At one point, the conversation turned to housing – a subject which, on the West Coast of America, and especially in San Francisco and Silicon Valley, is almost as all-consuming as it is in London. The median house price in San Francisco in the first quarter of this year, was $1.61 million. In the first quarter of 2013, it was $850,000. The cost of the average house in San Francisco has almost doubled in the last five years alone. In the Bay area and beyond, similar patterns emerge.

Sowell, reverting to type, imparted a piece of pure wisdom when mentioning, in passing, the issue of “affordable housing” and the authorities in the local area:

“They are appointing blue ribbon committees to look into why there’s no affordable housing. That’s like appointing a blue ribbon committee to explain why the ground is wet after rain. It’s very simple. If you prevent people from building housing and the population is growing you’re going to have a housing shortage and you won’t have affordable housing. It’s really economics one during the first two weeks.”[1.  Thomas Sowell: Discrimination and Disparities (Full interview)]

One of the most remarkable aspects of the housing debate in the UK is that only the first portion of that first fortnight of an economics degree is ever dwelt upon. The issues of planning consent, or lack of consent, as well as failed government targets and all the issues to do with brownfield and greenfield sites are an important part of the discussion. But they are only half of it – at most. Yet it is these parts of the housing debate which dominate. A much rarer focus – even in the UnHerd’s excellent “Home Truths” – is the issue of demand.

It was once assumed that average house price would be around three to four times an individual’s earnings, and that when average house prices were up to five times average earnings, there would be a slump in house prices. In recent years, all such pieces of received wisdom have gone the way of astrology. In London, in the last quarter of last year, house prices in the capital reached 14.5 times the average earnings. Not 14.5 times average earnings nationwide, but 14.5 times average earnings in the capital.

The societal implications of this are already making themselves felt. Just this week, a report from the Resolution Foundation found that on current trends, up to half of today’s younger generation will be renting into their forties and up to a third for their entire lives. The long-term effects of this are dire. Since rental payments are this generation’s largest outgoing, it is almost impossible to see how a portion of them are going to have enough money in retirement to continue to pay their landlords.

And along the way, politics itself will change, with a generation rent looking to drastic answers to this drastic problem.  It is no good for Conservatives to talk about personal responsibility and fiscal prudence to a generation which is having to paddle ever harder just to keep their heads above the waterline. As has been said many times before, the virtues of capitalism are not always clear to a generation without capital.  And when the most important asset most of us will ever own – a house – is beyond the reach of so many, even respect for other peoples’ assets may become a diminishing force.

But to return to Sowell’s point on housing stock. The first part of that equation is obvious.  In San Francisco and the surrounding area, the cause of the ‘demand’ side is the tech companies who dominate the Valley. They have given the impression that the Valley and surrounding area (including San Francisco) are the places that people absolutely have to be in if they are to be part of the tech world. It is true that proximity to other people in the same fields, and the possibility of raising funds from people within a tight geographical location has its advantages. But there is also a point at which those advantages pall.  A point that is currently the subject of much discussion in the Bay area.

In Britain, by contrast, there is very little consideration of the causes of the demand.  Though it is true that divorce and people choosing to live alone in recent years has spurred some demand, there is one overwhelming factor that has caused the majority of it: immigration.

In recent years, net immigration into the UK – that is the number of extra people who settle in Britain, taking into account those who have left – has consistently been over the 300,000 mark. Let’s diminish the number and say that it is a straight 300,000. Newcastle is a city with a population of around 280,000. So going on the number of people arriving in the UK each year over recent years, the country needs to build a city larger than Newcastle every year just in order to keep up with demand. The fact that house builders have not kept up with this demand is a contributing factor to the crisis, certainly.  But the other is that the demand is there in the first place.

A manifesto for change

Home Truths – Part VI: A manifesto to fix the housing market

By Liam Halligan

All of which poses a question at least as important as those regarding planning permission, which is this: does the UK really want to try to keep building a city larger than Newcastle every year? And bear in mind that most migration does not spread evenly around the country. It overwhelmingly focuses on major cities, and London in particular.

Most people starting off in their career will find it exceptionally difficult – to put it mildly – to get on a housing ladder that requires them to raise a deposit and a mortgage worth almost 15 times their salary. All to live in a place where over-crowding and a struggling infrastructure will become more and more acute as that Newcastle-sized city continues to try to squeeze into it.

It is, though, far easier to talk about planning consent than it is to speak about immigration. Far easier to set up a blue ribbon committee than to address a question filled with pitfalls and inviting of dishonest allegations. Net immigration of almost a third of a million people a year means a UK population soaring to 70 million in the near future and a whole world of societal and fiscal issues that flow from that. Plus a long-term agreement that Britain’s future is destined to be one of ever-more urban sprawl and ever less green or pleasant land.

Polling suggests that the current population is not by any means happy about the recent level of migration. And it is easy to see why. Competition from that 300,000 a year is a very large part of the reason why demand has so vastly outstripped supply and generation rent is being kept from the housing ladder.

‘Banging on about immigration’ is the usual charge when this uncomfortable fact is brought up. But when it comes to housing, ‘banging on about immigration’ also turns out to be ‘banging on’ about perhaps the one thing that matters most.

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Why don't we remember the victims of communism?

By Douglas Murray

Cutting out the Middle Man?

Since the early days of the internet, it’s seemed the ideal place for people to rent (and buy/sell) their homes. That’s partly as the process of working with an agent is time-consuming, and partly because it’s costly. What better market for cutting out the “middle man”?

Of course, would-be renters faced challenges back in the days of postcards in newsagents’ windows. But the internet has made everything a whole lot easier for the needy and the greedy alike.

Which is particularly the case in today’s tight markets, where the combination of constrained supply, urgent need, and limited funds can create a perfect storm of gullibility on the part of people desperate for an affordable home.

The more desperate the customer, the easier to scam – and sometimes the unscrupulous come up with fiendishly smart schemes.

Rent boys – and girls – in Britain

The greedy are usually after money. But sometimes, they’re after sex. Last year the BBC reported that online classified ads were targeting vulnerable people for sex in exchange for accommodation. It’s a story to shock:

“One student described how she felt her only option was a “sex-for-rent” deal.

She said she had fled an abusive home and had nowhere to live.

‘He took me into his living room, got me drinks, and then after that it was just straight upstairs and go for it.'”

In a separate article, the BBC told the story of Jason, a 27 year-old homeless man who says he “had to enter a ‘sex-for-rent’ arrangement” to get off the streets:

“I found an advert [online] that offered a room for rent between zero and £300 per month. That was the first clue.”

A year after the BBC investigation, The Guardian has reported that the accommodation-for-sex trend is on the rise: “Words such as ‘intimacy’ and ‘benefits’ are starting to appear in the to-let columns [online].” And the article notes that there have been no prosecutions.[6.  The Guardian article discusses whether such ads are illegal under UK sexual offences law. Meanwhile, in the United States, the recent passage of sex trafficking legislation by Congress has led Craigslist to drop “personal” ads seeking relationships from their U.S. site.]

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The grim reality of renting in Britain

By James Bloodworth

A fake landlord in Munich

Then there are the scammers who aren’t landlords at all – where apartments are advertised, rent requested in advance, but the property doesn’t exist. Munich, for example, is famous for its high property prices, so when Klaus found a bargain online he lost no time in emailing the UK-based owner. Here’s the reply he received:

Dear sir/ms

My name is Peter Shaw I have the 1 room apartment in Munchen for rent. The rent is 350 EUR per month.

I had the apartment with my wife because she was german and last year she died in a car accident that we had . I also lost my hearing in the accident. Now I live in London United Kingdom. The apartment is very big due the fact that it is a one room apartment and it is in a nice area of Munhen. I have received another offers today about 50 proposals and I want yo to know that I only let the apartment if you pay in advance the rent for three months….

The key to the apartment is here with me. I will come and give you the key and we will make the contract.

And – surprise! – “Peter Shaw,” with his tale of woe, wanted the three months’ rent immediately. Klaus had the sense to Google some of his phrases, and found he wasn’t the only one to come across Mr Shaw.

