A simple idea to sort out the housing market and make the economy boom for the next 5 years

It’s time for drastic action in the English housing market. Home ownership levels have plummeted, housing construction has never been lower, new homes are the smallest in Europe and housing costs could stifle the places with the highest potential for growth. The problem is simple – we need more and better homes and we need to allocate more land on which to build them in the places where people want to live. Unfortunately, most of the players in the housing market are incentivised to keep supply limited and prices high. Local authorities have acute community pressure to limit new housing, especially where demand is high. Developers will only build at a rate which keeps price high. Home owners will only sell when the market gives them a high price. These trends are intensifying. Meanwhile, the desire to create new households continue to grow twice as quickly as housing supply. As it’s done this for many years, the shortfall in supply means that we need 2 or 3m more homes in the next 5 years to play catch up. In the last 5 years, we’ve built little more just half a million new homes.  Even in the boom years we haven’t done better than 1m new homes in a 5 year period since the 1960s. 

Here is an idea to sort things out. At well as tackling the housing market, the rate of building would guarantee a massive economic boom. And it more than pays for itself. 

There are 4m social homes in England. That’s nearly one in five of all homes. My simple idea is that whenever one of them becomes vacant it should be sold as a private home. They are worth an average of £120,000.  Even if they only become vacant once every 20 years on average, that means that half of the stock will be sold within 10 years. That’s 2m homes. And that generates a receipt of £240 billion.

The first step is to replace the social home sold with a brand new one. Then no one can complain about the loss of homes for the very poorest. The subsidy required for a new social home is about £50,000. So that would use £100 billion. But we would have 2m more homes. 25m, rather than 23m homes. We would have no fewer social homes. The new social homes would be brand new, cheaper to heat, etc.  The 2m homes that were sold off would become low cost private homes for rent or purchase. A real help to those who struggling to find affordable homes.

The second step is to build the new houses quicker than the old ones are sold off. The Treasury can guarantee that £240bn of receipts will be raised from sales over the next decade. So it can get on with the building right away. If all 2m homes were built in a 5 year period, that would guarantee the highest levels of annual house building ever seen in the UK. This 400,000 homes per year compares with just 150,000 in an average year – and thats not even counting those built in the private market. One could safely assume that more than 500,000 homes would be built each year. Each 100,000 homes equals 1 per cent extra GDP. So the extra 400,000 homes would add 4 per cent GDP every year for 5 years. The economic boom would be unstoppable. 

But it doesn’t stop there. There’s a third step. We still have £140 billion to spend. Just under £40 billion should be spent to clear the debts on the social homes that were sold. Then no-one will miss the rents they got on the old social homes. The other £100bn should be spent on creating beautiful new garden cities, plus some new garden suburbs for existing cities. To accelerate building, the Government should do two things. Firstly, it should grant planning permission for the new places at a national level. Just as it did for new towns and the docklands in London. Secondly, it should directly hire builders to put up the new homes, cutting out the major national developers. That would mean that government controlled the speed of building. It wouldn’t matter if it took a while to sell the homes. If we assume that, with all the new infrastructure but without the need to make a profit, the new homes cost £200,000 each our £100 billion would build 500,000 new homes. That’s about the size of Bristol. I would create 3 new garden cities of 100,000 new homes and add 5 garden suburbs of 40,000 to cities like Oxford and Cambridge. But the good news is that the Government would get it’s money back when the houses sold. That money could be rolled over into the more new places, and then more again. Over a 10 year period, the money could fund 1m new homes. That’s 2m or more people living in beautiful new places. And we’d still get our money back. Alternatively, the Government could decide not to have the money back and subsidise the new settlements, e.g give everyone who moves in a council tax holiday for 10 ears, or a major price discount, or both. 

