Housing is never far from the news cycle. Keir Starmer recently argued that enhanced home-ownership was going to be a central plank of any future Labour Government manifesto, him having no doubt absorbed the recent local election results which saw the Conservatives lose over 1000 council seats. The bloodbath was blamed by many in the party on the current Government’s arguably incoherent and underwhelming approach to housebuilding. According to some, they build too few in the wrong places, whereas for others they are threatening to create too many in the wrong places. They would say they can’t win and argue that Starmer is just being opportunistic
Stuck in this quandary they have simply abandoned the pledge to build 300,000 and blamed the market for housing shortages. Into this mix we add the current sec of state for levelling up, Michael Gove who, I think it’s fair to say, has a worse relationship with UK housebuilders than any minister in living memory. From planning to land hoarding and from Grenfell to the green belt, Mr Gove has sought to confront and provoke the sector to little real effect. Whilst his government’s policy on immigration post-Brexit has arguably robbed the UK of craft trades, pushing up wages for the diminishing stock of crafts men and women making Labour as expensive as anytime in the last decade.
But, the UK is not alone in its housing crisis. Overall, housing costs in America absorb 11% of GDP, up from 8% in the 1970s. If just three big cities—New York, San Francisco and San Jose—relaxed planning rules, America’s GDP could be 4% higher. That is an enormous prize.
As well as being merely inefficient, housing markets are deeply unfair. Over a period of decades, falling interest rates have compounded inadequate supply and led to a surge in prices. In America, the frenzy is concentrated in thriving cities; in other rich countries, average national prices have soared, especially in English-speaking countries where punting on property is a national sport. The financial crisis did not kill off the trend. In Britain, inflation-adjusted house prices are roughly equal to their pre-crisis peak, while real wages are no higher.
In Australia, despite recent falls, prices remain far higher than in 2008. You might think fear and envy about housing is part of the human condition. In fact, the property pathology has its roots in a shift in public policy in the 1950s towards promoting home ownership.
Since then, governments have used subsidies, tax breaks and sales of public housing to encourage owner-occupation over renting. Politicians on the right have seen home ownership as a way to win votes, by encouraging responsible citizenship. Those on the left see housing as a conduit for redistribution and also having the potential for nudging poorer households into debt.
It does not have to be this way. Not everywhere is afflicted with every part of the housing curse. Tokyo has no property shortage; between 2013 and 2017 it put up 728,000 dwellings—more than England did—without destroying quality of life. The number of rough sleepers has dropped by 80% in the past 20 years. Switzerland gives local governments fiscal incentives to allow housing development—one reason why there is almost twice as much homebuilding per person as in America. New Zealand recoups some of homeowners’ windfall gains through land and property taxes based on valuations that are frequently updated.
Most important, in some places the rate of home ownership is low, and no one bats an eyelid. It is just 50% in Germany, which has a rental sector that encourages long-term tenancies and provides clear and enforceable rights for renters.
A general election approaches in 2024 and the party that comes up with a credible, deliverable and a managed housing policy is going to capture votes.
The definition of insanity is doing the same thing over and over and expecting different results.
Let’s hope one of the parties looks for inspiration outside of the usual suspects and has a fresh approach, viewing property as more than an electoral bargaining chip.
First published on Construction News on 7th June 2023