The fact “Peter Shaw” claimed to be in London while he scammed in Germany may have been significant. Apparently the UK police will only help trace scammers from outside the country if there’s more than 5,000 euros involved.[2.  According to an article on the German website, focus.de, “The money is often transferred to Great Britain, explains the Frankfurt commissioner Bernd Osterloh. Then it is usually gone, because the British authorities help the German colleagues usually only from a fraud sum of 5000 euros in the investigation.”]

Depriving would-be renters of their heard-earned cash by advertising fake properties is a common trick in the rental scammer’s book, but perhaps even more worrying are the crooks that are really after your ID. They ask for a copy of your driving licence or passport and three months’ payslips as part of the rental application process and then open a bank account or get a credit card in your name.

Nightmare in Dubai

Here’s another high-priced rental market: Dubai. And another tale of woe. More complex, and much more costly. Bruno had moved with his family to Dubai for work. He searched online and found a flat just a bit cheaper than the going rate in a nice area. After viewing the apartment with the agent, he met with the landlord and agreed to pay a year’s rent up-front.

A few months later the actual owner of the property knocked on his door. Apparently the man he had “rented” it from was a scammer who had himself rented it from the owner – and whose cheques had bounced.

Rental Fraud is shooting up

For a view of the scale of the problem – and one way of combatting it – see this German website listing email addresses and websites that have been used for rental fraud.

The UK actually has a “national fraud reporting centre” to track what’s going on.

In 2015, the number of reports of rental fraud in the UK rose by around a third on the previous year, with Action Fraud, the national fraud reporting centre, recording 2,940 incidents.

In the first nine months of 2016, some 1,891 people said they had been the victim of rental fraud. The Telegraph also reports that 3,200 house hunters contacted the police regarding rental fraud in 2015, up by 44% on the previous year.

The Local Government Association, however, believes this is only the tip of the iceberg – claiming that just 5% of victims choose to come forward and report the issue. With many choosing not to do so because of embarrassment or fear they won’t be believed.

It’s estimated that fake landlords are generating around £775 million each year from rental fraud, with victims losing out around £2,400 on average.[4.  As cited on the helpful website Homelet.co.uk.]

This grim scene leads to a grim observation: with few exceptions, the victims of these scams all over the world are poor people. That’s why they are especially vulnerable – desperation pushes people to take risks. What’s more, they are hardly a core constituency for any government. Where are the high-profile prosecutions of rental scammers to discourage others – and inform the renting public? The relentless government focus on owner occupation must be matched by a relentless focus on policing the low-end rental sector.

“Capitalism needs neither propaganda nor apostles – its achievements speak for themselves”.[1. Ludwig Von Mises, ‘Money, Method and the Market Process’, 1947]

Residential construction is rigged heavily in favour of large developers at the expense of homebuyers. Homes in the UK are built mostly by large “volume” builders operating on a speculative basis – with developers or land agents buying up acreage years before building starts. And this market distortion has become far worse since the 2008 financial crisis, as the industry has become increasingly concentrated.

Strong demand should mean developers build more homes and sell at a competitive price. But the low availability of suitable land leads to speculative bidding by developers – who then maintain big profit margins despite soaring land costs by building units that are small, low-quality and over-priced.[2. A 2017 YouGov survey found that over half of all buyers of recent new-build homes in England experienced major problems with their properties, including faults with construction, fittings and utilities, see Shelter, 2 March 2017. In addition, last year the Competition and Markets Authority investigated the relationship between the building industry and National House Building Council, which inspects new homes and provides around 80% of all new-home warranties. Complaints were made that NHBC is too close to the house-building industry, providing insufficient consumer protection.]

High-cost land is also a barrier to small- and medium-sized SME builders, who struggle to raise up-front finance. This lack of competition, in turn, means land agents and large developers assemble sizeable land-banks, exerting control over the number of homes coming to market – often sitting on sites to reap additional gains as the shortage keeps prices rising.

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Test article

By Liam Halligan

This status quo can only be disrupted if land is available at steady, reasonable prices, with new homes then competing on quality and price. The Government must, therefore, become much more involved in the land market, offering more state acreage, with local authorities using more compulsory purchase orders (CPOs).

Some may balk at this. Surely, free markets produce the best outcomes? The UK house-building “market”, though, is barely a market.

“Land planned for major development should be bought well in advance by a public authority for disposal to private enterprise or to public enterprise as required,” said then housing minister, Keith Joseph, in 1963. Few would describe Margaret Thatcher’s future economics guru as an enemy of free markets.

Today, the public sector owns around 6% of all freehold land – almost a million hectares – rising to 15% in urban areas, including countless sites ripe for redevelopment.[3. While some state land is controlled by ministries – including MHCLG, the Ministry of Defence and the Department of Health – local councils hold over two-thirds. See ‘New Homes and Accelerating Delivery on Public Sector Land’, Savills-Telereal Trillium, April 2016. The UK housing stock is currently around 25 million homes and house-building density in recent years has averaged 32 homes per hectare. With one million hectares, then, the Government alone owns enough land, in theory, to increase the number of British homes by around 130%.]

Yet, sales of public land for residential development have been hopelessly low. In a recent report, NHS Digital identified 1,332 hectares of surplus land across over 550 sites, just 91 hectares of which had previously been sold.[4. NHS Surplus Land 2016/17 England, NHS Digital, June 2017] The Government must cut through Whitehall torpor and significantly ramp up sales for residential development from its own land holdings.

Volume house-builders should be excluded from some of the sales, and non-building land agents should always be excluded. The most attractive small plots, particularly in city centres, should be reserved for SMEs – which, in need of cash flow, build quickly. With certain buyers not permitted to bid, state land – sold via competitive tender or auction – may sometimes fetch “sub-market” prices. Treasury dogma that this is unacceptable must be fiercely resisted. Getting local housing supply moving stimulates growth and tax revenues.

State land sold to all builders, large or small, should come with “permission in principle” status.[5. As outlined in Part IV of Home Truths, the concept of ‘Permission in Principle’ was introduced by the Housing and Planning Act 2016.] To ensure speedy building, once “technical details consent” is granted, homes must be completed within two years as a condition of sale, or ownership reverts to the state. In localities where more rapid development is needed, state land should be sold with “pink zone” status. This designates broad permitted building parameters, with decisions on planning specifics guaranteed within two months.[5. See ‘Pink Planning’, Centre for Policy Studies, 2014]

In addition, local authorities and city administrations should create powerful Housing Development Corporations (HDCs) that acquire land, then sell it on to developers once outline planning permission has been granted, again with time limits on completions.[6. These ideas are explored more fully in Tim Leunig, ‘Community land auctions: working towards implementation’ Centre Forum 2011; see also John Muellbauer, ‘Six fiscal reforms for the UK’s ‘lost generation’, Local Tax Commission, 2015. In 2017, the Government quietly legislated to allow local authorities to use existing “new towns” legislation to set up entities similar to HDCs, without having to wait for Whitehall’s initiative and with proceeds from land sales being retained by local government.] Variations on this model are successfully used in Germany, Holland, Singapore and South Korea.

When planning permission is granted, converting arable land to residential use, the entire valuation uplift – the “planning gain” – currently accrues to landowners and agents. With prices sometimes rising a hundred-fold or more, this results in multi-million pound windfalls. Yet land is a public good – and while it can be privately owned, how it is used is of legitimate interest to everyone. And vast planning gains now going to owners and agents. CPOs should be therefore be used more widely, but at a price reflecting “existing use” – say farming – plus negotiable compensation.

If an HDC sells land – primarily to SMEs – having captured the planning gain, the price at which it is sold to developers could be set high enough to ensure sufficient funding for local infrastructure and social housing (but lower than elevated open market valuations).

As the housing affordability crisis worsens, public support for more house building is growing – up from 30% in 2010 to 56% in 2014, as shown in the graph above. If HDCs were used widely, keeping “planning gain” at the local level, these funds could be ring-fenced for new schools, hospitals, leisure facilities and even temporary reductions in council tax. HDCs, and the local public benefits they can bring, could boost further the trend of rising local support for more development.

During the 1930s, over 300,000 homes a year were built – many in huge “metroland” London suburbs such as Brent, Harrow and Barnet. They were constructed, for the most part, by local SMEs, building for both local councils and private buyers. When the UK last consistently built over 250,000 homes a year, SMEs accounted for two-thirds of them.[7. According to the seminal 2004 Barker report this is the approximate number of additional homes required each year to keep price rises manageable. Kate Barker, Review of ‘House Supply – Delivering Stability: Securing our Future Housing Needs’ HM Treasury, 2004]

Many SMEs were wiped out during the 2008 financial crisis. Those left can barely compete with the volume developers that now dominate UK house building. Struggling to raise finance and secure residential plots, SME developers have, quite literally, lost considerable ground.

