Author

Carl M Groves BSc MA MBA

Hampshire, UK

Email: carle.groves@btinternet.com

Document Publication Date: 22 May 2024

Copyright © Carl Groves, 2024

How to Solve Britain’s Housing Crisis

Introduction

All areas of national government policy are important, but some play a particularly crucial role in defining what it means to be a member of a society and, in the case of the UK, what you can expect to experience as a British citizen or British resident. I would define these areas of policy as Housing, Health, Education, and Security.

This article concerns itself with the first of these, Housing. The UK lies in the Northwest of Europe and is subject to a highly variable annual climate cycle in which there is no chance for individuals to thrive without access to decent housing they can afford to live in. In turn, decent affordable houses need to be located close to good local amenities such as public transport, schools, shops, roads, parks, libraries, and leisure centres. Most essentially, new houses must be located to enable working-age occupants to have good access to a variety of employment and business opportunities.

What is the UK housing crisis?

A recent report published by the Resolution Foundation (25.03.24) confirms:

‘The UK is one of many countries that considers itself to be in the midst of a housing crisis. But a comparison of housing costs, floorspace, quality and wider price levels across countries reveals that households in Britain are paying more for less, and that our housing stock offers the worst value for money of any advanced economy.’

When we investigate more deeply, we find that this ‘housing crisis’ in the UK is multifarious and relates to individuals and households who:

1. find themselves, quite literally, without any accommodation;
2. are reluctantly obliged to live in someone else’s home or even with an ex-partner;
3. are forced to live in accommodation whose size, configuration or location is inadequate even for the most basic needs of their household;
4. live in accommodation that is superficially adequate for the needs of their household, but which is a health and safety hazard due to poor quality construction and maintenance;
5. are forced to pay disproportionately inflated costs for their home, when compared to both average incomes and the general price level.

Whilst the term ‘homeless’ usually refers to people in the situations described in 1. and 2. above, we can only fully appreciate the extent of the UK housing crisis by including the situations described in 3., 4., and 5. which includes households whose accommodation is clearly too cramped for their reasonable needs or of such poor quality that it is not fit for purpose or is too expensive when compared to their household income – and sometimes of course all three!

But no identification of a ‘social crisis’ is complete without recognising which social groups and which demographic cohorts are more likely to be suffering from that crisis. Unlike the obvious universal threat of an asteroid on a collision course with the earth, most human crises are more nuanced and often become opportunities for the well placed! In the case of the crisis in the UK housing market, the owners of property – disproportionately older and retired people – have seen the value of their homes increase well beyond the levels of general inflation and wage increases, whilst renters and the homeless – disproportionately younger and working people – have seen the prospect of home ownership being pushed ever further into the distance as their rental costs take up an ever higher proportion of their incomes.

What Housing Shortage?

Whenever the subject of ‘the housing shortage’ is discussed in the UK, our politicians and policymakers typically avoid admitting to any conceivable possibility that some people may have too much housing (and its related real estate) and that others may have too little. In her regular social policy commentaries for The Guardian, Polly Toynbee has periodically highlighted this issue. For example, even within London, there are more bedrooms in domestic dwellings than there are residents of the city. If we were to assess the whole UK against this measure, there is probably already enough housing to go round. Does this mean that government policy should make it impossible for people to provide themselves with additional space or to own a second house? The short answer to this question is surely, ‘no it should not’; but successive British governments have chosen instead to do the exact opposite, through policies which limit both private and social house construction and which effectively subsidise the hoarding of housing assets and surplus living space by wealthier people, thereby actively encouraging a housing shortage.

Subsidising housing profligacy

The utility derived by an individual from owning private dwelling space is in large part dependent upon the state’s provision of a whole raft of local and national public goods, including: the police and criminal justice system, fire and emergency services, roads, and transport infrastructure, building and planning controls, environmental services (such as flood prevention schemes), refuse disposal, and even national defence. Indeed, would any rational individual wish to own real estate in a country which did not have most – and probably all – of these public goods?

It doesn’t take much imagination to see how the economic value of any real estate or property asset would be hugely and adversely effected by the lack of these publicly funded services; and yet these public services are provided through the taxation paid by all income earners, many of whom today will never be able to buy property themselves. Therefore the greater the size and value of a private home, the greater is the ‘public subsidy’ to its owners and, hence, the need for government to acknowledge the additional economic and fiscal subsidies they are providing to those who own private housing compared with those who do not. For example, UK Council Tax is payable by both homeowners and home-renters alike, yet there is no distinct forfeiture imposed on owners whose property value is being protected by the many publicly funded services described above. In addition, due to a pointedly small number of council tax bands, owners of larger and more valuable houses pay very little more council tax than do owners of smaller and less valuable homes.

A more covert yet extraordinarily generous form of government subsidy to private homeowners is the use of a monetary policy instrument known as Quantitative Easing or QE. QE has been used by UK governments since 2008 ostensibly to boost economic activity and thereby avoid deep recessions by increasing bank reserves, reducing interest rates, and making credit (i.e. borrowing) cheaper. However, this increase in bank reserves also increases the value of shares, bonds, and everything else which can be considered a financial asset, including housing and real estate. Of course – and here’s the catch – you must be a financial asset holder or house owner to benefit from the extraordinary largesse of QE; and the more valuable your home and any other properties you may have, the greater is the additional equity effectively gifted to you by the government.

