Our fortnightly series continues.
Day Seven
Families first: housing
Families need homes, but supply is clearly not matching demand. If it were then house prices in the UK wouldn’t have risen by 73% over the last ten years. Nor would they have trebled since the millennium.
The idea that inflation has only recently re-emerged as a problem is clearly wrong — because in respect to the biggest and most important purchase that most people will ever make, it has been raging out of control for most of this century.
A nation that cannot provide affordable homes to young people who do all the right things in respect to education, employment and family is a nation whose social contract is fundamentally broken.
The case for reform
To look at it another way, building more homes should be seen as the North Sea oil of the twenty-first century — a means of creating value on a vast scale. It is an opportunity to transform the finances of the nation and of millions of British families, especially those with young children. Given the long fiscal emergency that lies ahead of us, this is rare chance to make a positive difference.
Birth rates
For instance, we cannot ignore the evidence that escalating property prices decrease fertility rates by delaying family formation. This is especially true for renters. For instance, a 2016 Study for the European Bank of Reconstruction and Development analysed data from the English housing market to find that each 10 per cent increase in house prices leads to a 1.3 per cent full in birth rates. In a rapidly ageing society, the failure to make room for children is an act of national self-harm.
The impact on savings
Nor is family formation the only opportunity cost imposed by burden of sky high rents and mortgages.
There are, for instance, the contributions never made to pensions; the businesses never started for lack of funds; the mortgage deposits never scraped together; the re-training never undertaken; and the help to friends and family never offered because the money simply isn’t there.
This is what runaway property inflation does to a society — it robs people of capital in the prime of their lives (and we wonder why we have a problem with productivity).
What happens when Generation Rent retires?
‘Generation Rent’ is the term used to describe younger adults who have been priced out of the housing market and who therefore rely on the private rented sector. The oldest of them are now entering their forties — when it becomes increasingly difficult to secure a first-time mortgage. That’s bad enough, but in another two to three decades they will reach retirement age.
Covering housing costs isn’t always easy on a working wage, so how will people cope on a basic pension? Without the security of home ownership or social housing tenure, the fact is that they won’t — not without help from the state. However, taxpayers already subsidise landlords to the tune of £22 billion in housing benefit every year. We must either take action to rescue Generation Rent or see this enormous cost spiral out of control.
Policy for a property-owning democracy
It is time to make home ownership normal again. So what should government do?
Firstly, recognise reality and admit mistakes
Ministers must begin by recognising that the housing crisis is a crisis of affordability. House price inflation and rising rents are not a sign of prosperity, but an economic sickness that is bleeding the nation dry. With that understood, it follows that the existing policy framework requires comprehensive reform.
As well as using the tax system to curb speculative demand in the UK property sector, government must act decisively to increase the supply of new housing.
Implement the Cambridge model…
In July of this year, Michael Gove unveiled a new model for development. It takes the form of a “new urban quarter” for the city of Cambridge — which would provide tens of thousands of homes. We are promised that the project will be “shaped by the principles of high-quality design, urban beauty and human-scale streetscapes.”
This is a long overdue recognition that the current formula of piecemeal, poorly-designed development guarantees maximum political opposition and minimal delivery.
The Cambridge model reverses the formula — focusing on ambitious developments, in high productivity locations. The resulting economies of scale can therefore be invested into quality as well as quantity, which means genuine engagement with the community; exceptional standards of architectural design; conservation work that delivers substantial net gains for biodiversity; and world class amenities for local residents.
…But not just for Cambridge
However, this can’t be limited to one place. To deliver the number of homes needed we must identify and unlock every strategic location with unrealised opportunities for sustainable expansion. So not only Cambridge, but every small city with the potential to become a larger one. Prime examples include Oxford, York and Canterbury.
We also need to look within our largest cities to upgrade areas of low density, low quality development — such as London’s neglected post-war housing estates. There is no reason why we can’t provide more and better homes on these high-value sites while respecting the interests of existing residents.
Where necessary, redraw the green belt
The purpose of green belt land is to prevent our towns and cities from merging into car dependent, gridlocked sprawl. However, the purpose the Cambridge model is to deliver the opposite. Green belt boundaries that were drawn up decades ago — in an era when we had yet to learn from the urban planning mistakes of the post-war era — should not be allowed to strangle the natural growth of productive twenty-first century cities.
Mandating growth while empowering communities
The duty to ensure affordable and liveable housing for all is non-negotiable. If delivery requires the imposition of development orders or the transfer of planning powers to development corporations, then so be it. One way or another, the Conservative ideal of a property-owning democracy must come before vested interests.
However, those communities that are ready-and-willing to provide homes will be empowered to choose whichever path to delivery suits them best. Communities that lead the way should be first in line for central government support on masterplanning, conservation work and regeneration.
