How Liz Truss could resolve the housing crisis | Matt Snape
This year’s Conservative leadership race has been nothing short of embarrassing. Both Rishi Sunak and Liz Truss have clashed over issues like tax cuts, and the contest has become awfully personal. And yet when it comes to what many would consider to be the most important issue facing the electorate, housing, neither of them had any solid answers.
Today’s Conveyancer reports that David Woolman, Director at property company Woolbro Group, attacked Rishi’s promise to protect the Green Belt and to focus on brownfield sites instead.
Truss, now Prime Minister, wants to end ‘Stalinist’ housing targets, and she intends to provide housing associations with control over projects.
Both candidates had great soundbite answers but like with so many of the Tories’ housing policies, they lack substance and imagination. Now that Liz Truss has been installed as PM, her lack of substance will be rapidly exposed. The Conservatives have had 12 years to resolve the housing crisis and they have failed to do so. Their flagship Help to Buy policy sounded like a great idea in principle: customers pay a deposit of 5 per cent and arrange a mortgage of 25 per cent to make up the rest, with the government lending homebuyers up to 40 per cent of the cost of a newly built home. In 2020, before interest rates rose, Martin Lewis warned that, despite homeowners receiving a government loan that is interest free for the first five years, they will then have to pay a 1.75 percent interest rate charge after that. Help To Buy was nothing more than a short-term solution to stimulate the housing market after the 2008 recession.
As with many well-intentioned government initiatives, Help To Buy has not led to increased rates of homeownership. The Brookings Institution found that by 2018, the numbers had slipped to 63.9 per cent of Brits owning homes as opposed to an all-time high of 70.2 per cent in 2003. Lockdown later triggered a surge in home purchasing, which inevitably caused house prices to skyrocket as people wanted homes with gardens in case an event like that ever happened again. The trouble is, they are in short supply.
But how did we get into this mess? And what can be done about it? A surging population is the main factor for an increase in house prices. Konstantin Kisin writes: “More people settled in England during the height of…New Labour…than had arrived between 1066 and 1950. Let me say that again: more people came in a decade than had come in nine hundred years.” Journalist Ed West explained what impact this actually had on housing: “Each 10% increase in house prices reduces the birth rate by 1.3%, and runaway housing costs in Britain have prevented hundreds of thousands of children being born. We can see that the shortage of children is especially acute in those most expensive cities, where NIMBYism is preventing expansion.
While NIMBYs are very influential in the Conservative Party, rising house prices are associated with the electorate becoming more left-wing as well as less fecund.” Building more houses on the scale that the Tories did during the 1950s and 60s might sound like an obvious solution, as Henry George claims, but that won’t happen unless all the regulations and taxes that make it harder to build more houses are repealed or reformed.
Prime Minister Truss must, therefore, tackle immigration immediately. She must commit to quitting the European Convention of Human Rights – even though she does not want to – to enable the Rwanda policy to take full effect. However, housing reform requires bolder solutions.
Moreover, as unpopular as this is going to be with Conservative voters, the Green Belt initiative needs to be reformed. LSE professors Paul Cheshire and Christian Hilber state that the government must scrap the Community Infrastructure Levy, which is a charge levied by local authorities on new development in their area, and replace it with a transparent tax on the sale price of all the new construction, which would lead to proper funding to pay for enhanced services and infrastructure for the local communities that receive the development. They added that the policy would allow building on Green Belt land – so long as that land had no environmental or amenity value – within 800 metres of commuter stations. There is a remarkable quantity of such land. A worked example for five city-regions – Birmingham, Bristol, London, Manchester, and Newcastle – reveals 47,000 hectares of buildable land.
Alongside Green Belt reform, the Tories need to be braver on stamp duty too. As Hilber and Cheshire suggest:
‘Other demand-side policies have very similar effects. Consider the Stamp Duty Land Tax exemption to first-time buyers: economists have long argued that the stamp duty damages both the housing and labour markets, and a recent study suggests that it has a particularly bad effect on housing-related and short-distance moves. It discourages downsizing and makes it more difficult for young families to expand their housing consumption. Phasing out stamp duty and reforming other property taxes would be the right policy.’
And then there’s planning reform. As Hilber and Cheshire alluded to in their piece, the best way to amend the planning system is by reforming or scrapping the Town and Country Planning Act 1947. This legislation paved the way for the planning system England has today. A report from the Institute of Economic Affairs (IEA) found that the law has caused an increase in the number of protected Green Belt areas and favoured big housing corporations over smaller builders. The report also specified that this Act is one of the main reasons why house prices have increased substantially since the Second World War and helped boost record numbers of NIMBYs who object to housing developments in their areas, as councils can build on more attractive sites taken in by the Town and Country Planning Act.
Even before the election, none of the Tory leadership candidates had committed themselves to the solutions outlined here. Henry George issued the following warning:
‘The simple fact is that, at the moment, British Conservatism is doomed: doomed to lose the next general election and doomed as a serious electoral force capable of steering the ship of state with the seriousness it deserves and requires. Maybe out of the ashes of defeat something will grow that will be justified in governing, but unfortunately, I cannot see that happening.’
Britain’s housing market is doomed, too, regardless of who becomes prime minister on 5 September.
Quote: “Prime Minister Truss must, therefore, tackle immigration immediately. She must commit to quitting the European Convention of Human Rights – even though she does not want to – to enable the Rwanda policy to take full effect.”