Another result of quantitative easing, although it is often a little delayed, is an increase in the general level of prices which we refer to as general inflation. Cruelly, for the many who are unable to buy property these days, this increase in house price inflation and general inflation makes it even harder to get onto the ‘property ladder;’ it also provides private landlords with the perfect excuse to raise rents because their tenants are now (are they not?) ‘choosing to rent a more expensive property’! Landlords will also be egged on by financial advisers pointing to the ‘need to get a better return on their enhanced property investment portfolio’! QE is therefore a double whammy for renters: they face higher real rental costs and thereby less opportunity to save, and, at the same time, they suffer a further setback to their plans for future home ownership due to even higher property prices!

Inheritance Tax (IHT) has the potential, over the course of a person’s lifetime, to be a genuinely redistributive tax and to slightly reduce the level of effective subsidy from non-homeowners to homeowners. However, the high starting point for the payment of IHT and its many exemptions and loopholes are designed to allow most of its likely payers to substantially reduce their IHT liability or to avoid it altogether.

In these ways, and in many others – which we don’t have space to explore in this article – both monetary and fiscal policies have served to drive up house prices and to make it ever more difficult for new entrants to the housing market, typically younger generations of adults. Perversely, in an era of housing shortages, UK governments have encouraged multiple house ownership by helping to make domestic dwellings arguably the safest and most profitable ‘investment’ in the entire UK economy. The resulting national obsession with private home ownership, with getting on the housing ladder, and with scrutiny of any report concerning the inevitable further progress of house prices, has also had an adverse knock-on effect for UK industrial and commercial investment; and this has been a major contributory factor in the long history of Britain’s economic decline and notoriously poor level of business productivity.

A Higher Status for Housing Policy and Administration

The policy changes needed to solve Britain’s intergenerational housing crisis would be greatly assisted by a higher status being attached to housing within government itself. In my recent blog publication A Manifesto for Britain 2024 [carlmgroves.blog] I suggest that Housing would best be placed within a new ‘senior’ Department for Housing, Transport, and Environment (HTE). In A Manifesto for Britain 2024 I make the argument that transport policies need to be more closely related to the needs of households and to the various locations, resources, and experiences people need access to. Similarly, environmental policies – including those relating to climate change – cannot be effective without closely linking housing and transport policies. But for the public policy areas of Housing, Transport, and Environment to better complement one another we need a reorganisation of our governmental department structure.

My proposal for a Department for Housing, Transport, and Environment includes the appointment of a minister to lead the DHTE whose seniority within the Cabinet would only be surpassed by the Prime Minster. This would send out the clearest of messages, that: improving the overall availability, suitability, and quality of UK housing is a non-negotiable priority.

In A Manifesto for Britain 2024 [carlmgroves.blog] I also propose the creation of Regional Assemblies and Regional Executives for each of the 9 English Regions, with substantial delegated responsibilities for Housing, Transport, and Environment amongst other things. The idea is for Regional Government to have some characteristics of Central Government, some characteristics of (our current) large County Councils, and some characteristics which are not currently found in either. It is envisaged that Regional Executives would have a leading role in all aspects of regional economic development, including the approval of large private housing development projects.

Private Housing Development

Notwithstanding the argument made earlier about the real level of housing shortages, it is a fact that some existing housing is now located in the wrong place given social and economic changes during the past half-century. It is therefore obvious that part of the solution to the UK housing crisis can only be addressed through new build properties, and this will inevitably involve private sector property development companies and construction firms. However, several criticisms have been levelled at property developers over many years, such as their use of dominant market position and industry cartels to hold on to land with planning permission until those land prices rise, thereby securing higher prices for newbuild properties through a process of industry rationing. This anti-competitive behaviour by property developers and large construction firms leads to relatively small numbers of house completions and significantly higher prices for house buyers. The solution is to legislate for shorter expiry dates for planning permission licenses and to allow local councils to buy back the land sold to developers but not used within that timescale, and at the original price!

Another criticism is that property developers do not take adequate notice of the strains a development imposes on local physical infrastructure, such as roads, water and sewage systems, shops, and retail outlets; and upon local services such as schools, GP clinics, and public transport. Of course, a good local authority should address these issues when considering planning permission but due to the desperation of local planners to get much needed housing built, and pressures from central government to meet national targets, such considerations are often downgraded or watered down to secure the development. The solution here is for local government – and proposed regional government – to have more resources to build housing themselves and to improve infrastructure through a new funding stream. [see later] Local councils will also benefit from having a regional executive to call on to help address public service issues relating to local demographic changes and population growth.

