Housing might just be the hardest, most controversial and yet most important issue of our time. The scale of the issue is arresting. And if tackled head-on (five suggestions below) could cause a public backlash to match recent events. If you think the ruling classes care about their EU identity, wait till we challenge how ‘well they’ve done with their house’.
Despite this, there is a moral imperative to act. This is an issue that demands air time.
Shelter sits right at the foundation of Maslow’s hierarchy of needs, together with food and water. Next is property, along with health and security. In 2019 it is still deep in our national psyche is provide equality of access to health and security for all. But not housing. My generation would not recognise this statement by the economist Julian LeGrand in 1992 that “Successive governments have pursued the aim of ensuring ‘a decent home for every family at a price within their means”.[1]
Who decided we no longer have a right to a decent home?
Deeply inequitable.
40 years ago, whomever you were, housing cost you around 15% of your after tax-income. Rich or poor. But now for the richest decile the proportion has fallen to under 10%. For the poorest decile it has risen to 44%[2].
This isn’t a case of paying more to get more. There is overcharging at the low end by private landlords who hold too much power contrasted with cheap mortgage payments at the top end. These effects are so powerful that the 2nd richest decile pays the same per month in absolute terms as the 9th richest[3].
The richer groups who have benefited from rising prices (through no effort of their own) will reinforce inequality by passing this unearned wealth on to the next generation. Well, what’s left of it — Baby Boomers are heavy spenders, the first ever older generation to spend more on leisure activities than the young[4]. And their obsession with housing carries some blame for our productivity crisis, sucking in investment and effort to a low-productivity asset.
Why has it happened?
This is a simple case of supply and demand.
UK population has risen by 13M in recent decades, with fewer people living in each house (3 down to 2.3). Not only that but UK housing has also been exported rather than protected as an asset of strategic national importance. Some reports suggest that more than a quarter of British property price rises between 1999 and 2014 were driven by foreign investment[5].
The supply of new houses has fallen, particularly social housing, with almost no new local authority houses since Thatcher, who sold off council houses and failed to use the proceeds to build more. What has been protected is the sacred ‘green belt’, essentially providing subsidised golf and horse riding for the well off (whose houses are now worth a fortune).
The truth is that only 5% of government money spent on housing is spent on building new houses. Most goes to rent subsidies which only push prices up. The Tories even introduced inequitable tax breaks on mortgage payments for a time.
Ok, but isn’t that just how capitalism works?
Community matters.
“A society where individual freedom is paramount is unlikely to be especially communal” [6]
Economists tend to advocate for a fluid housing market where workers can easily move to find jobs. This completely misses the human element, and empirically many people go to great lengths to stay in their home town, often preferring a long commute to relocation (see US car manufacturing towns post 2008 [7]).
Humans yearn for community. Fractured modern living has seen a rise in new kinds of ‘communities’, from those with a simple set of shared interests like online gaming forums, to the more ‘radical’ like Burning Man. But therein lie risks.
“Community in the form of manufactured solidarity kills autonomy and exerts a compelling pressure towards conformism”[8]
It might seem intuitive to prefer a community of like-minded people. But if Anthony Giddens is right then a community based on geography alone might trump one based on a shared set of values. And perhaps it is healthier to have a diverse range of views, compared with, say, having to agree that everything about leaving the EU is awful, or risk rejection.
So as a species we need community. And geography seems a powerful way to build it. Which points to creating an economic environment where communities can afford to stay together.
Although social housing needs to play a larger role than it has done in recent times I’d stop short of advocating that government try to engineer community directly. Government intervention in the 1950s had benign intentions but unintended consequences. Attempts to build suburban ‘utopia’ actually led to the break up of communities, and a shift to a more house-centred rather than people-centred way of life[9].
What we really need is to bring prices down. How?
Five steps that could work.
1. New wealth/property tax for efficiency and fairness. Baby boomers are currently penalised for downsizing (stamp duty). A new asset tax, based on the value of a home, would mean they were incentivised to right size and let the younger family enjoy the four-bedroom pad. Mooted for decades[10] a property/wealth tax should unite left (equitable) and right (efficient), and stamp duty could be removed to keep overall tax burden the same. The trick is getting realistic, ongoing asset valuations but there are several options including the idea of owners nominating a price at which they’d be willing to sell to the state (and the state having the option to buy).
2. Restrict overseas investment in UK property. We wouldn’t export food if we didn’t have enough to feed our own population, yet that is what we are doing with housing on an industrial scale. Regulation needs to protect what should be a national, not global, market.
3. Radical increase in house building, including on the green belt. Who plays golf anymore anyway?
4. More government ownership. I want to live in a society where my taxes support everyone to live in a decent home.
5. Phase out rent subsidies for the private market, over time as prices fall. Subsidies only push prices up.
So what is stopping us? The problem is that this is an area where helping the least fortunate 50% means hurting the top 50%. This is never popular, and few home owners would instinctively warm to policies intended to cut the price of their home.
Once again, strong political leadership is required.
[1] The Economics of Social Problems, LeGrand, Propper, Robinson, 1992, 1st edition 1976
[2] What’s Left Now? Andrew Hindmoor, 2018
[3] What’s Left Now? Andrew Hindmoor, 2018
[5] Kings College Report, Independent, 2018
[6] The Economics of Social Problems, LeGrand, Propper, Robinson, 1992, 1st edition 1976
[7] Janesville, Amy Goldstein, 2017
[8] Beyond Left and Right, Anthony Giddens, 1994
[9] Family and Kinship in East London, Michael Young & Peter Willmott, 1957
[10] As far back as 1992 LeGrand suggested the idea of owners naming a price at which the tax authorities could buy if they wished.