As the graph above shows, since 2008 the house-building industry has become much more concentrated. The market share of large developers has practically doubled, to almost 60%. Within that SME total, small developers building under 100 units per annum have suffered most. Such firms – typically family-owned and favoring fast build-out – built 28% of new homes in 2008, but just 12% by 2015. Our house-building sector “has all the characteristics of an oligopoly”. says the House of Lords.[9. ‘Building More Homes’, House of Lords Economic Affairs Select Committee, HL Paper 20, July 2016]

In 2008, an Office of Fair Trading study into the UK house building industry found “little evidence” that market concentration was hindering the delivery of new homes.[8. ‘Homebuilding in the UK: A market study’, Office for Fair Trading, September 2008] But they did warn that “many of the mergers creating larger firms have been in part motivated by a desire to obtain land”. That was ten years ago, and since then the market share of the volume developers has almost doubled.

The OFT also criticised the patchy nature of the UK’s public land records in 2008. This makes it tough to assess whether land banking is restricting competition – a failure now more important given rapid recent consolidation.

The “Letwin Review” into increasing delays between planning permissions being granted and new homes being completed is due to report this autumn. Since 2013, “build out” times between full planning permission and completions have soared from 1.7 years to 4 years. The rapid industry consolidation provides compelling circumstantial evidence of restrictive practices – certainly enough to warrant open and detailed investigation. Given the public interest issues at stake, a behind-closed-doors “review” of this vital industry is not enough.

Since the last OFT investigation a decade ago, UK house building has consolidated at an unprecedented pace, the market share of the largest players almost doubling. It is entirely reasonable the OFT’s successor has another look.

Almost 40% of residential planning permissions now lapse. Big developers should “do their duty and build the homes our country needs”, said Theresa May last month.[9. ‘PM speech on making housing fairer’, Downing Street, 5 March 2018] Yet the “duty” of stock-market-listed developers – their legal obligation, in fact – is to maximise profit within the law. So the law must change, placing financial sanctions for delays both in applying for planning permission and subsequent build-out.

Developers’ land should attract a levy, payable to local authorities, while it remains undeveloped – similar to a classic “Land Value Tax”.  Having bought land, LVT should apply after a year unless the developer has submitted a reasonable planning request. Relatively low at first, the LVT should rise each year permission isn’t sought. Revenue raised should be partly used to staff local planning departments, encouraging faster and better-quality decision-making.

Once planning permission is granted, developers then own a far more valuable asset, which also generates a huge opportunity cost to society if unused – so the LVT should be much higher. After a grace period to allow normal build-out – say, two years – a punitive LVT should apply if homes granted planning permissions are not physically completed and available for sale. This post-planning levy should escalate each year build-out remains incomplete, giving developers a stiff monetary incentive to deliver homes.

LVT-type charges on landbanks with and without planning permission should initially apply only in designated “high-demand” localities – where affordability issues are most acute. Such designations could be awarded by Homes England, the newly constituted government agency, as part of a broader revamp of the UK’s Land Registry –which is not fit for purpose. Homes England should also regularly publish, at a regional and national level, achieved “build-out speeds” of various developers.

Local authorities must also use CPOs, if needed, to force development on stalled sites. Owning a site with planning permission means a rival builder cannot build there. CPOs in this context are a last resort but the threat must be real. Developers must understand that valuable planning permissions, as well as a right to build, are also an obligation to do so.

To really boost house building, specific assistance should be given to the smallest SMEs ­– those building under 100 units a year – in accessing finance and dealing with the planning system. With faster build-out now vital, Treasury guarantees for approved SMEs are needed, particularly those undertaking schemes involving considerable affordable housing.

Rather than “Help-to-Buy”, the benefits of which largely accrued to volume developers, we need a sustained, multi-billion pound “Help-to-Build” scheme – with the Government standing behind the borrowings of a limited number of selected SMEs.

For smaller SMEs, Section 106 obligations that can require payment towards local infrastructure, should be dropped, with such firms paying only the flat-rate Community Infrastructure Levy (CIL). For an initial ten-year period, SME-built developments of under 20 units not benefiting from Help-to-Build finance should be free of affordable housing requirements.

The UK’s 25 million homes cover just 1.1% of this country’s landmass. Commercial buildings account for another 0.65%, with roads and rail taking up 2.2%.[10. The 2011 UK National Ecosystem Assessment] Only around 4% of English land is actually built on, with another 3% covered by water. Over 90% is “space”.

Britain’s housing stock could rise by a fifth – another five million homes – using only another 0.2% of our landmass. If we increase building density by developing more apartments, particularly in big cities, the amount of land needed would be even less. As the graph above shows, urban building density across Britain is low.[11. Carlo Lavalle and Jean-Philippe Aurambout, ‘Population weighted density (LUISA Platform)’, European Commission, Joint Research Centre, 2014]

Some of the UK is, of course, mountainous, too remote, ecologically sensitive or of stunning natural beauty. Yet Britain is still blessed with many, many acres of barely-used land within easy commuting distance of towns and cities. The green belt ­covers 13% of England’s total acreage, but despite the name, some of it is urban scrubland.

Rather than treating such boundaries as untouchable, we need locally-led green belt reviews, facilitating sustainable, well-designed homes close to transport, while preserving accessible green spaces. Some green belt could be “moved” – recognising that our big cities have become far more populous since these areas were designated in the 1950s.

Introducing HDCs could generate local debate about shifting these boundaries. The prospect of land sale revenues feeding into local schools, hospitals and other amenities could transform such debates, with property values being enhanced rather than harmed by development.

One way to limit the use of green belt, and other sensitive sites on the edges of existing villages, is to build more “new towns”. While 14 new towns were designated in the 1960s, almost no sizable additional town has been created since, despite rapid population growth. If state land is designated for such developments, parceled up and sold to competing developers, including many SMEs, large plots could be built-out quickly. And again, funds from HDC-captured “planning gain” could finance affordable housing, infrastructure and common areas on such sites.

Tackling the UK’s chronic housing shortage requires a multi-faceted response. Since 2010, the Government has focused on “demand side” measures – injecting taxpayer cash into a property market already tight due to long-standing demand-supply imbalances. By pushing up prices further, this has done more harm than good.

But there are some demand-side measures that would be helpful. There is surely scope to reduce and ultimately abolish stamp duty on property purchases. This would spark more housing transactions, boosting turnover in the secondary market and thereby encouraging the more efficient use of the UK’s housing stock.

Another useful demand-side reform would be limitations on the now very significant purchase of new homes for investment by overseas buyers. This has spread beyond Central London to its suburbs and on to Manchester, Cambridge, and elsewhere. Investors from China, India and the Gulf are buying thousands of units each year, reflecting not only faith in the UK legal system, but a shrewd assessment our property shortage is so endemic, and the vested interest ranged against change so entrenched, that prices will continue to spiral.[11. Chris Philp, ‘Homes for everybody’, Centre for Policy Studies, December 201]

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More social housing is not the answer – it's time to take on the home owners

By Polly Mackenzie

Home Truths has focused on private sector provision and the crony capitalist drivers of the housing shortage. That is because commercial house builders are central to the UK’s housing supply. They should account for the bulk of new-build homes and incentivising them to deliver good-quality, keenly-priced products in sufficient numbers is the key to solving our housing crisis.

But a mixed-economy of housing provision is vital, not least when it comes to providing the social housing that will always be needed for those on low-incomes or otherwise unable to buy or rent their own home. There is much scope to be innovative in this provision.

Large developers could be offered state-owned land with planning permission at relatively low cost, on condition it is used to build, within a certain time, primarily social housing. That could generate a return for developers in the form of regulated but steady rental payments.

Part of the UK’s considerable pension fund wealth, constantly looking for consistent yield to match long-term liabilities, could also finance social housing – given a combination of political will and regulatory acumen. Such steps could significantly enhance our social housing stock.

What broke the market?

