Solving the housing crisis: a game of cat and mouse

Our labour, land and property markets are broken. London’s growing housing crisis is a stark warning to the rest of Britain. This unsustainable growth risks London’s future, and serves as a warning to the rest of the United Kingdom that growing economic inequality continues to fuel new divides both socially and geographically.

London’s strengths are also its greatest weaknesses. Unlike much of Europe, London isn’t just the seat of political power, but also the national centre for finance, media, tourism, arts, and increasingly the emerging new creative and digital industries. This agglomeration of decent paid work draws tens of thousands each year into the city, in turn imbibing the nation’s collective appetite for infrastructure investment. Starved of land within its boundaries, London’s commuter belt has extended beyond the traditional South East, into the Midlands and beyond.

Extortionate purchase prices, low quality, high cost renting, and growing rates of homelessness are the symptoms of just how corrupted the land market in Britain has become. With London’s green belt limiting supply of cheap land, and commercial viability rules hardwired into the planning system making brownfield regeneration tougher than ever before, there is little surprise that the paucity of land in the nation’s capital cannot cope with the demands of its residents.

This scarcity, exacerbated by the deregulation of the property market in the 80’s, has morphed the role of a house as no longer just a home, but also an investment vehicle. Whether by willing but nevertheless amateur landlords investing in property as a pension at one end of the scale, or by major institutional investors, such as foreign pension funds at the other. A handy location to park patient capital to generate better yields than the more traditional guilt and equity markets.

The public investment that once provided the foundations on which councils built hundreds of thousands of general purpose council homes finds itself being diverted. After its near decline under Labour, the return of the Right to Buy since 2012 has seen 40 per cent of the 60,000 homes lost find their way into the hands of private landlords after their resale from the secured tenants who once leased them. At £22bn last year alone, Britain’s housing benefit bill didn’t just subsidise company low pay, but paid off billions of pounds of buy-to-let mortgages.

Housing development is an aberration of the free market norm, whereby the state – through legislation – mandates a more than healthy profit margin. Consequently, extracting profit out of the UK’s land market rather than going on to build much needed homes, is an industry in and of itself, with as many as 400,000 homes having received planning permission without being built.

Having near exhausted the supply of affordable homes for rents at social levels at the scale and pace required, local authorities are now faced with a £1bn bill for temporary accommodation to house an estimated 100,000 families, often in unsuitable accommodation, once again spending public money on largely private hostels and B&B style accommodation.

In the face of the scale of this challenge, local authorities continue to do their best to intervene and regulate where the capacity and will allow. Councils are increasingly introducing selective landlord licensing schemes to help drive up quality and standards in the private rented sector, despite being artificially limited in size and scope by government.

Council owned housing developers are increasingly sweating their assets to deliver higher levels of social homes, constrained only by the land that they have available to them, the investment they can secure and the borrowing that they can finance.

Despite the consistent anti-planning rhetoric from Government, and the watering down of the national planning policy framework, councils continue to use what tools left available to push private developers to deliver affordable homes at significant proportional levels.

But to solve Britain’s housing crisis, we need to settle some much bigger challenges beyond the limited regulatory mechanisms councils can currently use to shape their local land markets.

There are more fundamental challenges like the future nature of work and how and where we grow new industry outside of London. When markets break, its incumbent on government to step in and correct them, or local authorities risk forever playing a game of cat and mouse with genuinely affordable, safe and secure housing.

This article was published in advance of my participation at a Progress event at Labour Party Conference 2018 – ‘Can we solve Britain’s housing crisis?’ – Cllr Peter Mason sets out his vision for fixing our broken property market