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Not fixing a broken housing market: Government whitepaper released

The housing market in the UK is in crisis, with practical locations too expensive for many to afford even in the rental market, gentrification and displacement of local communities commonplace  we must explore what is causing these problems. The government today is releasing a whitepaper on the issue which described the housing market as ‘broken’, but let’s explore the issue a bit first.

“The housing market is broken”

A damning indictment is the fact that in London over 80,000 homes were empty (as of 2014, at least) according to the BBC: http://www.bbc.co.uk/news/uk-england-london-28349374

So we know part of the problem is the use of housing as an investment, but it doesn’t explain everything.

House prices are strongly political. People have houses not just as places to live, but usually it is also where the vast majority of somebody’s wealth lies – being worth many times a person’s annual salary and financed by expensive mortgages. It’s unsurprising that homeowners and those paying mortgages are not exactly on-board with the idea of shrinking house prices. Supply and demand suggests that a large increase in house development may force house prices down.

On the other hand, many people are struggling to get on to the housing ladder at all – while the home owners group want house prices to go up, this plays against the needs of those without a home of their own who are forced (often very expensively with the collapse of social housing) to rent accommodation. The fact that houses, and so mortgage deposits, are so expensive along with high rents puts the barrier to home ownership very high for those who haven’t had the opportunity to get on the housing ladder before.

Many are speculating that the housing situation is currently a bubble, such thought is driven by foreign property speculators buying up properties in London and using them as investments – expecting them to accrue value over time. This has attracted criticism as some property owners will not even rent the house they own and merely use it as a store for their wealth. The bubble scenario predicts that at some point, perhaps with Brexit, the bubble will burst when investors lose confidence in the UK housing market and many ordinary families will lose a lot of their wealth when this happens.

The UK economy at the moment is highly centralised. It can be extremely hard to find work outside London – the commuter belt in the South East is notorious. It’s usually easy – too easy – to find work in London, but the tradeoff is you either have to move into London or put up with a time consuming and costly commute. Businesses take root in London because of the belief that if you operate from a central location, you can attract talent from all around. It works, in that it’s convenient for businesses, but for overall society it’s hitting diminishing returns.

It’s extremely expensive to develop in London, with land many times the cost of other areas in Britain because  much of it is already developed. To facilitate commuters, you need to keep building transport infrastructure which gets more costly and more complex the more you build it up in one area. The UK has some of the busiest roads in Europe, highest train fares, large amounts of congestion on peak time services. Housing is very expensive to build in these areas and private developers won’t want to build property that they have to sell for below the going rate which means they’ll only build expensive properties, and only people who are already wealthy (and already own property of their own) will be able to buy that new property. The cycle continues.

As such, decentralisation of the economy must be a key part of any solution to the current housing crisis. It’s not good enough that in some areas over 40% of the working population commute for an average of over an hour. People won’t move to somewhere where there’s no work, and Londoners are loathe to move to the commuter belt for this reason. Work must be created all across the UK and the government needs to intervene to make this happen – otherwise you’re stuck building costly properties in London.

There’s another way to look at it: Houses are too expensive to buy but businesses don’t want to build houses that sell for less than the going rate. If the government were willing to simply build the houses themselves (or directly contract it out), and sell the houses on/rent them out for a while, that could by-pass the issue while keeping a balanced budget overall. I’d rather just have a lot of new social housing development to try to bypass the house price issue entirely while providing affordable housing. This would also have the benefit of allowing people to save for the deposit on a mortgage, something that can be quite difficult without a parents’ house to live in or a particularly strong tolerance to house-sharing in this day and age.
Giving home-owners an ‘out’ – something to hedge against a collapse in housing prices is something that could substantially sweeten the pill of what for many is a necessity.

What the whitepaper says

The whitepaper puts some emphasis on councils being slow to come up with plans, and a lack of regeneration of brownfield sites. The government may wish to get its own house in order on this point as it is well documented that councils have seen severe cuts in funding, which necessarily will slow down planning development as they struggle to secure qualified people to deal with the task. The government must provide more local funding to councils if they expect this to be done in a timely manner.
Unfortunately the issue of over-centralisation of the economy is not a fact that appears to be explored in the whitepaper, only suggestions that houses and jobs must be created ‘in the right places’ and rightly points out that very complex nature of determining those things along with some suggestions on how to make that process more transparent.
Little is said about the role of social housing other than that its regulator may be made more independent.
It is encouraging that the whitepaper claims the government is giving back some powers to local authorities to develop housing in partnership with developers. Again, though, local authorities will be limited in their ability to do this with the systemic lack of funding they’re facing.
A lot of emphasis is placed on getting investors involved, however this seems again not to be a particular solution to the housing crisis per se as those investors will only be interested in developing profitable properties – the market appears to be an inefficient tool for allocating the supply of housing by itself. More direct intervention by central government is needed at the current time than is suggested in the whitepaper.
Some lip service is give to already existing shared ownership schemes which are decried by many as something of a con – where a company gets a lot of equity but the occupant holds all of the risk.

What will happen next?

My prediction based on, admittedly a quick reading of the government’s whitepaper is that their approach is too cautious and relies too heavily on starved local government bodies who can scarcely afford to run their own existing services, let alone spend on the provision for complex planning operations. As such the plan would appear to be doomed to failure. The lack of acknowledgement about the political nature of housing prices is also a bad sign that this hasn’t been prepared for properly – or rather, it is in the nature of this government to keep house prices afloat rather than allow them to drop and receive a harsh backlash from their core voter base.
Between Brexit, the bubble and those who can’t get their foot on the ladder, something has to give, though. The question is: what?

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