It’s time to fix Britain’s housing crisis at its roots: land

Published: by Guest blog

Fields and rows of houses. The high cost of land is contributing to the housing crisis.

Guest blog by Alastair Parvin, CEO of Open System Lab

Let’s do a thought experiment.

Imagine that the UK was restricted to only one web domain address for every person. Enough for everyone to have one each, but only just. Every year, in order to keep up with population growth, the government issues a few thousand new ones for a notional fee of £462 each. Some addresses get much better download speeds than others, but they all get issued for the same price.

Now, let’s also imagine that there is effectively a rule that every individual must have their own personal website, and each website must be built on its own unique web address. From now on, absolutely everything you need to survive and thrive, from your salary and food to public services, education, care and your social life can only be accessed via this personal web address.

What would you expect to happen? Well, you’d probably expect a competitive market to emerge.

Wealthier people would start buying and selling the better, high-bandwidth domain addresses for hundreds of thousands of pounds, leaving the low-bandwidth addresses for the less well off. But at least everyone has an address and the cheapest ones cost only a few hundred pounds. Over time, with a bit of investment into improving bandwidths, things should gradually improve for everyone.

Except then something else starts to happen. Pretty soon, people with money realise that, instead of investing their savings in businesses competing to produce goods and services, they can use their cash to snap-up hundreds of these freshly-issued addresses for £462 each.

They might collect rent from others for them, or they might just ‘sit’[1] on them. They don’t intend to use the addresses themselves, but, like ticket touts at a concert, they’re buying them up in the knowledge that sooner or later, someone will need them, and they will probably be so desperate that they’ll be prepared to pay much more than £462 for them.

Except people will pay much, much more than they paid for it originally, because their very lives and livelihoods depend on having one of these addresses, and having a good one too. They’ll pay as much as they can responsibly afford, plus a bit more. In some cases they’ll pay more than half of their monthly income if that’s what it takes. They will take on a lifetime’s worth of debt.

The domain traders realise there is a multi billion dollar business model here; capturing the huge gap between the original issuing price of the addresses (£462 each) and what people are actually able to pay for them (thousands of pounds a year). As people get wealthier, or take on more debt, the touts can ask for more and more money for the same address. And if the price hasn’t risen enough yet, they can just wait it out. After all, it doesn’t cost them anything to sit on an empty address.

Gradually, it becomes clear that this is not a free, competitive market at all, it’s an extractive feudal system; a kind of private sector tax, payable not to the government, but to those with capital to spare. Although the price of web addresses may rise, it is not real growth. No new value is being created. It’s just that more and more of people’s wages are being sucked up by the rising cost of just having an address, and people are going further and further into debt to do it. This leaves less money flowing around the economy to spend on building websites and, well… literally everything.

The results are exactly what you’d expect from a society burdened with punitively high taxes. Economic productivity flatlines, investment falls, innovation is stifled, and shrinkflation becomes normal. Debt rises. Small businesses fold. Working families struggle. More and more people are pushed into poverty and misery. Soon, fewer than half the population own their own domain and many are left with no web address at all.

The government begins to panic. What can it do?

At first, everyone thinks it’s just a problem of supply and demand. Government should simply issue more addresses. So it does. But to its dismay, the new addresses are immediately hoovered up by the same intermediaries, who proceed to sit on them, selling them very slowly for the same high prices. So that isn’t going to work.

Next they try demanding contributions back from the intermediaries. They didn’t create the increase in value any more than a ticket tout at a concert does, so why shouldn’t they share, say, 30% of the increase back? That contribution comes in the form of ‘affordable websites’; addresses with basic websites built on them for those in the most need. But this doesn’t work either. Taking a cut of their profit doesn’t deter the intermediaries from still buying up all the addresses. It just makes the government dependent on them – and encourages them to hang on even longer before selling. Also, because the contributions are up for negotiation, the intermediaries use their position of power to negotiate-down their contributions. After all, they’re in no rush.

The next thing government tries is simply handing cash to people who can’t afford to buy an address. Predictably, the intermediaries respond by just increasing their prices and pocketing the extra cash. Soon, the government finds itself spending over £23 billion a year on these payments: more than it spends on roads, policing, and military equipment put together. That money needs to come from somewhere, so in turn government either has to cut vital public services or raise taxes on businesses to pay for it.

Now increasingly desperate, as more and more newly-issued addresses are simply being sat-on, the government promises to stop relying on the intermediaries and ‘build more websites’ itself. But of course, the crisis isn’t really a shortage of websites. It never was. It’s a shortage of web addresses with decent bandwidth.

The government finds itself in the bizarre position of having to buy-back addresses from the intermediaries at the inflated price, a further cost of billions – even though it created them in the first place.

And so, the full absurdity of the system becomes obvious. Eventually, common sense becomes inescapable. Government realises that instead of pouring taxpayers’ money into subsidising this broken system, it can fix it.

It implements a small change in the rules that allows it to retain control of the new addresses that it issues at the original price. This means that instead of allowing the intermediaries to hoover them up, the public can retain not 30%, but 100% of the value that we collectively create when we issue new addresses. We can then decide how we want to use that value.

The first option is simply to sell the new addresses for the full price themselves. This doesn’t make them any more affordable, but it does generate billions of pounds in revenue, which can then be spent on increasing bandwidths everywhere. It also doesn’t stop intermediaries from still buying and sitting on addresses, waiting for their value to go up.

The second option is to hold onto some of the addresses and build websites to rent at affordable prices for those in most need. This is badly needed, but it doesn’t solve the problem for everyone

So the government realise there is also a third option – and it’s transformative. Instead of selling new addresses at full price, they create a new form of address ownership, a new option that people can choose if they want to. Under this new model, anyone can buy or lease an address at a very low, affordable, up-front price. The price varies depending on bandwidth, but it is always reasonable. The address is theirs forever and it can be passed-down to their children. However, there is a quid pro-quo: the address can only be sold for the same price it was purchased for. So it remains affordable for the next person.

In other words, you can own it, but only as a thing to use, not as a thing to make money from.

The impact is extraordinary. It allows a whole new generation to own their own web address; it generates billions in public revenue, which can be invested back into improving bandwidths and creating new addresses; and it puts trillions of pounds back into people’s pockets. The money they have saved can now flow into the real economy instead, perhaps going onto additional care, or a startup idea, or investing it into green businesses, or perhaps just allowing people to spend more time with their children.

The strangest thing of all is that it didn’t cost the government a penny. All government had to do was see the problem clearly and then decide to fix it.

[1] Winston Churchill ‘The Mother of all monopolies’, 1909