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Housing crisis: how did we get here?

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Beth Stratford

on 7 April 2017

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Transcript of Housing crisis: how did we get here?

Mapping the "solutions"

Protect the most vulnerable /
smooth the transition
Reduce speculative bubbles

Increase supply of affordable homes
Make more efficient use of existing stock
Scrap bedroom tax and other housing benefit cuts/caps
Rent controls, better security of tenure, etc, in PRS
Introduce a Right to 'Sell and Stay' /
expanded Mortgage Rescue Scheme
Remove the subsidies and tax breaks for BTL landlords and clamp down on tax avoidance
National Clearing House for Homes ?
End excessive and risky mortgage lending through e.g. LTV and LTI limits
Support alternative models of ownership like mutuals, coops and Community Land Trusts
instead transfer land to local councils or lease to community providers and non-profits
Lift caps on Local Authority borrowing and provide grant funding again for social housing
Tax empty homes and second homes
Encourage under-occupiers to rent a room to a lodger
Build more retirement homes to help free up family-sized dwellings

Set up National Housing and Infrastructure Bank
Ban the ownership of property by non-UK based entities and offshore trusts/companies.
Introduce a first 'Right to Refuse' in PRS
Scrap the Affordable Rents regime

(to make market operate more fairly, efficiently and transparently, but also provide a powerful lever for acquiring homes for affordabe housing)
Reform council tax & business rates as step toward LVT
Increase CGT for properties held for short-term speculation
Rebalance the economy away from London
Abolish/curtail Right To Buy
Revive New Town Development Corporation model
Use tax incentives or compulsory purchase to bring undeveloped land into use
Even though
public debt is
relatively small compared to household and financial debt
Government uses the new mountain of public debt to justify welfare cuts...
Decimation of the social housing stock
Government imposes austerity
Rent hikes in the Private Rented Sector

- Right to Buy
- Transfer to Housing Associations
- Lack of new building

Increasing numbers unable to get onto housing ladder
Rising housing benefit bill
This is one way to help households out of negative negative equity and prevent a small fall in prices turning into precipitous crash
This policy might be designed to ensure that a sudden sale of BTL properties doesn't end in crisis - either for tenants or macroeconomy
Encourage a diversity of suppliers: intervene to create a level playing field
Halt the fire sale of public land (and loosening of Section 106 requirements)
e.g. improve transparency around land holdings
The housing crisis: how did we get here?
benefits cap and cuts to housing benefit, etc

increasingly vulnerable to a fall in house prices
state bails out the Too-Big-To-Fail banks
(and financial sector in particular)
When the bubble bursts the
i.e. the tax payer takes on the private debt of the banks
with structural change to how land is released
The scope for making
windfall gains
from changes in the value of land
and why it has been so plentiful
Demand for homeownership is a function of:
Lack of
competition and diversity
in the building sector
Landowners have little incentive to sell at affordable prices.

Why it pays to
drip feed
Growing percentage of the cost of residential development has been taken up by land prices
House prices have become more volatile
Risk of fall in prices during the development process
Structural incentive to constrain supply to prevent prices falling
Land without planning:
per acre
Land with planning:
£1.7 million

It pays for developers to focus on land trading and adding value through the planning system rather than the actual business of building houses.
No land taxation.
Concentrated and
land ownership (the Land Registry for England and Wales is at least 35 per cent incomplete)
The dismantling of private tenant rights (Housing Acts of 1980 and 1988).
The neglect of council house maintenance and sell off of stock
Reductions in eligibility for social housing, reductions in the security of tenure for social tenants too
reductions in pension provision
Tenure favouritism
Tax breaks (Schedule A scrapped, MIRAS 1969-2000, exemption from CGT)
Various subsidies for homeownership - Right to Buy, Help to Buy and Right to Acquire
Rhetorical praise for homeownership
political commitment to house price inflation
House building by sector since WWII (England and Wales)
Average interest rates on outstanding mortgages
....and raise Loan To Income ratios
New mortgages advanced for house purchase by LTI
Source: Bank of England
Securitization allowed lenders to lower interest rates...
NB. Residential land prices largely determined by house prices
number of buyers
strength of preference
purchasing power

and why the balance of power is in their favour
This led to a huge increase in lending for mortgages
Close correlation between lending and house price inflation
House prices
Why the state needs to get building again
(made possible by the disantling of rent controls and tenants rights in the 1980s)
Easy mortgage credit
Buy To Let Landlords
and how it has given birth to the British 'obsession' with homeownership
and Starter Homes

Drop in Bank of England interest rate
40% increase in lending to BTL since crash, compared to 2% increase in owner occupier lending

Why has lending not dried up post-2008?
BTL lending unaffected by new affordability tests
In the last 10 years, the total value of landlord mortgages has tripled from £65 billion to £200 billion.

Private landlords now own getting on for one-fifth of the nation’s housing stock.

BTL landlords have benefited from:
Scrapping of rent controls and the introduction of six-month ‘shorthold’ tenancies in the 1980s
Special mortgage products
Various Tax breaks for landlords, only reduced recently
In 2013 the social housing waiting list stood at around 1.7 million households (a 65% increase since 1997).
of home ownership
affordability of renting
Sources: ONS House Price Index, March 2014, Table 22. Average full time earnings - http://www.measuringworth.com/ukearncpi/.
UK house prices divided by average full time earnings since 1930

The expectation of further price rises

turns homes into financial asset
Surveys asking people why they want to own
Scale of investment by domestic and foreign elites

Britain’s housing market the fourth-most attractive destination in the world for foreign investors looking to put their money into residential property assets (2015, Savills)
Concentrated in London's 'prime' market: Seven out of 10 London houses sold for £5 million or more go to foreigners.
Between 2001-2011, the number of properties in England and Wales recorded as having “no usual resident” (includes both vacant and second homes) increased by 185,000 (a 21% increase).
For for every eight houses built during that period, one house fell empty.
The growth of Buy To Let is even greater...

Real equivalised mean weekly housing costs by tenure type, £ (GB)
Rising inequality and slowing growth
Dearth of opportunity for profitable investment in the productive economy (see e.g. Martin Wolf, Wolfgang Streeck, John Bellamy Foster)

Source: Maito (2014)
60% of the increase in extreme wage inequality between 1998-2008 is due to the salaries in the financial sector
Bidding up of prices in London and South East.
Inefficient use of housing stock
Inequality in housing in the UK – measured by rooms per person – is at its highest level since 1901 (Tunstall 2014)

Between 2001-2011, the number of properties in England and Wales recorded as having “no usual resident” (includes both vacant and second homes) increased by 185,000 (a 21% increase).
For comparison, just 203,000 homes were built by housing associations and councils over the same period.

It appears that most of this increase was due to the rise of second home ownership: there was a 55% increase in number of English households with at least one second home in England between 1996/97 and 2012/13 (EHS)

The government pays over £9 billion per year to private landlords in housing benefit.

Housing Benefit: Long-term spending and projections (2014 prices, £ billions)
Source: Outturn and forecast: Budget 2014, Department for Work & Pensions
How land values are bid up by developers
Developer A
Developer B
(image courtesy of Shelter)
NB House and land prices intimately linked.
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