared house building to be a national priority

and prior to the election made a commitment to build in excess

of 200,000 new homes a year, “not only because our children and

grandchildren need the homes we should be providing now, but

because greater house building will make a direct contribution to

national economic growth.” (Foreword to the Lyons Review).

Most commentators recognise that house building is more

than a moral issue and that getting house building moving again is

crucial for economic growth. Housing construction has created an

average 3 per cent of GDP over the last ten years and it is generally

accepted that for every new home built, up to two new jobs are

created for a year. Prior to the election, most politicians put forward

the argument that without building new homes our economic

recovery will take longer than it needs to.

Given the degree of political consensus about the need to adopt

policies to stimulate supply, it was surprising that the focus of

attention during the election campaign was so heavily skewed

towards the advocacy of demand-side policies. Any first year

student of economics will tell you that where increasing supply

is a complicated process and takes time to achieve (as is the case

for house building), public monies directed towards stimulating

demand are likely to be “burned off” in higher prices. The political

emphasis on demand-side policies during the general election

therefore needs some explanation.

During its term of office the previous government acted on

its understanding of the need to stimulate supply by introducing

measures designed to release publicly owned land and streamlining

the planning system, including the introduction of the starter

homes initiative. However, when it came to the election campaign,

the supply arguments were drowned out by a barrage of populist

demand-side promises that included a continuing commitment

to “help to buy” programmes for first time buyers, reforming

inheritance tax for older home owners, and extending the “rightto-

buy” for social tenants. Although the Labour Party’s 2007

commitment to build over 240,000 new homes a year by 2016

became a manifesto pledge, what hit the headlines during the

campaign was its populist declarations to put a cap on private

sector rent increases, scrap stamp duty for first-time buyers of

moderately priced homes, and introduce a “mansion tax” on

homes worth over £2 million.

Given that most politicians clearly understand the urgent and

over-riding need for an increase to the supply of homes, how do

we explain the demand-side fiscal slants given to the debates and

discussions about housing policy during the election period? There

can only be one credible explanation – namely that the electorate

at large are ambivalent about increasing the rate of house building

and, as a result, politicians are diffident about over-emphasising the

need for a large-scale construction programme.

It would appear that in many locations there exists a tension

between the community’s acceptance of the need for more homes

and the reluctance of people to allow building to take place near

to where they live. This ambivalence is well understood and for

years has been branded as “NIMBYism” (Not In My Back Yard).

Such negative attitudes to new development proposals can be

uncompromising and characterised with the acronym NOTE (Not

Over There Either’) or even NTNA (Not There Not Anywhere).

What is needed is what the general election failed to provide – a

non-cynical, mature and well-informed national debate about how

we can best respond to the clear and present challenges we face

as a result of years of failing to supply sufficient decent, affordable

homes. This would involve:

• reconsidering the role of local authorities as active enablers

of new housing provision (in line with recommendations of

the 2015 Elphicke-House Report)

• taking a further look at planning policies (including taking

a more rational approach to maintaining the green belts

around urban centres)

• revising the regulatory system governing social housing

developments and, above all,

• shifting the emphasis of fiscal policies for housing away from

irrational demand-side stimuli to the much overdue support

for creating sources of finance for housing construction.

Subsidising present demand is irresponsible in one other important

respect. Given that a unit of new housing outlives its original

occupant and that present construction is expected to cater for

future as well current generations, the new government has a

responsibility to respond to those demographic changes that are

already in the pipeline. The housing market is myopic and has no

vision beyond the present and near future. Left to its own devices,

it is unlikely to cater adequately for future needs. Projections

indicate that by 2030, one in six people living in England will be

over seventy years of age (a 50% increase from now). The “new

baby-boomers” of eight million births between 2001 and 2012 will

shortly enter the housing market and a simple projection of current

policies will mean that the number of young adults living with

owner-occupied parents could rise to 3.7million by 2020. The less

fortunate will be inadequately housed in ways that will stunt their

chances of a decent, productive life. In short, “we all know what to

do” – but do we have the will and foresight to do it?

David Garnett is an author and expert on housing issues. His book,

A-Z of Housing (Professional Keywords) is due for release in July.

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