Strategic land acquisition
A top priority for community empowerment is the strategic acquisition of land — so that the purchase and preparation of sites for development is sufficient, transparent and open to all qualified developers. In the most strategic locations, it should also take place on a scale to allow the masterplanning and delivery of entire urban quarters.
The current system is shrouded in secrecy and suspicion — fuelling local opposition to development. On the other side of the divide, the need to maintain a pipeline of suitable sites requires developers to carry heavy financial risks — effectively excluding smaller building firms and self-builders.
It therefore makes sense for proactive planning authorities (or development corporations) to take on this role, which is much less risky for them because they control the planning process. Meanwhile, building firms can get on with what they do best, which is building.
The question of land value uplift
Of course, freeing up more land for homes means a lot more ‘land value uplift’ — i.e. the difference in price between an acre of farming land and acre of building land with planning permission. So who should benefit from this windfall?
One option would be a one-off windfall tax on the land value uplift at point of sale. This would create a cash incentive for permissions, ensure a fair share of that was captured by government whilst maintaining landowners’ incentives to sell, and avoid the need for complex, long-term special conditions on new private housing.
However, we do not propose to set out a detailed solution — save that the legal and regulatory frameworks should be clarified with the purpose of giving local communities the maximum freedom and incentive to experiment — conditional upon the actual delivery of homes. The best models of development are likely to be discovered through practice not theory.
Favouring home ownership
The primary purpose of streamlining the acquisition and permitting of land is to increase the supply, and therefore the affordability, of new homes.
However, there are further options for enabling home ownership. For instance, through the use of planning conditions to prioritise sales to first time buyers and/or young families.
Another option could be to use the profits generated from land value uplift to offer outright discounts on the sale price of new homes. However, as with the discounts offered through the1980s Right to Buy policy, there is a distinction to be drawn between allowing more people to get on the property ladder and allowing them to walk away with the profits derived from the privilege of a discount (plus any general increase in house prices).
One way of dealing with this issue to use community land trusts so that buyers can retain the value of the money they put into buying and improving a property, while the community retains a fair interest in the underlying value of the land. The latter could be recycled to benefit future generations of first-time buyers (a key limitation of the Right to Buy).
Again, we do not propose a one-size-fits-all solution to these issues. Rather, the opportunity to innovate should be granted as a further incentive for local communities who champion local home ownership.
As important as strong families are to reducing the demand for government, we also need to strengthen the institutions that bridge the gap between private life and the state. So tomorrow we turn to the essential role played by civil society and voluntary action.
Our fortnightly series continues.
Day Seven
Families first: housing
Families need homes, but supply is clearly not matching demand. If it were then house prices in the UK wouldn’t have risen by 73% over the last ten years. Nor would they have trebled since the millennium.
The idea that inflation has only recently re-emerged as a problem is clearly wrong — because in respect to the biggest and most important purchase that most people will ever make, it has been raging out of control for most of this century.
A nation that cannot provide affordable homes to young people who do all the right things in respect to education, employment and family is a nation whose social contract is fundamentally broken.
The case for reform
To look at it another way, building more homes should be seen as the North Sea oil of the twenty-first century — a means of creating value on a vast scale. It is an opportunity to transform the finances of the nation and of millions of British families, especially those with young children. Given the long fiscal emergency that lies ahead of us, this is rare chance to make a positive difference.
Birth rates
For instance, we cannot ignore the evidence that escalating property prices decrease fertility rates by delaying family formation. This is especially true for renters. For instance, a 2016 Study for the European Bank of Reconstruction and Development analysed data from the English housing market to find that each 10 per cent increase in house prices leads to a 1.3 per cent full in birth rates. In a rapidly ageing society, the failure to make room for children is an act of national self-harm.
The impact on savings
Nor is family formation the only opportunity cost imposed by burden of sky high rents and mortgages.
There are, for instance, the contributions never made to pensions; the businesses never started for lack of funds; the mortgage deposits never scraped together; the re-training never undertaken; and the help to friends and family never offered because the money simply isn’t there.
This is what runaway property inflation does to a society — it robs people of capital in the prime of their lives (and we wonder why we have a problem with productivity).
What happens when Generation Rent retires?
‘Generation Rent’ is the term used to describe younger adults who have been priced out of the housing market and who therefore rely on the private rented sector. The oldest of them are now entering their forties — when it becomes increasingly difficult to secure a first-time mortgage. That’s bad enough, but in another two to three decades they will reach retirement age.
Covering housing costs isn’t always easy on a working wage, so how will people cope on a basic pension? Without the security of home ownership or social housing tenure, the fact is that they won’t — not without help from the state. However, taxpayers already subsidise landlords to the tune of £22 billion in housing benefit every year. We must either take action to rescue Generation Rent or see this enormous cost spiral out of control.
Policy for a property-owning democracy
It is time to make home ownership normal again. So what should government do?
