Yes, there’s a housing crisis. Yes, more homes are needed. But what can be done right now?

by Dan Cooke

It seems that no political candidate today, from Westminster to the humblest parish council, can venture a comment on the state of the nation without name-checking the “crisis” that is the shortage of housing, both for renters and buyers. The Labour leadership candidates are following this script, with Andy Burnham pledging record house-building to make Labour the “party of property ownership”, and Jeremy Corbyn instead threatening to make it the party of property expropriation with his provocative proposal of a right to buy from private landlords.

However, for many, it remains an unwritten rule of politics that you just don’t mess with the way we, as a country, do real estate.

Yvette Cooper once had a political near-death experience after trying to introduce home-information packs, making the mistake of thinking that the anachronistic conveyancing process  – which tortures legions every year –  might safely be improved.

Similarly, Labour’s modest proposal at the election to introduce longer standard tenancies with stable rents was widely, but absurdly, branded as “rent controls” and treated as something that would defy the laws of economics or even amount to “carpet bombing”. And the less said about the “mansion tax” the better.

Like the weather, it seems to be a national sport to complain about anything to do with the property market without apparently believing it is subject to any human control. If we note that others do things differently it is usually just to present that as a curiosity that could never be applied here: Berlin really does control rents but the Germans just don’t get home ownership, right? Scotland manages to avoid gazumping and gazundering, but we could never do that in England because, well, the current system makes for such good TV with Kirsty and Phil.

So, while it’s always safe to propose building more homes, or playing with niche funding schemes that will only ever apply to a tiny proportion of them such as “rent to own”, any wider reforms of the way housing is funded, used and taxed seem to be off the table in the political mainstream.

This has to change. The combination of constrained supply, liberal finance and, in London, footloose international capital means that getting on the housing ladder is becoming a vanishing dream even for many well-paid professionals. After the peak of the Thatcherite “home-owning democracy” at the beginning of the nineties (following years in which the decline in the number of renters, many in council housing, was matched by a rise in ownership), the trend reversed. By the start of this decade the number of renters overtook owners with a mortgage and the gap has widened rapidly since, during a period of low growth in wages and skyrocketing house prices.

The universally-promised house-building crusade will not dramatically change this picture for another generation  -and the voters know it –  so to get a hearing politicians have to face up to the housing landscape as it is right now. This means that some of the political assumptions on which many cut their teeth may no longer hold.

For one thing, this transformation has an enormous impact on the debate about equality of opportunity. That today more homes are owned mortgage-free than with a mortgage highlights the vast transfer of wealth to existing owners as a result of rising prices. This means working class kids who pass the “poshness test” to get into top jobs will still economically lag far behind their peers from asset rich backgrounds. There are no easy fixes to this, but it certainly not the right time to lower inheritance tax –  Labour’s response to this Tory manifesto pledge must be emphatic and unapologetic that support of those trying to get onto the housing ladder takes priority over preservation of windfall wealth across generations.

Secondly, the phenomenal growth in the private rental sector means that a significant body of the population are now captive consumers of a largely amateur, unregulated and unstable industry. While in the past local government was the dominant residential landlord and in many European countries this role is filled by well-capitalised private institutions, in Britain today it is typically individual landlords. In other areas of life few of us would enter into major, ongoing financial relationships with complete strangers, but in renting it is the norm.

To say that this exposes tenants to often inadequate, part-time property management and on occasion completely unacceptable conditions is not to attack private landlords – many of them are themselves stretched to the hilt by mortgages taken out chasing the buy-to-let hype, terrified of unexpected maintenance bills or fallow periods and exposed to risks regarding their tenants’ creditworthiness or honesty. The majority of landlords with a small property portfolio are completely ill-equipped to manage these uncertainties – let alone the possibility of a major shift in interest rates – and so cannot easily be blamed for seeking to maximise short term income and minimise expenditure with possibly detrimental impact on tenants.

Is it appropriate for government do anything about this? Well, it has certainly already influenced the way this state of affairs has arisen. Decades after Nigel Lawson began the process of abolishing mortgage interest tax relief for owner occupiers, the same relief continues for those renting out their property.

Ironically Lawson recalled in his memoirs that he justified his move to a reluctant Thatcher on the basis that interest relief was economically distorting as it made real estate more attractive than other investments – actually a far more compelling factor for  buy-to-lets than purchases by owner occupiers. The wisdom of the continuing tax incentive for individuals to bet their savings on real estate must be questioned, not only for this reason, but also because of the volatile and complex nature of property as an asset compared to other tax-favoured investments and the impact on pricing of a “commodity” that is also somewhere to live.

It should not therefore be unthinkable, in the same phased way that Lawson pursued his reform, to start redressing this balance. Some tax relief for amateur private landlords is appropriate as a temporary cushion against a change in circumstances (tax on rental income if you have to move for work and rent elsewhere is actually punitive now), but not as the foundation of a voluntary investment decision.

More generous reliefs should instead be focused on property businesses that invest to increase or improve the housing stock, or at least demonstrate adequate capitalisation and professional standards to guarantee a decent service to tenants. Labour floated an interest in some of these ideas before the election, but this needs to be firmed up and taken further – there is arguably room in the regulatory landscape for an “OFRENT” to police the most important utility which many consumers rely on.

Ultimately, if Labour is to find a path back to office, it needs to start showing it understands, and has something to say about, the real hopes and worries of modern Britain. The rise of “generation rent” is a prime example of how this means more than going back to the Blair/Brown recipes, from a time when circumstances differed (and it is even lamer for Cameron to try and re-heat one of Maggie’s greatest hits with his own extension of the right to buy).