Let’s recap on the proposition. Within 5 years we would have an extra 2.5 homes in England. If we assume that the private market still builds its normal 100,000 per year, that’s 3m more homes. We would have built as much in 5 years, as we built in the last 25 years! If some of that was skewed to high demand areas it could mean up to 50 per cent more homes in the places that people want to live. We would have no fewer social homes and those we had would be newer and warmer. 2m low cost, former social homes would enter the private market. A further 500,000 private homes would built rapidly in new beautiful garden cities and suburbs. In addition, we would have paid off £40bn of debt and still have £100billion back in cash when the new homes are sold. If we built all the new homes in 5 years (and we could, and we should) then in each year we would have built an additional 500,000 homes, equivalent to 5 extra per cent on GDP in each of 5 years. For those who think that 5 years is absurdly ambitious, I suggest they visit Asia and see what our competitors are achieving. 

Yes, there will be people who don’t like the plan. Social housing providers may not like the compulsion. There will be huge outcries from areas chosen for new settlements. Local councils won’t like ceding planning powers to the national level. Major developers won’t like government as a mass house builder. But the housing supply problem is now to big not to be offensive to someone. It’s just about taking sides and either giving offence to those who are denied an affordable home or to those who need to step out of their way. Because there is a way, if we want to take it. 

 

 

 

Advertisements

11 thoughts on “A simple idea to sort out the housing market and make the economy boom for the next 5 years

  1. I was with you right up to those garden cities. Remember the eco towns fiasco? And it seems a bit silly to stick new housing where there isn’t massive unsatisfied demand for it, leading to further commuter use of strategic long-distance routes. It would be much better to have peripheral expansion of large cities. Fairlop Underground station should be a national joke, where no sooner had the Central Line arrived than the government designated most of its catchment area as green belt. Redesignation of green belt based on positive criteria (e.g. amenity value) rather than market-bucking negativity (e.g. contiguousness, stopping economic mergers of neighbouring towns from becoming visible in the built environment) is the biggest single step that we can take to providing adequate housing supply.

    The other issue that should be revisited is areas in large cities where the free market had provided ample affordable housing of a very poor quality (i.e. slums), which were then cleared in the second half of the 20th century and replaced after a somewhat dubious process by uses other than housing. The classic example of this is the southern part of the Splott area of Cardiff, which saw dense affordable housing replaced by low-density light industrial units, whose main contribution to the productive economy seems to have been to provide a discreet location for purveyors of the oldest profession to ply their trade. But inevitably some amount of unpalatable state intervention is needed to return dirigiste comprehensive redevelopment disasters to a healthier state.

  2. A #mansiontax starting at a million would release a lot of homes & make it less viable to sit on an unused under occupied property.
    Make second homes unviable, especially holiday homes that are rarely used. There are thousands more homes that could be formed
    Make it attractive to get the million empty homes back into use. Incentivise under occupied houses into the hands of those that would utilise them

    Stop subsidising housing, its not worked and forced rent & house prices up

    Radicalise the planning laws so it is actually easy to build. You did it for farmers why not for everybody else?

    • By a mansion tax do you really mean a London and South East tax as the vast majority of houses at these prices are in these areas – why limit such a tax to properties over £1 mill and not other assets such as less valuable property or say, pensions.
      Please give a link proving that there are 1 mill empty homes – the figure is oft quoted but never proved – what’s the point of anyone leaving a home empty unless it’s between transactions. And how do you “incentivise” under occupied houses without penal taxation.
      How is housing subsidised – owners occupiers get no tax relief and BTL is a business like any other which receives tax relief on cost (not value). The only subsidy comes from planning authorities that make it difficult to get consents for new housing thus maintaining the price of existing stock.
      And finally stop spouting meaningless slogans.

  3. Force banks to end “forbearance” and solidify their mortgage losses on their balance sheets; they’re strong enough now. (Just as Robert Peston says they should stop mollycoddling “zombie” companies.) This will increase the properties on the market and they will be priced to sell. Raise interest rates. This will urge those that “let to buy”, i.e. bought their new home and rented out their old, to put their old property on the market as rental income will no longer cover its mortgage. More properties on the market, priced to sell. Toughen up the checks on landlords; many are using non-landlord mortgages for their cheaper rate but this leaves the tenant without rights during repossession. Banks could cross-check, e.g. the mortgage holder of an address doesn’t pay the utility bills, instead they’re paid by a revolving door of tenants. More properties, especially the lower-rung ones favoured by landlords, would come on the market as the investment is no longer worthwhile with correct mortgage costs. All these parties wanting to sell will push prices down until they become more affordable with long-term norms, e.g. mortgage rates. Investors will move to sell before their gains lessen.