Firstly, recognise reality and admit mistakes
Ministers must begin by recognising that the housing crisis is a crisis of affordability. House price inflation and rising rents are not a sign of prosperity, but an economic sickness that is bleeding the nation dry. With that understood, it follows that the existing policy framework requires comprehensive reform.
As well as using the tax system to curb speculative demand in the UK property sector, government must act decisively to increase the supply of new housing.
Implement the Cambridge model…
In July of this year, Michael Gove unveiled a new model for development. It takes the form of a “new urban quarter” for the city of Cambridge — which would provide tens of thousands of homes. We are promised that the project will be “shaped by the principles of high-quality design, urban beauty and human-scale streetscapes.”
This is a long overdue recognition that the current formula of piecemeal, poorly-designed development guarantees maximum political opposition and minimal delivery.
The Cambridge model reverses the formula — focusing on ambitious developments, in high productivity locations. The resulting economies of scale can therefore be invested into quality as well as quantity, which means genuine engagement with the community; exceptional standards of architectural design; conservation work that delivers substantial net gains for biodiversity; and world class amenities for local residents.
…But not just for Cambridge
However, this can’t be limited to one place. To deliver the number of homes needed we must identify and unlock every strategic location with unrealised opportunities for sustainable expansion. So not only Cambridge, but every small city with the potential to become a larger one. Prime examples include Oxford, York and Canterbury.
We also need to look within our largest cities to upgrade areas of low density, low quality development — such as London’s neglected post-war housing estates. There is no reason why we can’t provide more and better homes on these high-value sites while respecting the interests of existing residents.
Where necessary, redraw the green belt
The purpose of green belt land is to prevent our towns and cities from merging into car dependent, gridlocked sprawl. However, the purpose the Cambridge model is to deliver the opposite. Green belt boundaries that were drawn up decades ago — in an era when we had yet to learn from the urban planning mistakes of the post-war era — should not be allowed to strangle the natural growth of productive twenty-first century cities.
Mandating growth while empowering communities
The duty to ensure affordable and liveable housing for all is non-negotiable. If delivery requires the imposition of development orders or the transfer of planning powers to development corporations, then so be it. One way or another, the Conservative ideal of a property-owning democracy must come before vested interests.
However, those communities that are ready-and-willing to provide homes will be empowered to choose whichever path to delivery suits them best. Communities that lead the way should be first in line for central government support on masterplanning, conservation work and regeneration.
Strategic land acquisition
A top priority for community empowerment is the strategic acquisition of land — so that the purchase and preparation of sites for development is sufficient, transparent and open to all qualified developers. In the most strategic locations, it should also take place on a scale to allow the masterplanning and delivery of entire urban quarters.
The current system is shrouded in secrecy and suspicion — fuelling local opposition to development. On the other side of the divide, the need to maintain a pipeline of suitable sites requires developers to carry heavy financial risks — effectively excluding smaller building firms and self-builders.
It therefore makes sense for proactive planning authorities (or development corporations) to take on this role, which is much less risky for them because they control the planning process. Meanwhile, building firms can get on with what they do best, which is building.
The question of land value uplift
Of course, freeing up more land for homes means a lot more ‘land value uplift’ — i.e. the difference in price between an acre of farming land and acre of building land with planning permission. So who should benefit from this windfall?
One option would be a one-off windfall tax on the land value uplift at point of sale. This would create a cash incentive for permissions, ensure a fair share of that was captured by government whilst maintaining landowners’ incentives to sell, and avoid the need for complex, long-term special conditions on new private housing.
However, we do not propose to set out a detailed solution — save that the legal and regulatory frameworks should be clarified with the purpose of giving local communities the maximum freedom and incentive to experiment — conditional upon the actual delivery of homes. The best models of development are likely to be discovered through practice not theory.
Favouring home ownership
The primary purpose of streamlining the acquisition and permitting of land is to increase the supply, and therefore the affordability, of new homes.
However, there are further options for enabling home ownership. For instance, through the use of planning conditions to prioritise sales to first time buyers and/or young families.
Another option could be to use the profits generated from land value uplift to offer outright discounts on the sale price of new homes. However, as with the discounts offered through the1980s Right to Buy policy, there is a distinction to be drawn between allowing more people to get on the property ladder and allowing them to walk away with the profits derived from the privilege of a discount (plus any general increase in house prices).
One way of dealing with this issue to use community land trusts so that buyers can retain the value of the money they put into buying and improving a property, while the community retains a fair interest in the underlying value of the land. The latter could be recycled to benefit future generations of first-time buyers (a key limitation of the Right to Buy).
Again, we do not propose a one-size-fits-all solution to these issues. Rather, the opportunity to innovate should be granted as a further incentive for local communities who champion local home ownership.
As important as strong families are to reducing the demand for government, we also need to strengthen the institutions that bridge the gap between private life and the state. So tomorrow we turn to the essential role played by civil society and voluntary action.