Home Truths – Part III: The nine drivers of a broken market

By Liam Halligan

The roots of this UK housing shortage stretch back decades. House building has been way below requirements under successive governments – and tackling what is now an acute crisis will take political courage. But the alternative is a divided nation, with an ever-widening gap between the property haves and have-nots.

“Capitalism delivers the goods”, wrote the economist Ludwig Von Mises, some 70 years ago. Yet UK voters increasingly think otherwise – that’s in large part due to a cruelly dysfunctional market for housing.

Read the full Home Truths series here.

But just to be helpful, I’d like to throw a few spanners in the works – specifically, three reasons why improving supply is not the whole solution:

• First, pushing more new homes through the planning system doesn’t guarantee greater affordability. In the previous decade there were building booms in countries across the western world that went hand-in-hand with massive price spikes.
• Secondly, even if we can translate additional supply into greater affordability (above all by cracking down on speculation) ‘generation rent’ needs houses that are a lot cheaper – and soon. Good luck selling that policy to the home-owning majority.
• Thirdly, we need more homes actually in our most productive cities and not so much in the outer outer outer suburbs. So never mind ‘greenfield’ versus ‘brownfield’ development, the real challenge is how to redevelop areas where people already live – and do it without screwing them over.

To tackle these challenges we desperately need new ideas. One approach that has a huge amount of potential is the community land trust or CLT. Some CLTs are already up-and-running, but we’ve barely scratched the surface of what they could achieve. There’s an excellent example in a recent pamphlet published by the Legatum Institute and Create Streets entitled A community-led future. The authors, Nicholas Boys Smith and Danny Kruger, propose that the Lancaster West estate (of which the Grenfell Tower is a part) should be transferred to the collective ownership of its tenants.

The Grenfell disaster was a truly horrific example of what can go wrong when social housing tenants aren’t listened to by people in power. The authors argue that tenant ownership, through a community land trust, provides the best way of ensuring that tenants become full participants in the decision making process – or, as they say locally, “nothing about us without us”.

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Beneath the cladding: Why did Britain build so many tower blocks?

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The CLT model has already been successfully implemented nearby on the Walterton and Elgin estates:

“Residents and landlord are united into one body. There is no ‘us and them’, just one democratically accountable—and regulated—professional body, which makes decisions about rent levels, estate management and development.

“Jonathan Rosenberg, the local resident who founded and chairs WECH [Walterton and Elgin Community Homes – the name of the community land trust] sees the model as a template to be replicated wherever estate residents wish it. As he says, ‘the only way for communities to guarantee their future, and ensure their buildings are safe and their tenancies are safe, is to own the homes they live in’.”

Across London, large tracts of land are owned by the state in the form of housing estates (many of them built at low density and in need of regeneration). Redevelopment could provide thousands of new homes – and generate resources improve the lives of existing residents. However, tenants (together with former tenants who purchased their homes under Margaret Thatcher’s right-to-buy policy) fear that they could lose out in any wholesale redevelopment. The answer is to give them a real stake and a real say through a community land trust:

“The need for new housing represents an opportunity for CLTs to be established on housing estates across the UK. Residents do not trust local authorities or private developers, and so local consent for development and further densi cation is unlikely to be forthcoming under current ownership arrangements. Residents are, however, much more likely to trust themselves and each other. If proposals come forward for improvement of the estate, for instance, residents know that they will control the process and, as a community, share in the nancial bene ts the work brings.”

Elsewhere, CLTs could be used to secure local support for new development on greenfield land. Instead of sites being developed under the control, and to the primary benefit, of outside interests, the local community would be in the driving seat. For instance they could specify architectural styles that are in sympathy with the local built environment or insist that local people have first refusal on newly built homes. CLTs would also have the option of excluding buy-to-let investors and other speculators – a means of preventing the affordability-enhancing effect of new supply from being overwhelmed by opportunistic and unnecessary demand.

A further benefit of the CLT model is that it can be used to offer new homes for sale, while retaining ownership of the land they’re built on. This would enable home ownership at well under the market rate for the freehold of an equivalent property. The catch (for the buyers) is that the CLT, by virtue of its continuing ownership of the land, would be able to control the resale of the dwellings – for instance by pegging prices to an appropriate metric like local wage levels. Therefore, unlike the deeply flawed ‘Right to Buy’, those lucky enough to buy an affordable home wouldn’t be able make a windfall profit at the expense of future first time buyers.

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If we want a more productive economy, we must let our cities grow

By Peter Franklin

The CLT model thereby enables ownership of a home (and asset), but outside of the conventional housing market. Politicians could therefore promote community land trusts to aspiring home owners, while remaining neutral as to house prices more generally. A growing CLT sector might be accused of siphoning-off demand from the conventional housing market – but whose demand are we talking about here? CLT homes would be of greatest interest to aspiring home owners who’d have difficulty getting onto the housing ladder any other way.

If there’s one market that definitely would lose customers from an expansion of CLTs, it’s the private rented sector; which wouldn’t be good news for landlords.

Oh well.

Senior housing industry executives have tried to downplay the link between historically low “completion” rates and sharply rising unaffordability. In 2016, for instance, the Redfern Review highlighted that increasing the supply of housing “does not directly improve the home ownership rate”.[1. ‘The Redfern Review into the decline of home ownership’, 16 November 2016. Peter Redfern is Chief Executive of Taylor Wimpey, one of the UK’s largest house-builders.]

Some economists, such as Ian Mulheirn, have gone further , suggesting “there is no housing shortage” and “the obsession with supply is a red herring”.[2. Ian Mulheirn, ‘Building more homes won’t solve the housing crisis’, CapX, 6 February 2018] These claims are now being repeated by prominent political commentators.[3. Matthew Parris, ‘There is no housing crisis – it would be easier if there were’, The Spectator, 10 February 2018 ]

Crisis? What Crisis?

The central plank of Mulheirn’s argument is that Whitehall has been producing “repeatedly exaggerated” official forecasts of household growth. Since 2008, UK household formation has averaged only 152,000 per year, he points out, far below the Ministry of Housing, Communities and Local Government (MHCLG) estimate of 235,000. The implication is that because around 80,000 fewer households were formed each year than policymakers expected, the housing supply shortfall is being overstated.

Yet the reason fewer households are being formed than officially predicted is because, for many people, the necessary physical home to create that household is unaffordable – either to rent or buy. Such people still exist, though, and often end up either living with their parents as adults, or as part of a “concealed household” not counted in official numbers.

From 2006 to 2017, the number of 20-34 year olds living with their parents increased 28%, from 2.65 million to 3.4 million people – including 20% of women in that age range and an astonishing 32% of men.[4. The raw numbers can be accessed at ONS Table ‘Young adults living with their parents’]  Some adults in this age range may willingly choose to stay with their parents. But, as housing has become less affordable, the share doing so has risen from a fifth in the mid-2000s to a quarter in 2016. It can surely be assumed that a significant number of the 750,000 rise in 20-34 year olds living in their parental home over the last decade are doing so because they are unable to rent or buy.

The rise in “concealed households” (where at least two adults live within another household) during the ten years to 2016 has also been very significant, rising 50% to 2.5 million. In London alone, concealed households rose from 400,000 to 720,000.[5. These numbers, also 2006-2016, are based on the Labour Force Survey, and quoted in an unpublished MHCLG memo obtained by the author] Again, while some couples may choose to live within another household, it seems reasonable to assume the vast majority are doing so as they lack the means to buy or rent to form a household of their own.

Further reading

Home truths – Part I: The UK housing crisis in six graphs

By Liam Halligan

Given that each concealed household comprises at least two adults and some couples will have children, well over some 2.5 million people under these two headings are currently living in the UK who – in many cases against their wishes ­– have over the last ten years not formed the “households” that officials previously predicted they would form. They are unlikely to agree with Mulheirn’s conclusion that “UK housing needs look to be far below [official] forecasts”.[6. In 2015, evidence submitted to the House of Lords Economic Affairs Committee inquiry ‘The Economics of the UK Housing Market’, highlighted the danger of under-estimating the ‘concealed households’ levels, whereby “young adults, couples and mothers with children {are} continuing to live with parents, young adults {are} trapped in sharing and mature adults {are} obliged to share”. See House of Lords Economic Affairs Committee, ‘Martin Grubb: Written Evidence (EHM0066)’, p 558. See also Daniel Bentley, ‘Housing Supply and Household Growth, National and Local’, Civitas Briefing, December 2016: “An under-supply of homes is likely to curtail the number of households actually formed … This may take the form of young adults not moving out of their parents’ home when they previously would have done, or people joining house-shares, or people becoming homeless. Even if those households are not actually formed, however, the pressure for housing will remain]

The second main pillar of the “no shortage” argument highlights that the number of homes being built is lower than “net additional dwellings” – which includes conversions of houses into flats, and shops and offices into homes. As such, while housing “demand” is over-stated, “supply” is under-stated because there are more new homes once conversions are included. Once you combine these two effects, Mulheirn argues, “there is no shortage of homes”.

