The shortage of housing is a gathering national crisis. Rev up the bulldozers
NOW that the economy is at last growing again, the burning issue in Britain is the cost of living. Prices have outstripped wages for the past six years. Politicians have duly harried energy companies to cut their bills, and flirted with raising the minimum wage. But the thing that is really out of control is the cost of housing. In the past year wages have risen by 1%; property prices are up by 8.4%. This is merely the latest in a long surge. If since 1971 the price of groceries had risen as steeply as the cost of housing, a chicken would cost £51 ($83).
By subsidising mortgages, and thus boosting demand, the government is exacerbating the problem. But that is not the main reason for rising prices. Driven by a baby-boom, immigration and longer lives, Britain’s population is growing by around 0.8% per year, faster than in most rich countries. Foreign wealth, meantime, is pouring into London.
If supply were rising fast too, increasing demand would not matter; but it is not. Though some 221,000 additional households are formed in England annually, just 108,000 homes were built in the year to September 2013.
The lack of housing is an economic drag. About three-quarters of English job growth last year was in London and its hinterlands, but high prices make it hard for people to move there from less favoured spots. It also damages lives. New British homes are smaller than those anywhere else in Europe, household size is rising in London and slums are spreading as immigrants squash into shared houses (and, sometimes, garden sheds). Inequality is growing, because the higher property prices are, the greater the advantage that accrues to those whose parents own their homes.
This is all the result of deliberate policymaking. Since the 1940s house-building in Britain has been regulated by a system designed to prevent urban sprawl, something it has achieved spectacularly well. It is almost impossible to construct any new building anywhere without permission from the local council. In the places where people most want to live—suburbs at the edge of big cities—councils tend not to give it.
Ministers have tried to override local NIMBYs (see article). The previous, Labour, government set regional house-building targets and bullied councils to accept high allocations. The current coalition has scrapped that approach in the name of local democracy—but it, too, has resorted to strong-arming councils to release more land. It has also worked with the Bank of England to reduce the cost of credit and has subsidised high loan-to-value mortgages through a scheme called “Help to Buy”. This has boosted demand for housing but not supply.
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A much better way of encouraging house-building would be to give local councils bigger incentives to allow it. NIMBYism is not always irrational. Housing developments spoil views; incomers fill roads, schools and doctors’ surgeries. Yet though land prices can soar 200-fold when planning permission is granted, councils cannot extract much of the increased value to spend on services. A new scheme, the Community Infrastructure Levy, nods in the right direction. But it is hedged with restrictions and is expected to raise just £650m a year nationally. That is not nearly enough to change minds.
Local governments, which are short of cash these days, could be allowed to charge developers much more. But the ideal solution would be a tax on the value of land. This would be low or zero for agricultural land and would jump as soon as permission to build is granted. It would prod builders to get to work quickly. It would also help to capture the gains in house prices that result from investment in transport or schools.
The green belts that stop development around big cities should go, or at least be greatly weakened. They increase journey times without adding to human happiness. London’s, in particular, mostly protects scrubby agricultural fields and pony paddocks. Parts would be prettier with housing on.
This blessed plot
The government should also do more to organise and pay for industrial wastelands to be prepared for housing. “Brownfield” sites are typically built on only when land prices rise enough to cover the high cost of development. Urban development corporations, such as the one established in the 1980s to regenerate east London’s docklands, could assemble such plots of land more effectively than private developers.
Not all these policies would be popular or easy. Even the modest planning reforms introduced by the coalition are resented. Building on fields in a country that is as crowded as England will always rile some people, however well-designed the system. But the alternative is worse: a nation of renters and rentiers, where only the rich own houses.
This article appeared in the Leaders section of the print edition under the headline "An Englishman’s home"
