Toby Lloyd
Toby Lloyd

By Toby Lloyd

The next government must change the rules of the game

The next government will have to be bold about reforming the housing supply system.

For years now we’ve been demanding that political parties come up with big, bold plans for building more homes. So it’s gratifying that all three parties placed housing at the heat of their pitches to the electorate – and that all of them made building more the central objective. Beyond that broad agreement there are plenty of differences between the parties, which we summarised last week.

Since the manifesto launches things have not quietened down. Labour (re)announced a series of housing policies this week, prompting a furious response from the Daily Mail.

Taking a step back from the policy detail, one way to understand all these proposals is to divide them according to whether they operate on the supply-side or the demand-side, and whether they represent government spending commitments, or using government’s regulatory power.

Selected housing policy proposals from main 3 parties manifestos Demand side Supply side
Spending  Help to Buy

Stamp duty cut

Right to Buy extension

 

Affordable housing grants

Brownfield investment

Garden Cities

Regulating  Mortgage market regulations

Interest rate policy

Starter Homes

Local people first policies

Restricting foreign investors

Planning policy (eg green belts)

Housing Zones

Compulsory Purchase Reform

Land market transparency

Use it or lose it policies

 

Naturally, we’re much keener on those ideas on the supply side than those that boost demand: house prices and rents are already far too high, and anything that just pumps more cash into the market without boosting supply will only make that problem worse. And polling suggests that demand-side give-aways which offer the promise of an instant win for a few lucky groups in society aren’t even that popular with the public any more. As our own research shows, there’s still a gap in the political market for a credible ‘retail offer’ for increasing housing supply, which no party has yet filled.

It’s equally easy to understand why spending measures are a political challenge at the moment – which inevitably means that there’s been more focus on the regulatory aspects of government policy than normal.

Policies in this category are inherently more technical and less visible than those in the other three boxes. Spending cash on building programmes, first time buyer schemes and tax cuts are always going to be easier for voters to relate to than changes to the law on Compulsory Purchase, or requiring developers to publically register ‘options agreements’ that they have signed with landowners.

But for wonks like me, it’s this area that actually holds most promise. We absolutely do need to spend more public money on housing – and to spend more of it on the supply side, rather than on pumping up demand. But spending will always have limits. The housing system is such a huge part of our economy that direct government investment will always account for a minority of the activity in the market. The rules of the game that the rest of the system operates under are therefore critical – and it’s government regulation that defines those rules.

Most importantly, government can change the way in which land enters the development system. Reform in this area, more than anything else, has the potential to transform incentives and behaviours in the development industry, and help create a new paradigm in which we build far more homes, at lower cost and of higher quality. That may sound fanciful, but it’s basically what many other countries do – because they are prepared to intervene more intelligently in their land markets. If more of the right land in the right places can come forward for development at reasonable prices, building more homes, making them more affordable and providing the infrastructure and services communities need all becomes doable. Reform in this area is not only potentially extremely powerful, it can also be extremely efficient.

Of course, despites its relative obscurity regulatory reform can still be controversial or politically challenging. Labour’s proposal to allow local council to levy taxes on sites with planning permission that haven’t been built out, or to compulsorily purchase them, triggered comparisons with Stalin’s Russia and Mugabe’s Zimbabwe. The coalition government’s reforms to the planning system inspired similarly hysterical headlines from those seeing it as a step towards concreting over the countryside. Making land – and homes – cheaper might benefit the millions of people struggling to afford a place of their own, and the national economy, but it doesn’t tend to make landowners happy.

It should be possible to make the political case for making a tiny number of wealthy landowners take more of hit to help meet the housing needs of the nation. Unfortunately the priced out, homeless and overcrowded people who stand to benefit most from land reform don’t often realise it – and in any case are a diffuse group, whose voices in political debates can be outweighed by powerful interest groups.

So seeing through effective reform to the way development is organised in this country will certainly not be easy. Land market intervention will always be a hard sell to a sceptical public and an industry with its own vested interests. But regulatory reform remains an essential tool in the government’s armoury. Whoever wins the election next week will need to combine real investment with bold reform in a comprehensive plan to transform house building – and to stick to their guns when the going gets tough.

 

2 Responses to The next government must change the rules of the game

  1. howatns says:

    I’ve said it before and will say it again – take the tax shelter off the capital gains associated with primary residences, as with every other sort of capital gain, and take the VAT off refurbishments/brownfield developments, as with new build developments (that way we can stimulate local, small builders, the DIY business and improve the housing stock – most of those expensive flats that cost over £500k in London fail to meet the minimum standards established for council houses). These are two very simple, fair, market based solutions, that correct unequal, bad policies, without requiring a new expensive government body to be established to set the cap levels. Sadly, rent caps have never worked in their history (look it up) – they just stop new development and exacerbate the problem further

  2. chriscook says:

    HI Toby, Long time.

    The existing housing market paradigm is ‘homes as a commodity’, where homes – or more accurately the land on which they sit – are bought and sold for rent-seeker profit using deficit-based money created by the banking system.

    One of the key systemic problems is that it is impossible to reduce land prices, since unless they either remain stable or increase, a banking system whose debt is secured against land assets will collapse. So in addition to the private sector pumping in money, we also see the government doing so. It was the same in the US where Fannie Mae & Freddie Mac – both temporary expedients – not only can never leave the market, but are pretty much all that is left holding it up.

    But I digress.

    So it’s not only necessary to solve the land problem – you also have to solve the financing (high risk property development) and funding (low risk developed property) – problem as well.

    In my action-based research on resilience at UCL ISRS I have addressed this holistic problem with a holistic solution using two elements: firstly a new (actually, ancient) protocol, or agreement, between the stakeholders, in respect of land use, usufruct, and stewardship. Secondly, a new (actually, ancient) financial instrument – ie prepay rental credits or prepayment of land use value at a discount.

    I term the consensual agreement ‘nondominium’ since no stakeholder has dominant rights, but each has certain veto rights. If you imagine condominium tenure with financing/funding INSIDE the condominium agreement, or a Real Estate Investment Trust (REIT) with units returnable in payment for rentals. then you’ll get the idea.

    The outcome of the model is among other things:

    – ‘housing-as-a-service’ where good quality and energy efficiency are a feature, not a bug;

    – a new retail asset class of prepay rental credits which funds completed affordable homes & provides a positive real return (for which literally trillions of £, $ and € are seeking);

    – a new form of ‘co-ownership’ tenure whereby occupiers may invest in future occupation rights not just using £ but also by using £’s worth of care for the property, and eve for the neighbours;

    – what is essentially local – land-based currency of land-use credits.

    This does not necessarily require legislation. But it does require agreement, and explanation.

    This submission to the Scottish Land Reform Review Group covered it at high level.

    http://www.andywightman.com/docs/nordicenterprisetrust.pdf

    Also this presentation last year at an NHF gig.

    http://www.slideshare.net/ChrisJCook/regeneration-nhf-manchester-230114

    It would be interesting to apply the model to your Wolfson Prize entry.