Council houses and local planning revived

As detailed in A Manifesto for Britain 2024 [carlmgroves.blog], the growth in the volume of rented housing provided by Housing Associations has resulted in much of our so-called ‘social housing’ becoming almost indistinguishable from private renting in both the level of rents charged and in the tenancy conditions stipulated. Re-establishing the former status of local councils in their role as ‘the local planning and housing authority’ and instigating an ongoing programme of council house building and refurbishment, would serve to stabilise private house prices and act as a break on the ever-increasing levels of private rents in recent decades, as indeed it did in the 1950s, 1960s, 1970s, and 1980s when the ‘Baby Boomer Generation’ and their ‘Silent Generation’ parents first needed a family home.

This new and refurbished council housing needs to be better integrated into socially diverse communities than was sometimes the case in the past, so as to avoid the problem of isolated estates and ghettos which came to characterise many – though most certainly not all – large council house developments of the 1950s and 1960s. Council house residents must have good access to road and public transport services and be located in areas with good opportunities for business and employment. Above all, the right of a tenant to buy a council house must be determined by the council housing authority itself and must only ever be granted if the sale proceeds (based on realistic market prices at the time of sale) allow the said council to build or otherwise acquire an equivalent replacement property as part of a coherent public housing strategy.

Fiscal policy as a tool of housing policy

As we have seen, an individual’s ownership of a house or flat imposes what economists call ‘externalities’ upon the wider society, such as the related costs of transport infrastructure, environmental damage, policing and protection, and fire and rescue services; the absence of which could render even the most salubrious houses and apartments quite literally unsaleable and therefore worthless as financial assets. In this context some sort of property tax on domestic dwellings, in addition to a reformed Council Tax, seems reasonable. So how might this be done?

Firstly, it is proposed that Council Tax Bands are regularly updated to ensure that they are always based on recent valuations – made within the previous 3 years – and contain enough tax bands to better reflect a UK housing stock whose property values range from £100,000 to £250,000,000. Given that in 2023 more than one million properties across England were unoccupied (as reported by the Local Government Association on 13.11.23) it is proposed that the Council Tax charge should be doubled after each full year that a property is left unoccupied unless, for example, it has been purchased by a local authority pending redevelopment as a council house.

Secondly, it is proposed that there be an Annual Property Tax (APT) on private homes, including those rented to third parties. With the exception of publicly owned properties and homes provided by strictly not-for-profit quasi-public bodies, ATP should be charged to the owners of houses and flats whether they are individuals, companies, or private trusts, and payments should not be tax deductible as business expenses. The APT should be levied on recent market property values – i.e. within the last 3 years – and be set at a small percentage of that value. For purposes of illustration, the APT might be levied as follows:

APT on Primary Homes

• a zero rate on the first £600k of house value (i.e. set at twice the UK average house price)
• a rate of 0.3% levied on residual house value of over £600,000 up to £1,200,000
• a rate of 0.5% levied on a residual house value of over £1,200,000 (with no upper limit)

APT on Second, Third and Subsequent Homes

• a rate of 0.3% levied on house value up to £300,000
• a rate of 0.5% levied on a residual house value of over £300,000 (with no upper limit)

In the case of second, third and subsequent homes they should be subject to full Council Tax charges and, upon sale, be subject to Capital Gains Tax.

Taken together, these proposals for a reformed Council Tax and a new Annual Property Tax would constitute a substantial disincentive to own second and subsequent homes, thereby ensuring that the existing UK housing stock is better utilised and goes further. Where second and subsequent home ownership persists, renters and single homeowners would have some level of comfort that multiple homeowners are at least having to make a financial contribution towards the externalities [as previously detailed] which they impose on their communities.

A property tax to build council housing

The proceeds from the proposed Annual Property Tax should, in my view, be earmarked to support the building and refurbishment of sufficient numbers of council homes to eventually provide fair-priced rented accommodation (in proximity to essential amenities) to all younger adults and state pension dependent pensioners – who’s lower-income/asset-poor status limits other housing alternatives. To avoid unnecessary stress on the environment, local authorities should be encouraged to buy and refurbish suitable (and sound) housing stock from the private sector to reduce wherever possible the need for large new council housing developments on green field sites.

There is no doubt that there will be an important role going forward for new higher density housing developments in many parts of the UK, as this helps to achieve good access to amenities for tenants and leaves more space for light, landscaped spaces within the development; it is also environmentally responsible given (legitimate) concerns for the British countryside. However, each scheme needs proper scrutiny to ensure that the lessons are learned from the mistakes made in constructing high-density – particularly high-rise – developments in the past.

Conclusions

The measures proposed in this article would, over the course of a few years, substantially address Britain’s housing crisis and in addition promote greater intergenerational fairness. The proposals for an Annual Property Tax would provide the funding needed to kick start a major national programme of council house building and refurbishment; this in turn will stabilise both house prices and rental costs, so that the term ‘housing’ becomes more synonymous with ‘homes’ and less synonymous with ‘investments.’ Finally, these proposals would help to address all aspects of the housing crisis detailed earlier, resulting in a release of human potential that is essential for Britain’s return to an extended period of sustained economic growth.

Carl M Groves                                                                                          (May 2024)