It is certainly true, as shown in the graph above, that the number of “net additional dwellings” has recently pulled significantly ahead of “new dwellings” – that is, the number of newly built homes. A major reason is that in 2014, “automatic permitted development rights” were granted to convert offices into residential properties – and since then “change of use” additions to the housing stock have nearly doubled, from around 20,000 in 2006/07 to 37,000 in 2016/17. While there were 147,930 new homes completed in England in 2016/17, then, there were 217,350 net additional dwellings.[7. MHCLG Table 209 ‘Permanent New Dwellings Completed’ and MHCLG Table 120 ‘Net Additional Dwellings’]

Sometimes, converted shops or office buildings can indeed make suitable, even attractive, additions to the UK housing stock. There is certainly merit in encouraging “change of use” as the government has done, not least in city centres where demand can be acute. Some schemes may end up revitalising certain neighbourhoods.

But that does not mean that “net additional dwellings” are, as Mulheirn argues, “the bigger picture”. Yes, we are in the midst of a conversion boom, but that does not amount to a permanent upward shift in the long-term rate of UK house building. For one thing, the sharp rise in conversions over recent years is largely due to the one-off 2014 legislative change.

As the Nationwide Building Society has pointed out, the current high conversion rate is likely soon to fall away as the availability of commercially attractive sites reduces. Changes of use from existing premises are, by definition, finite. “While this is an encouraging development, we shouldn’t overstate its significance,” says Nationwide. “The growth in ‘change of use’ may well slow in future years, as developers have probably converted the easiest sites and the stock of suitable commercial property will reduce … the quality and long-term suitability of some of these changes of use remains to be seen”.[8. ‘Is this the answer to the UK’s housing problem?’, Nationwide Blog, 6 December 2017]

On top of all this, the “no shortage” argument is based entirely on national numbers, ignoring that many homes, new and existing, are in the wrong place, a long way from where people work. Aggregate housing data takes no account of the local bottlenecks – either in planning or “build-out” once permission has been given – that create supply imbalances in areas where homes are needed most.

Those asserting “no shortage” sometimes point to the number of empty homes as evidence for their case. Yet, again, many empty homes are a long way from where people live and work. And while there were around 300,000 homes in England standing empty for over six months in May 2010, there are now around 200,000 – a decline of a third. This represents just 0.8% of the total housing stock, the lowest since records began.[9. This is an area of relative housing policy success, with local authorities having been given powers and incentives to tackle empty homes. As part of the “New Homes Bonus” introduced by the Coalition government, councils earn the same financial reward for bringing an empty home back into use as building a new one. They also have flexibility to impose a council tax premium of up to 50% (on top of the council tax bill) on properties empty for over two years. Powers to raise that premium to 100% of council tax were announced in November 2017] Of course, more should be done to bring empty homes back into use. But the number of empty homes has fallen sharply over the last decade, as affordability has become worse – suggesting the reason that millions of young adults are “priced-out” of UK property lies elsewhere.

A convenient narrative

There is clearly a willing and receptive audience, a market in fact, for the “no shortage” argument. For those opposed to a significant rise in UK house building, including powerful developers and some environmental campaigners, it provides a convenient narrative. These lobby groups can then claim nothing needs to be done to address unaffordability – or, at least, nothing that involves building more homes. It is wrong, though, to interpret lower than expected household formation rates as evidence of less demand and need for housing. And a one-off “change of use” conversion boom by no means amounts to a structural increase in the output of an industry dominated by a few powerful developers who benefit massively from “contrived scarcity”.

Another debate that has recently flared up is the impact of immigration on house prices, with Housing Minister Dominic Raab arguing that immigration has pushed up property prices by 20% over the past 25 years.[10. ‘Minister Dominic Raab told to publish proof that immigration raises house prices’, The Times, 9 April 2018 ] Pro-immigration commentators have countered with reference to an authoritative 2011 investigation that found: “The impact on house prices of the accumulated increase in Tier 2 type (skilled) immigrants over a five-year period is likely to be well below one per cent”.[11. Christine Whitehead et al., ‘The impact of migration on access to housing and the housing market’, LSE/Migration Advisory Committee, December 2011] Another study concluded that, at the local level, immigration may reduce house prices slightly – as the arrival of relatively less affluent immigrants in an area lowers prices buyers are willing to pay.[12. Filipa Sá, ‘Immigration and House Prices in the UK’, IZA DP No. 5893, July 2011]

Suggested reading

The grim reality of renting in Britain

By James Bloodworth

While Raab is a long-standing advocate of the merits of immigration, he appeared to be arguing that significantly lower net immigration after the UK left the EU would ease the housing crisis. “You’ve got to deal with demand as well as supply,” he said. “If we delivered on the government’s target of reducing immigration to the tens of thousands every year, that would have a material impact on the number of homes we need to build”.

The large number of new arrivals in recent years has certainly added to the pressure on the UK’s woefully inadequate housing supply. But immigration, while impacting poorer local communities disproportionately, has been of overwhelming net benefit to the UK economy, in terms of both fiscal balances and broader growth.

Britain has a housing supply problem, and a related affordability crisis, not because of immigration but because, over several decades, the UK housing industry, housing associations and local authorities between them have failed to build enough homes. The UK is now building at a rate each year equivalent to just 0.49% of the existing housing stock, down from 0.7% in 2000. That places Britain 27th out of 31 industrialised nations, according to the OECD. The UK is behind Lithuania, Estonia and Cyprus when it comes to house building, ahead of only Latvia, Portugal, Bulgaria and Hungary. [11. ‘Housing Stock and Construction’ Social Policy Division – Directorate of Employment, Labour and Social Affairs, Organisationfor Economic Cooperation and Development: Paris, August 2017]

Net migration into the UK has clearly soared over the last 20 years. From 50,000 in 1997, net inflows rose to over 330,000 in 2016, at the height of the EU migrant crisis, before falling to 244,000 during the year to September 2017. There has been a failure to put in place adequate provision in terms of schools, hospitals and housing – leading to understandable discontent among some communities particularly reliant on scarce public services, even those with a history of relatively successful immigration absorption over previous generations.

Even if net immigration were to fall below 100,000 in the coming years, as Raab says it should, that would do almost nothing to address the chronic shortage of homes that has built up since the mid-1980s. Net migration could fall to zero, but there would still be millions of concealed households, serious over-crowding and a nationwide lack of affordability. Too tight or too rapid a restriction on immigration could in fact do harm when it comes to building the homes needed to ease the shortage, given the significant role previous waves of semi-skilled immigrants have played in earlier UK house-building booms.

Suggested reading

Home Truths – Part III: The nine drivers of a broken market

By Liam Halligan

The government cannot use the excuse of lower immigration to dodge the bold and, to some interest groups, possibly uncomfortable action needed to revitalise the supply side of the UK housing market.

It is clear to the vast majority of analysts working in this area that the UK is suffering from a chronic shortage of homes. There are many vocal interest groups that want to prevent an increase in UK house building – and they are no doubt a willing audience for, and will vigorously promote, “no shortage” claims. But such arguments – whether they result from genuine and well-meant research, or as part of a lobbying effort by large developers – are disproved by a cool analysis of the facts.

“I don’t see the point of this Affordable Housing. Why can’t we just make housing affordable?”

David Cameron used to say this, every six months or so in the coalition years, every time the Liberal Democrats put forward another demand for increased investment in social housing. I helped put together these demands, which secured a billion here and a billion there for housing associations and councils building homes. But David Cameron was right and I was wrong. Social housing is an admission of failure in the housing market. It’s a public service we should be aiming not to need.

