Today’s Financial Times splash is unlikely to move the housing market much despite the promise of a £7 billion boost for housing. This is firstly because we’ve heard it all before and secondly because what’s being offered isn’t what we need.
A genuine state-backed housing programme that took old council buildings or the swathes of Ministry of Defence land that bitter old generals cling to mercilessly, and built homes that people could access would certainly help. Yet that isn’t what’s on the table.
What’s hilarious about these proposals however is that they come on the same day as a Times story reporting that the Bank of England wants to cull cheap lending, which it reckons is a risk to the economy – most of it against housing. If everyone agrees that millions of people borrowing trillions of pounds against property is unsustainable, then surely someone should have mentioned this to chancellor?
Of course, the main reason why housing policy continues to fail is because it is used a political football to score points and win votes in the short term rather than address long-term issues. Today’s policies will be nothing new and won’t address several key elements of need, which are set out below. There’s a risk that genuinely helpful stuff may not repay the government until well into the next parliament. But given the joke of an Opposition we currently have, it would surely be safe to assume Gorgeous George will still be here in 2023.
Anyway, let’s get back to the actual need we have and look at what should happen.
1. Affordable housing
In simple terms, Affordable housing (with a deliberately capitalised A) refers to subsidised housing generally built by private developers on top of stuff for sale and handed to a housing association who rent it below the market rate to people on lower incomes. Affordable housing supply is hugely under threat because the chancellor has decided to reduce social rents that fund many of the HAs who develop these properties. And new moves that seek to turn subsidised rented homes into so-called starter homes – sold for a 25 percent discount rather than gifted to housing associations – will further reduce the amount of housing that is affordable to low earners.
The reality check here is that in spite of such a discount, for the vast majority of people who would access Affordable housing, buying a property – even at a nice discount – is not affordable (in the literal sense). Why? Because people on lower incomes would need to earn huge salaries to buy an average-priced home in London, which after discount would still cost around £400,000.
A large part of what’s being proposed is a mish-mash of further grants for shared ownership schemes – where people buy a bit of a house and rent the rest – which are still reliant on people having a large enough income to cover both the rent and repayments. Crucially, this will do little to increase supply.
The single thing that needs to happen to build more affordable housing is for the state to put its hand in its pocket, use swathes of land it owns, build the stuff and sell it on to a pension fund with a 40-year lease, whereby it underwrites the rents through housing benefit. They would have institutions falling over their grannies to invest in such an asset and it would pay for itself within a decade.
The problem is that political cycles are half that length – and therein lies the crucial point: all we’re seeing are short-term fixes for long-term dysfunction.
2. Rented housing that isn’t subsidised
Private renting is the fastest growing area of the market. More than a third of people rent in London and nationally, that figure will be one in four by 2020. Many rent because they can’t afford a deposit but many also rent as a lifestyle choice. Out of touch ministers are still wedged to the idea that anyone who doesn’t own is a second-class citizen. This is tosh, of course. Many prefer the flexibility of renting; of not having to fork out for guttering or windows. Many like the idea of living somewhere posher or more central that they could not afford to buy in but can rent comfortably.
Millions of people are happy renting but standards are inconsistent at best and terrible at worst because there are no standards or big brands in the market. Think about renting a car or a hotel room: if you got to Zipcar or Premier Inn you know broadly what to expect. This doesn’t happen in renting.
Yet there is change afoot. We wrote a report in August this year for Addleshaw Goddard, a law firm, identifying £30 billion of institutional capital that could create thousands of homes built specifically for rent. By attracting this finance the government could encourage ‘new money’ which crucially will increase housing supply. This cash wants long-term returns – not short-term gain.
Volume house-builders generate capital receipts and short-term profits for shareholders. A pension fund takes a 40-year view, which is precisely what we need to harness widespread investment that will also offer renters security of tenure, decent buildings and proper service.
Some of these homes will be premium and expensive and some will be budget, just like hotels or car rentals. If you want a beasty BMW you hire one and if you want a feeble Fiat you save a few quid on the fuel. It’s no different. The key thing we need from a policy perspective is to encourage the money in.
This means holding our hands up and saying, “Yes, actually renting isn’t going away even if we close our eyes and put our fingers in our ears. Maybe we should poke planners to encourage more homes for rent and through building more quality homes, let the market push out rogue landlords.” You only have to look at the USA – where the corporate rental sector is called ‘multifamily’ and is worth trillions of dollars.
The beauty of this approach is it could cost the government nothing. It could actually make money for hard-pressed councils if old unused sites were co-developed with rental firms, which could allow the councils to take a share of the rents. Such a move could help support local health care or education or any of the number of things likely to be further culled.
3. Family Housing
Housing for families is a particular issue, not least because we as a country as particularly inefficient in using space. Old folks don’t much care to move out of family homes and much of what we’ve been building of late are flats. This isn’t necessary the end of the world – but clearly families will need more than a bedroom and half. The key to this again will be large-scale regeneration projects. Places like Ebbsfleet have for years been mooted as garden cities. But without vital support for infrastructure – some of which we’re admittedly now seeing – they won’t happen.
We’ve seen many previously out-of-favour districts brought back to life through Crossrail – places like Acton and Hayes to the west of London and Maidenhead, near Windsor, have seen a huge boost to values. What we need to do is bottle up this value and find ways to use it more effectively. In plain English though, if we want cheap homes they need to be subsidised by the state either through discounting the price of land or offering a straight chip off the price.
Many would suggest however, that such subsidies are grossly unfair at a time where the health service is on its knees and social care is crumbling.
Housing is a numbers game. But without cogent policy design to bring in ‘new’ money (i.e. investors not already building stuff) nothing substantially new will happen. Start homes are largely shifting deckchairs; moving subsidized rental homes into being subsidized ownership properties, which will inaccessible to many people in need.
Encouraging institutional investors – pension and insurance funds; the types of people who invest in infrastructure – we can encourage a building boom that doesn’t involve heightened economic risk.
Planning of course remains the elephant in the room: despite whatever George may say about productivity, this is largely undermined by local authorities and NIMBYs in many areas who don’t want anything because allowing development would dent their own house prices. Until we rid the planning system of ridiculous self-interest and the wholesale contradiction of localism versus central government policy to build, today’s headlines around housing delivery will be nothing more than chip paper.