Emily Fielder is the Head of Communications for the Adam Smith Institute.
The King’s Speech is an opportunity for the Government to pitch its vision for improving voters’ lives. As this week’s was the last of this Parliament, it sets the tone of the Conservatives in the run-up until the next election. Rightly, it focused on the immediate economic and social burdens on individuals and businesses, as the Prime Minister has sought do to since entering office.
But one of the greatest financial strains by households is the increasingly unaffordable costs of renting and ownership – a blindingly obvious fact that has sadly been ignored by many politicians of all stripes for all too long.
According to analysis in PricedOut’s new manifesto, average house prices have risen by almost 80 per cent since 2006. In contrast, incomes have risen by an average annual rate of only 2.9 per cent. This is felt most acutely in London- where only the richest quarter of households can rent a property without spending more than 30 per cent of their income on rent.
As I’ll continue to say until I’m blue in the face, contrary to what you might read elsewhere, this is a supply crisis. In the OECD, the UK has the 4th highest level of social housing, as a proportion of overall housing stock. True, council housing in the UK has declined as an overall proportion of total housing stock since the 1990s- but much of it is now owner-occupied, or it is rented out by private registered providers.
So, in an ideal world we’d simply build more houses- and not just social houses either, lest we want Brits to be forever paying rent to the state rather than realising their dream of home ownership. The King’s Speech should have included legislation to authorise compulsory purchases of metropolitan green belts and share the profits with the local community, or to release green belt land around train stations. But this unfortunately seems rather unlikely.
What the Government could- and should- seek to do, however, is at least attempt to cool an excessively overheated housing market.
Under the current Right to Buy scheme, which gives tenants a discount on the purchase of their council house, those eligible are either prevented by sky-high house prices which have completely undermined the policy, or they are discouraged from doing so because they would prefer to live somewhere else- perhaps nearer a relative or a job opportunity. They are therefore stuck in an unbreakable cycle of paying rent to the state.
But under the Adam Smith Institute’s proposed Flexible Right to Buy scheme, anyone who is currently eligible for the existing Right to Buy scheme would be allowed to use the discount to purchase any private house of their choosing. This would benefit those who take advantage of this, who would be able to purchase a home more suitable to their needs and in a more affordable area. But it would also free up the previously owned property for a buyer who has greater need of its size and location, or for someone currently on the social housing waiting list.
These outcomes would have positive knock-on effects for the housing market, and the wider economy. Areas with lower house prices would see a rise in demand, while areas with overheated property markets would see the opposite- or would at the very least be better able to cope. Greater liquidity – a sign of a well-functioning market – is to be welcomed.
Workers could also be better matched with jobs. New buyers or tenants who work in higher-wage industries may be better able than the existing tenants to take advantage of jobs in areas where property prices are higher. Reducing some of the friction in the labour markets would serve to boost productivity and by extension wages.
The sale of these ex-council houses, the money from which would partly fund the Flexible Right to Buy discounts could, at an ambitious estimate, raise as much as £62 billion for the Exchequer. Think how much the economy and aspiring property owners could benefit if this money was used to – just plucking an idea out of thin air here- build some more houses?
Fundamentally, people want to own their own home. Anyone who’s watched the Margaret Thatcher: Death of a Revolutionary documentary will remember seeing the pride former social housing tenants felt- pride reflected in the renovations to the previously uniform and glum-looking housing stock.
If you want people to believe in capitalism, you have to at least allow them to own their own capital. Otherwise, is it any real wonder that they inevitably turn to state support?