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How to start fixing our chronic housing problem.

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Written by Neil O’Brien

Neil O’Brien, until recently a Minister at the Department of Levelling up, argues taht the new Prime Minister will be grappling with housing and planning straightaway. He argues that to solve our housing shortage both supply and demand matter. To reduce demand we must reduce immigration.

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The Levelling Up and Regeneration Bill is in Commons committee. It contains popular measures to drive brownfield regeneration, but also contentious elements. Though it doesn’t address housing targets, its passage is providing a focus for MPs to press for local housing requirements to be watered down. Both candidates have nodded in this direction, with Truss promising to end “Whitehall-inspired Stalinist housing targets”.

There are choices to make about reforms for renters. We promised in the manifesto to end ‘no fault’ evictions, and last year pledged to halve the number of non-decent rented homes (one in eight privately rented properties contain major health hazards). We could legislate in the final session of this parliament: if not, we’ll need to demonstrate we’ll keeping our promises somehow.

There’s unfinished business regarding unsafe cladding, with nearly two million people imprisoned in flats they can’t sell. Michael Gove successfully strong-armed developers into agreeing to fix it, but they’re trying to wriggle out.

Those are urgent choices – but the even bigger question is how to fix Britain’s chronic housing problem. In England and Wales the average house cost 3.5 times average earnings in 1997, but 9.1 times earnings last year. In London it’s about 14 times. Prices in England rose 9.4 per cent last year.

In the 1960s and 70s, private renters spent ten per cent of their net income on rent, now it’s more like a third. Homeownership among middle income people aged 25–34 fell from 65 per cent in 1996 to 27 per cent in 2016.

Some people argue that the laws of supply and demand don’t apply to housing.

It’s not true.

They say the ratio of households to homes hasn’t worsened. That ignores the huge number of households that don’t form in the first place because of housing costs. You can see that in the way people cram together, with rising household sizes in expensive cities. You can see growing numbers of young adults unable to leave home: numbers aged 20 to 34 years living with parents rose from 2.4 million in 1999 to 3.5 million in 2019. The proportion of young men aged 22-26 living with parents jumped from 39 per cent in 2008 to 49 per cent by 2019 and 51 per cent last year. No wonder young people are having fewer kids.

Around 600,000 households were prevented from forming over the last decade. Saying there’s no shortage of housing based on the ratio of households to houses is like claiming during a famine that there’s no problem – because the ‘ratio of food consumed to food available’ hasn’t changed.

Both supply and demand matter. To reduce demand we must reduce immigration. Otherwise, as Kemi Badenoch pointed out, we’re running up the down escalator. Over the last decade, migration directly added two million to the population, equivalent to the populations of Nottingham, Derby, Leicester, Middlesborough, Carlisle, Oxford, Exeter, Portsmouth and Southampton combined. Migration Watch argue immigration at current levels “will generate the need to build one home every six minutes, night and day.”

We also need to reshape the tax system to shift housing towards homeownership, not just buy to let, steering money towards productive investment in small businesses, rather than property speculation.

Steps we took in 2015 in that direction worked. Between 2005 and 2015 the number of owner occupied properties in England fell 415,000, while the private rented sector ballooned by two million. We then changed tax rules on purchasing buy to lets and reduced mortgage interest relief for landlords. Homeownership stopped collapsing: since then the private rented sector grew by 100,000 but owner occupation by just under 1.2 million.

That’s only really in line with population growth – ownership rates are flattish. But 1.2 million families becoming homeowners is better, and we should go further.

Although it’s a small part of the picture nationally, overseas demand for housing as an asset is a problem in places like London. Over the last decade a quarter or more buyers in Greater London have been overseas. We should levy a recurring tax on overseas ownership – as in many other countries – to rebalance from investment demand towards homeownership.

We also need to boost supply, which really matters in the long term.

France, and even the densely populated Netherlands built proportionally twice as many homes as us since 1970, so real house prices increased half as much.

There’s dozens of things we must do to build more homes.

Replacing dysfunctional Section 106 agreements with the new Infrastructure Levy, so more benefit flows to local residents, not developers. Rebalancing what developer levies are spent on, towards things local residents want, like GP surgeries, schools, roads, and landscaping, rather than social housing for non-locals (affordable housing absorbs two thirds of the money, up from half in 2005).

Reforming the incentives facing local authorities. Looking again at large planned new settlements. And so on.

Here I want to focus on just one aspect – urban regeneration.

Many of our cities are building too few homes (they’re red below).

That isn’t for lack of demand. Indeed, the gap between population growth and housing growth is biggest in London, and that’s arguably the real measure of success or failure.

Since 2001 the average shire district council and the average London borough both increased their stock of homes by 18 per cent. But districts had population growth of about 13 per cent while London boroughs’ populations grew by 24 per cent. Other large cities also underdelivered against need.

Britain has the least dense cities in Europe. Dense cities have many benefits: higher productivity, better environmentally. Done right, denser places can be attractive: think Kensington and Pimlico, Barcelona and Paris.

Places like Dundee, Glasgow, Liverpool, Sunderland, Birkenhead, Hull and Newcastle all had smaller populations in 2017 than 1981, suggesting room for growth.

So Robert Jenrick was right to uplift housing targets for our large cities.

But currently the ‘Duty to Cooperate’ is allowing Labour-run cities to offload their housing need onto neighbours, defeating the point of the uplift.

As Jenrick and Gove planned, the Duty is being abolished by the Levelling Up and Regeneration Bill. The next Prime Minister should resist calls to replace it.

To actually hit the uplifted targets, our cities will need substantial help. Homes England is being repurposed to help places drive regeneration, but there’s a debate about how far to go. The new Prime Minister should take the maximalist approach: Homes England should be buying, assembling and remediating land at scale in all our main cities, acting as the cornerstone investor for institutional private investment at a much bigger scale.

Homes England can’t operate in London. And the situation in the capital is so bad, a more radical approach is needed. London chronically underdelivers housing. Rents are going beserk, with estate agents rationing and even charging for viewings. Skyhigh prices are increasing poverty and hobbling the economy.

The new Prime Minister should channel Thatcher and Heseltine, creating an “Inner & East London Development Corporation”. Like the Docklands Development Corporation, it should be able to overrule the failing Labour councils there, and grant planning permission.

It should have an uncompromising mission to find sites to regenerate and densify (London Yimby have various suggestions).

It should have chunky catalytic funding to draw in private money – London has land prices high enough for it to afford to pay the Treasury back the upfront investment needed.

In truth, if the new Prime Minister is to make any difference to these chronic problems, they can’t afford not to do something like this.

This article first appeared on the Conservative Home website


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Neil O’Brien