    The current market is heavily skewed by the BoE, banks, and the Government. We could have had a lot of pain to make things more healthy a few years ago and be over it by now. Instead, we have George Osborne putting the country in more difficulty with his Help to Buy… a Vote for GE2015.

  4. Yay, more deficit spending.

    Your plan rests entirely on this: “Even if they only become vacant once every 20 years on average, that means that half of the stock will be sold within 10 years. That’s 2m homes. And that generates a receipt of £240 billion.”

    There is no guarantee that half the stock *will* be sold within 10 years. If you get few sales, in muck cheap northern areas then the revenue raised will be a pittance but you’ve still committed to splurging £240 billion over 5 years.

    We do not need another attempt at engineering a boom we need to get the state either properly working to smooth out the natural swings of the economy (which requires them to stop fiddling the figures and at least to use RPI not CPI or RPI-X, and the state is likely too slow and too distant to ever smooth out the peaks and troughs adequately) or to admit defeat and stop trying to tinker with everything just so they can crow about some crumb of positive news every now and then.

  5. do we really want an explosion of building. In a week of dreadful floods we must realise that concreting over large tracts of britain will make the flooding worse.
    The key to reducing housing demand is to get immigration under control.

  6. How about an even simpler idea? Get government out of housing. Interest rates set by a free market, not central bank political cronies. No subsidies, no market manipulation, no public housing at all and no bank bail outs. Freedom, very scary for most people brought up in our socialist utopia but something that would dramatically reduce the cost of housing, increase supply and end the debt slavery of anybody that wants to buy a house of their own. Trouble is their are too many vested interests and too many people that actually believe that a housing market directed by central planners is better than a free one that responds entirely to the needs of it’s participants.

  7. The problem with simple ideas is that they never work. This won’t work and there’s so much wrong with it as an idea.

    Firstly, where will you build the homes? In London and SE England, where the jobs are? Or in the NE where the housing and land are cheap but there’s no work?
    Secondly, what about new infrastructure? Where are your train lines going to be built to handle the new towns? How long will it take them to get planning permission, to be agreed, to have a public enquiry, to have ANOTHER public enquiry when they find there’s a colony of lesser-polka dotted tree badgers living in a piece of scrubland on the proposed route, to have the first enquiry’s results suppressed and so on ad infinitum?
    How about the new roads required to handle the people? The jobs? The sewage farms, the waters supplies, the reservoirs, the power generation, the waste disposal?
    How would you stop these new houses being bought up by landlords or letting companies?

    And as is fairly typical, you’ve decided that the problem isn’t that there’s too little local decision making on these issues but too much. Quick, ram the decisions through at a national level and bypass all the concerns of the locals, who are only nimbys, and probably Daily Mail reading or something anyway. It’s the same as the appalling attitude of the 1960s planners, who decided that poor people would love being stuck in concrete towers, or that what towns really needed was big areas of new housing without infrastructure, or shops, or pubs or railways to support them.

    The housing shortage will take a decade or two to play out and solutions need to be developed over that length of time. All the issues that play in to the housing shortage need to be addressed together – mass immigration, unfeasibly low interest rates, easy credit, poor pensions leading to people using housing as a way to pay for their retirement – they all need to be addressed.

    What your plan would do is make housebuilders rich, and landowners rich, and landlords rich, and keep politicans and bureaucrats happy.

  8. No place for the private sector as owner and landlord in your scheme I see, nor any attempt to enable builders to provide genuinely affordable homes for rent or sale. Surely you know that the private sector can do wonders when allowed to do so with the right drivers and a clear target.

  9. Pingback: Kirkby’s cunning plan | Dream Housing

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s