Graham Harle is the CEO of Gleeds
Housing is never far from the news cycle. Labor leader Sir Keir Starmer recently argued that improving home ownership would be a central plank of Labour’s manifesto for government, having no doubt absorbed May’s local election results, which saw that the Conservatives lost over 1,000 council seats. Many in the party blamed the bloodbath on the current government’s inconsistent and underwhelming approach to housebuilding. According to some, they build too few in the wrong places, while for others they threaten to build too many in the wrong places. They would say they can’t win, and argue that Sir Keir is just being opportunistic.
“Michael Gove has a worse relationship with UK builders than any minister in living memory”
Stuck in this dilemma, they have simply abandoned the promise to build 300,000 homes and blamed the housing shortage on the market. To this mix we add the current Secretary of State for Promotion, Michael Gove, who, I think it’s fair to say, has a worse relationship with UK housebuilders than any minister in living memory. From planning to land accumulation, and from Grenfell to the green belt, Mr. Gove has tried to confront and provoke the sector with little real effect. His government’s post-Brexit immigration policy has robbed the UK of craft trades, pushing up wages for a shrinking stock of craftspeople, making labor as expensive as it has ever been in the last decade.
But the UK is not alone in its housing crisis. Overall, housing costs in America absorb 11 percent of GDP, up from 8 percent in the 1970s. If only three major cities (New York, San Francisco, and San Jose) relaxed the rules of planning, US GDP could be 4% higher. It’s a huge prize.
Unfair markets
In addition to being simply inefficient, housing markets are profoundly unfair. Over a period of decades, falling interest rates have exacerbated inadequate supply and driven up prices. In America, the frenzy is concentrated in prosperous cities; in other rich countries, average national prices have soared, especially in English-speaking countries where property clearances are a national sport. The financial crisis did not end the trend. In Britain, inflation-adjusted house prices are roughly at their pre-crisis peak, while real wages are no higher.
In Australia, despite recent falls, prices are still much higher than they were in 2008. You might think that fear and envy about housing is part of the human condition. In fact, the pathology of ownership has its roots in a public policy shift in the 1950s towards the promotion of home ownership.
Since then, governments have used subsidies, tax breaks and sales of public housing to encourage owner-occupation over rent. Right-wing politicians have seen home ownership as a way to win votes, encouraging responsible citizenship. Those on the left see housing as a conduit for redistribution and also has the potential to put poorer households into debt.
Other ways
It doesn’t have to be like that. Not everywhere is affected by all parts of the housing curse. Tokyo has no shortage of properties; between 2013 and 2017 it built 728,000 homes, more than England, without destroying the quality of life. The number of people sleeping rough has decreased by 80% in the last 20 years.
Switzerland offers tax incentives to local government to allow housing development, one reason why there is nearly twice as much housing construction per person as in America.
New Zealand recovers some of the windfall gains from property owners through land and property taxes based on frequently updated valuations.
The most important thing is that in some places the rate of home ownership is low and no one is getting. Only 50 percent in Germany, which has a rental sector that encourages long-term rentals and offers clear and enforceable rights to tenants.
A general election is coming up in 2024 and the party that proposes a credible, cost-effective and managed housing policy will win votes. The definition of insanity is doing the same thing over and over and expecting different results. Let’s hope one side looks outside the usual suspects for inspiration and takes a fresh approach, seeing property as more than an electoral currency.