Everyone deserves a decent home at a price they can afford. The market doesn’t deliver that. But instead of chasing that market, trying to pick up the pieces with inadequate and insufficient state-supplied homes, we should fix it, with radical land reform and massive housebuilding.

Suggested reading

The grim reality of renting in Britain

By James Bloodworth

It is hard to logically defend our system of social housing. It’s an incoherent mess. Until recent reforms, if you got into a council or housing association home, you could benefit from cheap rent for the rest of your life, no matter how much you earned. Obviously, most criticism of this has focused on the very high earners – those on £100,000 or so. But these cases are rare and trivial.

It is, however, meaningful and problematic in a community when two similar, average families – earning, say, £25,000 a year – have radically different rent costs for similar homes. The family in a council house will probably pay 30-50% less than their neighbour renting a property privately, as well as benefiting from lifetime security of tenure while their private neighbour lives in fear of being thrown out. Worse, the private tenant may have to watch as their social neighbour gets the gift of up to £100,000 from the government to buy that home at a discount through the Right to Buy.

No wonder there is so much resentment and anguish about who gets into social housing. It represents a golden ticket for the insiders, while the outsiders suffer in private rented accommodation which – for those on low incomes – is usually low quality, high cost, and unstable. What does that do for social solidarity or community cohesion? It destroys it, stoking resentment for the ‘others’ who have what you want most: a decent home – especially if those others have different colour skin, practice a different faith or speak a different language.

Social housing campaigners tend to say that we should deal with this injustice by building more social housing. Perhaps, at first glance, you might find this compelling. But it only works if you commit to building enough social homes for every single family which spends time on a low income. There are about 2.6 million families on below-average incomes living in private rented housing right now. At about £50,000 subsidy per home it would cost £129 billion to build a social home for each of them, and you still haven’t got a plan to deal with the flow of new people on low incomes. Not even John McDonnell, Labour’s hard-left Shadow Chancellor, is proposing investment of that scale – though if he did, at least we’d have a pathway to a housing policy that had some internal logic.

Letting councils borrow to build, or making developers build affordable housing alongside the homes they build to sell, may be reasonable interventions but they’re never going to make more than a dent in demand.

During the coalition years, we introduced reforms designed to reduce this perversity: we allowed social landlords to offer shorter tenancies and we let rents rise, continuing a convergence process that had started under Labour, to reduce the gap between private and social rent. These changes also helped to reduce the subsidy needed to build each home, and enabled housing associations to build more and faster. But, then, the Treasury panicked at the rising cost of housing benefit and froze rents instead, pushing building subsidies back up and putting the very financial viability of debt-laden housing associations at risk.

In the end, all we achieved was yet more mess. We certainly didn’t do what Cameron claimed he wanted, when he groaned about Affordable Housing. Housing became less affordable, on every measure, because neither he, nor his ministers nor the Liberal Democrats, for whom I worked, wanted to do anything that might threaten the real power base in this country on housing: the owner occupiers.

Those who own their own home are doped up on high house prices. Mortgaged or not, we’re attached to the idea that the price our home would fetch on the open market represents real value. The Treasury, too, is dependent on maintaining these harmful prices: invested directly in housing stock through the Help-to-Buy scheme, reliant on stamp duty and terrified of the shock to consumer confidence that falling house prices might inflict. The changes needed to actually make housing affordable, and reduce the need for state-backed housing, are just too big for our timid politicians.

Suggested reading

The housing crisis is bad, but can we please talk about renters

By Charlotte Pickles

There is a way from here to there, from incoherent and self-defeating policies to the dream of affordable, rather than Affordable, homes for all.

A house price shock is too risky. Instead, the Government should make a commitment to stop house prices from rising, in cash terms, for at least the next 30 years, and take all the action needed to make it happen. That would mean increasing supply, appropriately regulating housing finance, and reforming planning and land taxation. Every council should be charged with building enough to stop prices from rising in their area – with the right to grow into neighbouring council areas if their borders are too tightly constrained. If the costs of housing rose, Ministers would have to report to Parliament on their failure and their plans to correct the trend.

Setting this clear, national objective would change the investment model for land owners and housebuilders; instead of making more money the longer you wait to build, you’d make the most if you built quickly. Building council or housing association properties will be a necessary part of the mix, in the short term. For vulnerable people, in particular, this type of housing can provide essential stability and security (and the same protections must be afforded those in the private rental sector). But building a few Affordable Homes should never become an excuse for letting homes in general get less affordable.

“It is essential to have not only more houses, but more houses of the required type in the right place. There are technical difficulties that have to be overcome over land, financing and the organisation of the building industry. But there is also the question of will. Housing has not yet achieved the place of priority in official policy justified both by the social suffering involved and by the public concern that has been aroused”.[1. ‘The Housing Anguish’, The Times, 22 December 1969]

These words appeared in an editorial in The Times in 1969. That year, 378,320 homes were built across the UK. The net annual increase in new dwellings was slightly lower, given that post-war demolition and slum clearance was still going on in to the early-70s. But the rate at which homes became available in 1969 was still a long way ahead of household formation, which then averaged around 160,000 per annum.[2. Chapter 2: Households and Families, ‘Social Trends 39’, 2009]

The current situation could hardly be more different. Official figures show 178,450 homes were completed across the UK during 2016/17 –less than half the 1969 total.[3. See MCHLG live table 209 https://www.gov.uk/government/statistical-data-sets/live-tables-on-house-building] Yet around 275,000 new households are now formed each year, 70% more than in the late 60s. Instead of the supply of new homes outpacing demand, as when The Times published its editorial, the opposite is now true – and has been since the early 1990s.

Successive governments have repeatedly emphasised housing as a priority. Yet when Dominic Raab became Housing Minister in January 2018, he was the 16th person to hold that position in under 20 years.[4. Tony Blair appointed Hilary Armstrong as Housing Minister (1997 to 1999), then Nick Raynsford (1999-2001), Charles Falconer (2001-02), Jeff Rooker (2002-03), Keith Hill (2003-05) and Yvette Cooper (2005-07). Gordon Brown’s Housing Ministers were Caroline Flint (2007-08), Margaret Beckett (2008-09) and John Healy (2009-10). David Cameron appointed Grant Schapps (2010-12), Mark Prisk (2012-13), Kris Hopkins (2013-14) and Brandon Lewis (2014-16). Theresa May then appointed Gavin Barwell (2016-17), Alok Sharma (2017-18) and now Dominic Raab]  Of enormous importance to voters, and the source of increasing social division and discontent, the sector has been denied the consistent leadership needed to drive policies that might deliver significantly more homes.

During 2010-2016, when David Cameron was Prime Minister, 141,132 homes were built each year. Under Tony Blair from 1997, and then Gordon Brown, this annual average was respectively 35% and 29% higher, but still far too low. Since the mid-1980s in fact, building has fallen way short of the 245,000 new homes needed annually to meet the natural growth of demand and keep prices affordable.[5. Kate Barker, ‘Review of House Supply – Delivering Stability: Securing our Future Housing Needs’ HM Treasury, 2004]

Ahead of the 2015 election, Cameron said one million new homes would be built by 2020, an average of 200,000 a year over a five-year Parliament. But it was never clear if this was a target or an “aspiration”. Labour leader Jeremy Corbyn has also set a million-home target over five years – with half as social housing.

Since taking office in 2016, Theresa May has rhetorically upped the ante. Initially, her Housing White Paper of February 2017 contained no home-building target.[6. ‘Fixing our Broken Housing Market’, DHCLG, February 2017]  But as affordability continued to get worse, the Tory manifesto ahead of the June 2017 election restored the promise to “deliver one million homes by the end of 2020” and “half a million more by the end of 2022”.[7. Conservative Party Manifesto, ‘Forward Together: Our Plan for a Stronger Britain and a Prosperous Future’, 2017] The subsequent Queen’s Speech also pledged to “promote fairness and transparency in the housing market and help ensure more homes are built”.

Philip Hammond’s November 2017 budget appeared to strengthen this pledge. While rejecting demands by Communities Secretary Sajid Javid for £50 billion of public cash to finance house building, the Chancellor targeted “300,000 a year by the middle of the next decade”. [8. ‘Budget 2017: Hammond pledges to fix UK housing market’ Financial Times, 22 November 2017] Apart from making promises but missing home-building targets, have government policies implemented since 2010 eased the UK’s housing shortage?

