There aren’t many things that all politicians agree on, but on housing there is a clear consensus: we need to build more of it. They compete to out do one another; Boris Johnson’s London Plan has a target of 42,000 new houses per annum in the capital while Ed Miliband has pledged to build 200,000 nationally each year by 2020. Most of these are likely to be in the areas of most demand – London and its surrounding commuter belt. Writing this week in the Evening Standard Miliband laid out a series of measures he would use to increase house building in the capital, including forcing local authorities to build more, and compulsory purchase of unused land.
Everyone is trying to respond to the boom in house prices that makes London and much of the south-east increasingly unaffordable. The orthodox solution is the one offered by the politicians – increase supply. Prices are rising due to high demand; the only way to bring down prices is to build more. Suppose this is correct. Hundreds of thousands of people wish to live in London because of her booming economy and abundant job opportunities, so we build housing to accommodate them. How far do we go? Do we fill up every available site with the highest density accommodation possible, forcing us all into increasingly tiny dwellings? As it stands there is probably enough demand to replace every park, library and school playground in London with tower blocks. Do we really want to turn London into Hong Kong? Even if we manage to protect our existing parks and public spaces, surely as London’s population increases we will need to create more of them – we’ll need more libraries, schools and community centres and they can’t all be on the tenth floor of a new development.
Even if we build as much housing as is humanly possible, there’s no guarantee this will satiate demand. The twin factors of London property acting as a safe investment for the international super-rich and the disproportionate amount of jobs and investment around London relative to the rest of the UK may well keep prices high, even after we’ve turned London into a jam-packed dystopian metropolis. Instead we need to act to reduce demand so that house prices drop to a level where ordinary people, on ordinary salaries, can afford to buy houses once again.
There are a few ways we could do this. The most important is to increase taxes on the holding of land. Creating new bands of council tax so that those with the most expensive properties pay more would be a good start as it would disincentivise the practice of owning second or empty homes. Council Tax is quite a blunt instrument however – much better would be a Land Value Tax – taxing the underlying value of all land owned. We should also rein in the buy-to-let market, which limits the supply of houses for those who want to buy their own homes. The best way to achieve this would be to implement tighter regulations of rentals, making buy-to-let a less lucrative option as well as improving the position of those who are renting. Tenants should have a right to longer minimum contracts – say 4 to 5 years – and landlords should not able to raise rents beyond inflation for the duration of this term. If this proves insufficient, stronger forms of rent control, such as regulating the absolute amount landlords can charge should be seriously considered. This way we can start to improve the lives of ordinary Londoners without concreting over the entire city while keeping London a place that is actually pleasant to live in.
Furthermore, we need to rebalance the UK economy so it stops drawing people towards the one area of the country where there is a shortage of housing and encourages them to remain in, or move to, areas where there is a surplus. To do this we should redirect national investment out of London and the South East. We should build the northern section of HS2 rather than the southern one. We should stop spending billions on projects like Crossrail that inflate the London economy ever further and instead invest in the north and the west of the UK. Going further, we should seriously consider moving Parliament to another city; the associated media, lobbyists and civil servants that accompany it would provide a sizeable boom for another region of the country.
The above measures would bring down house prices in London and the South East without the need for massive development that benefits nobody. Existing property owners would of course lose out, as the value of their houses would decrease, but this is a necessary price to pay for greater affordability for all. Anyone finding themselves in negative equity should be supported by an expanded Mortgage Rescue scheme, where the state can buy out their property and they remain as tenants. Of course there will always need to be some house building – to replace properties that are genuinely falling apart and if we genuinely reach a stage where the overall UK population exceeds the housing stock. But for now we should focus on bringing down prices rather than increasing development. That way, we can all live and thrive in areas fit for people.