“If the price of milk had risen in line with average house prices over the past 40 years, consumers would now be shelling out more than £10 for a four-pint carton: a sobering reminder of just how broken Britain’s housing market is. With price increases like these, it is little surprise the number of first-time buyers relying on family loans is now at a historic high, according to new research from the Social Mobility Commission: one in three rely on family help, and the proportion of 25- to 29-year-olds who own their home has almost halved since 1990.
A world where a growing proportion of young people can only afford to buy a home with family support makes a mockery of equal opportunity. Home ownership matters in Britain: yes, as oft remarked, it is a cultural aspiration; but one that is underpinned by rational financial interests. Home ownership provides a stability and financial security simply unavailable to those who rent, thanks to house price growth that benefits owners but drives up rents, and our very weak framework of tenants’ rights.
The success of government attempts to improve housing policy should be judged by a simple indicator: price. For decades, governments have rolled out policies aimed at improving affordability and helping people to get on the ladder, but at the same time long-term house price growth has far outpaced any increase in wages. What’s gone wrong?
The biggest problem is a land market that serves landowners and developers at the expense of buyers. Land is a fixed commodity and a public good: its sale should be highly regulated. Yet our planning system delivers huge windfall gains to landowners in areas of high demand: giving agricultural land residential planning status increases its value on average by a factor of 328. Landowners sell to developers offering the highest price, who maximise profit by slowly releasing houses on to the market to fuel further price growth, skimping on build quality and affordable housing.
This is a distortion relatively easily fixed. As Shelter has argued, local authorities and public development corporations should be given the power to buy undeveloped land based on its existing value: a power widely used across much of Europe. They could then sell land on to developers who commit to building affordable housing of better quality for quick release. This should be accompanied by tax reform – council tax is a hugely regressive property tax based on property values from 1990 – and stronger rights for tenants in the private rented sector, including caps on rent rises and longer-term minimum tenancies of at least five years.
This package of reforms would slow house price growth while increasing security for renters. But it is one the government shied away from in its recent white paper: it took only the most tentative of steps towards land market reform and improving tenants’ rights. Instead it has lifted regulations on minimum home sizes, paving the way for a flurry of tiny “rabbit hutch” homes to come on to the market. It is focusing the bulk of its political capital on deregulatory planning reforms, unlikely to have much impact given that planning permission has already been granted for almost half a million homes yet to be built.
The problem is not a lack of solutions, but a lack of political will. This is an area where ministers fear their own success. What government truly wants to preside over years of flatlining house prices at the expense of relatively affluent homeowners in the south-east? Almost 10 years after the financial crisis, economic growth remains too fuelled by the consumer debt enabled by rising house prices, and too little by long-term investment. And so the charade continues: politicians tout over-ambitious house building targets while tinkering at the margins, avoiding the market intervention needed to truly put a brake on price growth. It is young people without family wealth who will pay the price.”