Juicing-up demand

“I’d argue quite strongly that most of our housing problems have their origins in supply or rather a lack of supply – that’s what my economics training tells me when I see prices rising in the face of rising demand.” These are the words of a very senior Whitehall official, written in early 2018. “This under-supply of housing has made it less affordable, increasing the number of concealed households and contributing to declining home ownership rates.”[9. Internal unpublished Whitehall memo, obtained by author]

Ministers have long been advised the roots of the UK’s chronic housing shortage lie in the “supply side” – with developers failing to build enough homes, either due to a lack of planning permission or, more recently, a tendency to restrict new supply to keep prices, and profitability per unit, high. Yet, since 2010, as affordability issues have become particularly acute, successive governments have taken “demand-side” measures – arguably boosting prices even more.

Since 2013, “Help to Buy” (HTB) has allowed a limited number of homes to be purchased with just a 5% deposit and a low-interest government equity loan worth up to 20% of the purchase price. When chancellor, George Osborne launched the scheme for first-time buyers (FTBs) and others looking to move, with loans applicable only on new-build homes priced below £600,000.[10. HTB loans are interest-free for the first five years. The £600,000 price limit applies to England. In Wales, it is £300,000 and in Scotland the maximum has varied depending on when an application was made. The 20% share was later raised to 40% in London. A “mortgage guarantee” was also introduced, with the government (i.e. taxpayers) acting as partial guarantor on a limited number of home loans. That guarantee scheme was discontinued in 2016.]

The danger is that demand-side initiatives merely subsidise buyers to afford high prices – and for a temporary period. That generates favorable short-term headlines but does little to increase house-building over the long-term. As HTB was being introduced Sir Stephen Nickell, a distinguished economics professor and senior Office for Budget Responsibility (OBR) official, was asked for his view. “Is it just going to drive up house prices? By and large, in the short run, yes,” Sir Stephen told the Treasury Select Committee. “In the medium term will the increased house prices stimulate more house building? A bit, but the historical evidence suggests not very much”.[11. ‘Financial experts question Help to buy claims’ Inside Housing, 2013. A former member of the Bank of England’s Monetary Policy Committee, Nickell was also the first Chair of the government’s National Housing and Planning Authority Advice Unit, set up in June 2007 in response to the Barker Review.]

In 2016, three years after HTB was introduced, a government-commissioned study argued it had generated a 14% rise in annual house building – well short of the significant uplift needed.[12. Stephen Finlay, Peter Williams and Christine Whitehead, Evaluation of the Help to Buy Equity Loan Scheme, DCLG, 2016] The government’s flagship housing policy was otherwise slammed by a range of credible analysts. The Adam Smith Institute, a free-market think-tank, compared HTB to “throwing petrol onto a bonfire…adding more demand without improving supply just raises prices, making homes more unaffordable for people who don’t qualify for the subsidy”.[13. ‘Help to buy won’t build the young any houses’, Adam Smith Institute, 1 October 2017]

The respected housing charity Shelter was similarly critical:

“HTB has completely missed the mark, doing barely anything to help first-time buyers, and nothing to help those most in need of an affordable home. By inflating house prices and subsidising huge corporate payouts it is actually making matters worse.”[12. Shelter CEO Polly Neate, quoted in The Independent, 13 January 2018]

There are legitimate concerns that the main impact of HTB, rather than helping young adults buy a home, has been to strengthen the powerful developers who already dominate the UK house building industry. In 2014, half the homes bought under HTB were sold by the UK’s five largest house builders.[13. Tom Archer and Ian Cole, Profits Before Volume? Major House Builders and the Crisis of Housing Supply, Sheffield Hallam University Centre for Regional Economic and Social Research, October 2016] HTB sales constituted 53% of all Taylor Wimpey homes in 2014, helping generate a 54% increase in profits, to £481 million.[14. Taylor Wimpey PLC, ‘Creating Sustainable Value’, 2014 ] The scheme drove 40% of Persimmon sales that year and 57% by 2016. Some 31% of Barratt homes were sold under HTB in 2014, rising to 44% two years later. Shelter concluded, meanwhile, that HTB added 3% to UK-wide house prices in a single year.[15. How much help is Help to Buy: Help to Buy and the impact on house prices, Shelter, 2015]

From 2013 to mid-2017, 135,000 homes were sold under HTB. There is evidence the scheme, instead of helping FTBs, instead channeled hundreds of millions of pounds of public subsidy to thousands of very wealthy buyers who already owned a home.[16. An analysis of government figures in 2018 suggested that over 5,500 homeowners earning above £100,000 a year had benefitted from taxpayer-funded HTB loans. See ‘Wealthy homeowners received millions in public money under Government scheme to help first-time buyers’, The Independent, 13 January 2018]  An even bigger worry is that 32,266 HTB homes, or almost 25%, have been sold leasehold – with the buyer not owning the property outright, but paying the freeholder an annual ground rent.

While flats are traditionally sold with a lease, with a charge made for servicing and maintenance of communal areas, leases on new homes were considered a thing of the past. Yet almost a fifth of houses purchased under HTB in 2017 were sold leasehold. There is growing outrage that large developers have been marketing new HTB houses with contract clauses allowing ground rents to rise dramatically in later years, before selling these leases on to investors at huge profit.

Campaigners say young families are “trapped as prisoners” in homes with escalating ground rent bills, that then become difficult to sell – not least as mortgage providers often won’t lend against them. An estimated 100,000 families now live in leasehold properties with spiralling ground rents, a number that has lately soared due to HTB.[16. This figure comes from the Leasehold Knowledge Partnership, part of the House of Commons All-party Parliamentary Group on Leasehold Reform. The LKP reports homebuyers being charged up to £100 to have a letter answered by the freeholder, with others being billed for thousands of pounds for permission to build a simple extension. Seven out of ten buyers of recently built leasehold homes, many of whom are young with little or no business experience, say they used conveyance solicitors recommended by the developer and the risks were not drawn to their attention. The sale of HTB leasehold homes is now the subject of multiple legal actions.]

Despite all these concerns, the Prime Minister unveiled another £10 billion of HTB funding in October 2017, similar to the amount spent since 2013. Immediately after May’s announcement, the UK’s biggest house-builders added well over £1 billion to their stock market value in a single day –illustrating the extent to which HTB has been a cash bonanza for already powerful developers.[17. ‘Help to Buy adds £1bn to house-builder valuations’, Financial Times, 2 October 2017]

Since HTB began, UK Finance (previously the Council of Mortgage Lenders) estimates it has helped 9.6% of all FTBs. Evidence suggests that the 91% of those it hasn’t helped have faced higher prices.

The Government’s other main demand-side measures have related to stamp duty. In December 2014, Chancellor Osborne rationalised the stamp duty regime, so those buying homes worth under around one million pounds paid less, with higher bills for buyers of top-end homes. The following year, he imposed a 3% stamp duty surcharge on purchases of rental properties or second homes, which again probably helped FTBs to some degree – although buy-to-let lending remained steady, at about £8 billion a quarter both before and after this change.

The most eye-catching move, though, was in November 2017, when Philip Hammond abolished stamp duty altogether for FTBs on homes under £300,000. Just months after Labour came within a whisker of power, thanks to support from younger voters, the Chancellor received positive headlines for helping FTBs get on the housing ladder. The danger remains, though, that without a very significant rise in new homes built, the main impact will be on prices. “This measure is expected to increase house prices,” said the OBR in its budget commentary, ascribing Hammond’s policy a “high uncertainty rating”.[18. ‘Eye-catching stamp duty cut will do nothing to solve our housing crisis,’ Telegraph, 23.11.17. The OBR was similarly unimpressed with an earlier demand-side attempt to help FTBs. In 2016, Osborne introduced a “lifetime ISA”, enabling under-40s to save for a home deposit alongside a pension, with the government offering a 25% top up, to a £4000 annual limit, on savings used to buy a home. “We think {the lifetime ISA} is more likely than not to lead to higher demand for the relatively fixed supply of UK housing, and so to higher prices,” said the OBR’s budget-day fine print.]

