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The housing crisis: how did we get here?

Mapping the "solutions"

How land values are bid up by developers

NB House and land prices intimately linked.

Developer B

Developer A

(image courtesy of Shelter)

Supply

Demand

SHOULD NOT BE CONFLATED WITH NEED

Demand for homeownership is a function of:

purchasing power

number of buyers

strength of preference

Reduce speculative bubbles

Landowners have little incentive to sell at affordable prices.

Tenure favouritism

  • No land taxation.
  • Concentrated and untransparent land ownership (the Land Registry for England and Wales is at least 35 per cent incomplete)

The scope for making windfall gains from changes in the value of land

and how it has given birth to the British 'obsession' with homeownership

Increase CGT for properties held for short-term speculation

  • 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
  • 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

Land without planning: £9,000 per acre

Land with planning: £500,000 (Birmingham)

£1.7 million (London)

It pays for developers to focus on land trading and adding value through the planning system rather than the actual business of building houses.

Lack of competition and diversity in the building sector

End excessive and risky mortgage lending through e.g. LTV and LTI limits

Remove the subsidies and tax breaks for BTL landlords and clamp down on tax avoidance

affordability

of home ownership

}

Why the state needs to get building again

Rising inequality and slowing growth

House building by sector since WWII (England and Wales)

The expectation of further price rises

Tax empty homes and second homes

  • 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

Why it pays to drip feed supply

NB. Residential land prices largely determined by house prices

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)

turns homes into financial asset

Evidence:

  • Surveys asking people why they want to own
  • Scale of investment by domestic and foreign elites

Dearth of opportunity for profitable investment in the productive economy (see e.g. Martin Wolf, Wolfgang Streeck, John Bellamy Foster)

Source: Maito (2014)

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...

  • 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

Buy To Let Landlords

Scrap bedroom tax and other housing benefit cuts/caps

Ban the ownership of property by non-UK based entities and offshore trusts/companies.

and why the balance of power is in their favour

Easy mortgage credit

House prices

and why it has been so plentiful

....and raise Loan To Income ratios

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

Close correlation between lending and house price inflation

Securitization allowed lenders to lower interest rates...

This led to a huge increase in lending for mortgages

New mortgages advanced for house purchase by LTI

Average interest rates on outstanding mortgages

Rebalance the economy away from London

UK house prices divided by average full time earnings since 1930

Scrap the Affordable Rents regime

Source: Bank of England

Rent controls, better security of tenure, etc, in PRS

Why has lending not dried up post-2008?

Drop in Bank of England interest rate

BTL lending unaffected by new affordability tests

and Starter Homes

40% increase in lending to BTL since crash, compared to 2% increase in owner occupier lending

Sources: ONS House Price Index, March 2014, Table 22. Average full time earnings - http://www.measuringworth.com/ukearncpi/.

Make more efficient use of existing stock

Reform council tax & business rates as step toward LVT

Protect the most vulnerable /

smooth the transition

In 2013 the social housing waiting list stood at around 1.7 million households (a 65% increase since 1997).

Build more retirement homes to help free up family-sized dwellings

National Clearing House for Homes ?

(and financial sector in particular)

Encourage under-occupiers to rent a room to a lodger

Introduce a first 'Right to Refuse' in PRS

Economy

increasingly vulnerable to a fall in house prices

Decimation of the social housing stock

Increasing numbers unable to get onto housing ladder

Increase supply of affordable homes

(to make market operate more fairly, efficiently and transparently, but also provide a powerful lever for acquiring homes for affordabe housing)

- Right to Buy

- Transfer to Housing Associations

- Lack of new building

affordability of renting

Abolish/curtail Right To Buy

Introduce a Right to 'Sell and Stay' /

expanded Mortgage Rescue Scheme

}

Encourage a diversity of suppliers: intervene to create a level playing field

When the bubble bursts the

Halt the fire sale of public land (and loosening of Section 106 requirements)

state bails out the Too-Big-To-Fail banks

Rent hikes in the Private Rented Sector

e.g. improve transparency around land holdings

Real equivalised mean weekly housing costs by tenure type, £ (GB)

i.e. the tax payer takes on the private debt of the banks

(made possible by the disantling of rent controls and tenants rights in the 1980s)

Lift caps on Local Authority borrowing and provide grant funding again for social housing

Use tax incentives or compulsory purchase to bring undeveloped land into use

This is one way to help households out of negative negative equity and prevent a small fall in prices turning into precipitous crash

instead transfer land to local councils or lease to community providers and non-profits

Government uses the new mountain of public debt to justify welfare cuts...

Even though

public debt is

relatively small compared to household and financial debt

Revive New Town Development Corporation model

Rising housing benefit bill

Set up National Housing and Infrastructure Bank

benefits cap and cuts to housing benefit, etc

This policy might be designed to ensure that a sudden sale of BTL properties doesn't end in crisis - either for tenants or macroeconomy

Government imposes austerity

Housing Benefit: Long-term spending and projections (2014 prices, £ billions)

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

with structural change to how land is released

Source: Outturn and forecast: Budget 2014, Department for Work & Pensions

Support alternative models of ownership like mutuals, coops and Community Land Trusts

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