A key plank of an electoral prospectus in tune with voters’ aspirations must be to offer hardworking taxpayers the security of somewhere decent to live from the start of adulthood and a realistic chance of progression in line with their life circumstances.

Expanding house-building plays an important role in realising such a vision, especially in the long term, but fresh thinking is needed to identify how to start making a difference now.

Dan Cooke is a Labour member and business lawyer

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7 Responses to “Yes, there’s a housing crisis. Yes, more homes are needed. But what can be done right now?”

  1. Tafia says:

    1. We have to build at a rate that outstrips population growth, in the areas that the population is growing. (In my region – north west Wales, we have a falling population and a surplus of housing, hence why it’s cheap to buy and private rents are low).

    2. As technology reduces the need for skilled workers (and thus skilled workers wages), we need to build housing that a couple on minimum wage can afford to buy. (The average age of a worker on minimum wage is just under 35.)

    3. Mortgage providers must be forced to stop including tax credits in their income calculations of applicants. They must only assess actual salary and nothing else.

    4. We need to use a model similar to Germany – 10% deposit, straight repayment only, interest fixed for the lifetime of the mortgage on the day you sign, no rolling over, no borrowing against the property until it’s paid off.

  2. Madasafish says:

    I have watched the UK planning process for the last twenty years. The planning system takes YEARS to complete to fruition before anything can be built.
    And people wonder why there is a shortage of new housing.

    I have watched the Labour Party rant about private landlords and various politicians threaten fundamental changes which would seriously impact the entire financial structure of private letting – making it largely uneconomic.
    And people wonder why there is a shortage of new housing.

    I have watched the supply of money for mortgages rise and fall over the decades and interest rates rise and fall as well..
    And people wonder why there is a shortage of new housing.

    I have watched the housing industry go from boom to bust and as a result lose trained people and fail to train new ones.
    And people wonder why there is a shortage of new housing.

    I have watched essential infrastructure needed to build houses – eg brickworks close. New investments to build new ones require planning permission (see start), cost millions and require economic growth.
    And people wonder why there is a shortage of new housing.

    I have watched immigration numbers rise . And a generous benefits system encourage the growth of private landlords.(See all the above).
    And people wonder why there is a shortage of new housing.

    Housing requires long term solutions. And agreed policies over 15 years or more. NOT a one political party issue but agreed nationally.
    Otherwise it’s more of the same. Long term decisions over decades are impossible if parties keep changing the rules..

  3. swatantra says:

    Prefabs, mobile homes, dormers and caravans, and canal boats.
    Do stop whinging, and get some backbone and a bit of that War Time Spirit. Its not the end of the World. Yet.
    At the moment there are 60m displaced persons and refugees brought on by self induced conflicts in the World and vicious murderous Govts and Regimes. And people here are whinging about sleeping on a couch in their parents or mates homes?

  4. wg says:

    And once/if the housing situation is sorted out Labour will just chuck another 4million immigrants in the mix to re-create the whole problem again.

    You couldn’t give a shit about the people of this country not being able to buy a house.

  5. AnneJGP says:

    Interesting article, I’ll need time to read it more carefully to do it justice. Three initial thoughts.

    (1) I’ve often wondered whether our insistence on owning our own isn’t a dead-end – as I think you imply, other countries seem to manage rental more smoothly than we do. Maybe it would be better to try to improve the image of rental.

    (2) I was extremely pleased with Mr Corbyn’s suggestion – not because it’s necessarily a good idea (I don’t know) but because it seems likely to provoke a much clearer critique of right-to-buy as a whole. Seems to me that if it’s a good idea wrt social housing then it should be a good idea for private landlords.

    (3) If the Scottish government does buy up all that land, it would be able to embark on a huge house-building programme. I’m sure lots of people would like to live in Scotland – and after all, if there aren’t any jobs where you are anyway, you lose nothing by relocating to a beautiful area.

  6. Michael Worcs says:

    Due to the benefit cap inner London is being cleared of those on benefits to make way for those that work. This will be good for London as it brings more economic activity, it will also be good for those that move to be closer to their work so not having to commute so much. It will also be good for the taxpayer as it costs less. There is a substantial number of people who benefit

    The people who will lose will be the poor who will go to areas where there are less jobs so there is less chance to life themselves out of poverty and those at the margins in the areas who will find housing availability decreasing coupled with increasing rents.

    Many people see immigration as one of the factors but it is not all immigration but low/no skilled immigration of the past that has caused this crisis. Current rules for the low skilled are proportionate and immigration from outside the EU is dropping significantly although raising eligibility thresholds for the only immigration of the unskilled allowed would help (age and minimum income for marriage and tightening asylum so indirect claims are automatically rejected eg the migrants at Calais).

    The large scale past migration is seen as Labours folly , never mind that originally it was industrialists that opened the gates to get cheaper workers for mills that closed anyway. Labour has to find a way to become trusted on this again, I am not sure it is possible but I do know that talk of the ‘enrichment’ of immigration is laughed at by most working class people.

  7. ted says:

    There is the simple rule of supply and demand. Every year, the UK has a town the size of Bournemouth coming to live here. And this has occurred every year, with minor differences, for the last 12 years.

    If you stripped out this influx there would be no housing problem. If you stripped out foreign buying of new builds to act as a safety deposit box for cash (got to keep it out of those ‘safe’ banks) then the housing market would also look very different.

    The fact is that when you have over 300,000 people a year coming to live in a country, it’s very hard to plan for such a huge influx in such a short amount of time.

    Any attempt to sort out the housing crisis whilst ignoring the elephant in the room is doomed to fail.

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