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.