According to a report published by Shelter this week, if the price of an oven ready chicken had risen as fast as the price of the average house since 1971, it would cost £51.18. House prices simply have to fall if we’re to find any way out of our economic mess and many of those with mortgages are going to have to take a hit. What we need to do is to ensure that the pain is borne by those who can best afford it… and who caused the problem in the first place.
We need to get over our obsession with property as wealth and prioritise the concept of “home”. The prominent inclusion of property values in economic models is falsely promoting the concept that inflated house prices are a good thing. They are not.
Our unnaturally inflated property stock encourages land-banking, floods the market with foreign money that overheats the London market but adds little to economic liquidity, reduces spending and therefore growth and drives the building industry’s attempts to circumvent the Section 106 affordable housing quotas that Don Foster has fought to protect.
We can’t keep pussyfooting around this problem. What we need is a raft of policies that combine to encourage home-building, discourage the hoarding of empty buildings and land, promote responsible renting and to see our towns not as property markets but communities. We also need to protect the many that will end up in negative equity but have not defaulted on their mortgages.
Some of these policies will seem illiberal to idealist free marketers but in concert they will change the culture of home ownership in Britain to one that actually helps the markets. This will dramatically reduce the average cost of living and increase the flow of money, boosting economic growth. It will put more people outside the housing benefit threshold, cutting costs to the taxpayer. It will free up billions of pounds currently dormant in land banks and empty buildings.
Here are a few suggestions.
The mortgage companies themselves should maintain the austere approach to home loans they reverted to in 2008. They should not try to fuel the market further by offering complex, long term products such as hereditary mortgages or shared ownership. By legislating for responsible lending (say 1980s style ceilings of three times annual income instead of 10) it will reduce the risk of defaults – good for customers, banks and taxpayers.
In return, the banks should be far more compassionate towards those in negative equity, underwriting the difference unless the customer defaults over several months.
We must also address the habit of property being used as a mainland tax haven. The foreign wealth pouring into the London property market is making the city unviable to live in. Meanwhile, UK billions buried in land and property instead of stocks and shares are hampering economic fluidity and growth.
Land tax and the mansion tax are already on the Lib Dem agenda but perhaps we should consider laws akin to Denmark’s, which restrict foreign property ownership and deter the hoarding of empty buildings and land. It might seem anathema to free market liberals but I believe we have to balance free market ideology over the needs of families and the national good.
Don Foster’s work on planning consent helps increase the affordable housing stock, as would incentives for councils to see building as positive. Leaving planning powers with them is right in principle, as Don says, but we cannot allow a culture of nimbyism to rule the day.
The tinkering around the housing crisis has to end and it is not sufficient to say we just need more houses. To fail to act decisively now is to submit the coming generation to a life where owning or even renting your own home is a mere pipedream. The knock-on economic effects of this on our productivity, prosperity and well-being do not bear thinking about.
* Neville Farmer is an Executive Member of the Parliamentary Candidates Association