Suggested reading

Home Truths – Part III: The nine drivers of a broken market

By Liam Halligan

The Government’s demand-side policies appear to have boosted prices more than home ownership – worsening affordability, particularly for FTBs. New research from the Institute for Fiscal Studies suggests “pricing-out” has become more acute not just since the 2008 financial crisis, but particularly since HTB was introduced. Just 25% of those born in the late-1980s owned their own home by the time they turned 27, says the IFS – covering the years 2013 to 2017. By that age, 33% of those born in the early 1980s and 43% of those born in the early 1970s were home owners.[19. ‘The decline of homeownership among young adults’, IFS Briefing Note BN224, February 2018]

Supply Go-Slow

What, then, has the Government done to increase the actual supply of homes since 2010? The National Planning Policy Framework (NPPF), which simplified planning guidance from 2012 – introducing the presumption “in favour of sustainable development” – has certainly led to more planning permissions being given.

Around 150,000 housing units were granted permission in 2011, rising to over 260,000 in 2016. What’s clear, though, is that housing completions have risen by less than permissions, with “build out” delays getting longer.

In early 2012, before NPPF began, official internal data showed planning permission being granted at an annual rate of 186,170, with some 118,520 homes being completed per annum. The latest data, for early 2017, indicates 303,901 permissions granted annually, 63% up on 2012. Home completions, however, were just 148,240, up only 25%.[20. This paragraph is based on internal MHCLG estimates based on Glenigan and Barbour ABI planning pipeline data]

An authoritative 2013 survey reported that once detailed planning permission had been granted, developers took an average of 1.7 years to start and complete homes.[21. ‘An analysis of unimplemented planning permission for residential dwellings’, Local Government Association, October 2013]  By 2017, an industry study revealed a delay of “at least four years on average” from detailed planning permission to completion – a 2.4-fold increase over just four years.[22. See ‘The role of land pipelines in the UK house-building process’, Chamberlain Walker, September 2017]

The growing build-out delay, then, is large and undeniable. It has happened while house prices have risen steadily and immigration has increased sharply – pointing to ample labour supply for construction. Over the same period, though, the UK house-building industry has become far more concentrated, with the eight largest builders now accounting for over half of all new homes each year, as outlined in Part III of Home Truths.

What we have seen since 2012 could easily be interpreted as “contrived scarcity”.[23. I owe this phrase to Guy Standing, The Corruption of Capitalism: Why Rentiers Thrive and Work does not Pay, London: Biteback, 2016: “Scarcity may be natural, as in the case of the truffle, because demand outstrips nature’s bounty, or because there are physical constraints on production or exploitation. But in modern capitalism, scarcity is more often contrived, because a minority possesses all or most of an asset, because rules make it hard to produce or sell, or demand is deliberately stoked to outstrip supply”.] While they would deny it, powerful, dominant developers appear to have engineered a deliberate building go-slow to put further upward pressure on prices, so boosting profitability per unit.[24. MHCLG data show that between December 2012 and July 2016, the stock of housing units unbuilt, despite full residential planning permission, increased from 496,445 to 684,000 in England alone – a 38% rise]

The graph below certainly points to a prioritisation of profit over output. From 2012 to 2015, the number of housing completions by the nine largest UK developers rose 33% but revenues grew no less than 76%. As such, profits ballooned nearly 200%. Over a slightly longer period, from 2010 to 2015, profits at the top five house-builders surged more than five-fold – from £372 million to over £2 billion.[25. Profit figures are before tax and financing costs. See Tom Archer and Ian Cole, ‘Profits Before Volume? Major House Builders and the Crisis of Housing Supply’ Sheffield Hallam University Centre for Regional Economic and Social Research, October 2016]

The “volume” house builders, in particular, have been able to sell homes at a growing premium compared to the average sale prices since 2012 (see graph below). This reflects their domination of high-value localities, given the lack of SME competition, and their overwhelming role in delivering HTB homes.[27. ‘House builders charge premium for Help to Buy properties’, Financial Times, 8 August 2017]

In 2015, the biggest five house builders returned an enormous 43% of their annual profits to shareholders, not less than £936 million. These firms are, to an enormous extent, foregoing the chance to reinvest in order to build more homes. It is rational for firms to maximise profits within the law – the legal obligation, in fact, of senior executives. But the scale of returns at the top of the industry, and the far faster growth of revenue than output – as affordability worsens – points to super-normal profits.

Some ministers have become concerned that the growing concentration of the UK house-building industry is now restricting competition to a degree that is harming consumers and broader society, contributing to the “pricing out” of countless young adults. “The big developers must release their stranglehold on supply,” said Communities Secretary Sajid Javid in October 2016. “It’s time to stop sitting on land banks and delaying build-out – the homebuyers must come first.”[27. Sajid Javid MP, Communities Secretary, Speech to Conservative Party conference, 3 October 2016]

The 2017 Housing White Paper highlighted the “large gap between permissions granted and new homes built”. It pointed to “concern that it may be in the interest of speculators and developers to snap up land for housing and then sit back for a while as prices continue to rise”.[28. ‘Fixing our Broken Housing Market’, DHCLG, February 2017]

Yet despite these words, and the growing dominance of just a few large developers, the government has done nothing to encourage planning permission to be used promptly. Large, cash-rich house-builders and the land promoters described in Part III have every incentive to let permissions lapse, usually after three years, then make fresh applications. They can sit on sites and wait for prices to rise, the gains massively out-weighing re-application costs, as there is no threat or penalty that deters them.

The Ministry of Housing, Communities and Local Government (MHCLG) now estimates up to 40% of permissions granted are allowed to lapse, with 20% never being used at all. As dominant developers and promoters build up permissions, those permits and the land they are linked to remain unavailable for SMEs to build the homes for which there is such strong demand – retaining upward pressure on house prices.

This problem has been clear for several years. Javid’s “stranglehold” intervention eighteen months ago was a watershed moment. A Cabinet minister finally showed something other than deference to the large house-builders, referring to concerns about restrictive practices held by housing campaigners for some time.

Yet, since then, the Government has again kicked this issue into the long grass. In November 2017, the Chancellor announced the “Letwin Review”, to examine “why hundreds of thousands of homes haven’t been built, despite having planning permission”. With an interim report failing to appear at the Spring Budget in March, Letwin is now due to publish in November 2018 – and is expected to offer only analysis, with no policy recommendations.[29. The existence of the Letwin review points to a significant difference of opinion within government regarding the now very high concentration of the UK house-building industry, and the role large developers are playing in making affordability worse.]

Nothing to write home about

Additional supply side reforms since 2010 appear piecemeal and, when it comes to “fixing” the house-building industry, somewhat insignificant. An example is the sale of public land for residential use. The state holds enormous amounts of land, often in very developable places. Transport for London, for instance, owns around 6,000 acres in the capital and Network Rail has substantial landholdings, often close to stations. The NHS, MNCLG, the Ministry of Defence and local councils also have large holdings.

From 1997 to 2010, very little public land was sold for new homes – enough to build an average of only around one thousand units each year. Between 2011 and 2015, though, this improved, with enough public land sold to build 109,500 homes, an annual average of over 27,000.[30. National Audit Office, ‘Disposal of Public land for New Homes’, July 2016]

The reality, however, is that Whitehall is entirely unaware of how many homes have actually been built on land sold since 2011. The Commons Public Accounts Committee was told in 2016 that, despite the 100,000-plus capacity, the number of new homes could be as low as 200.[31. ‘Only 200 houses built on public land that could have held 100,000’ Financial Times, 25 January 2016 ] And, since 2015, public land disposals for home building have sunk once again, to an average capacity of just 9,600 units per year – a major missed opportunity.

Various other supply-side schemes have been announced, including a £3 billion Home Building Fund in 2016. But just £1 billion of this subsidy was targeted at SMEs, with £2 billion directed towards infrastructure and large sites. This seems perverse, seeing as large developers can already access capital. The Accelerated Construction Programme, meanwhile, created a partnership between the government, investors and contractors to target the use of off-site construction and new models of building. Again, this is welcome, but with even rosy government estimates of 15,000 new homes over four years, the scheme is making a meagre contribution towards solving the UK’s affordability crisis.

Another initiative that is yet to deliver relates to brownfield sites. In 2016, the Government legislated to introduce a “zoning-like” system for brownfield land – allowing local authorities to grant “permission in principle” (PiP), a form of advance residential permission on such sites. While this sounds a good idea, at the time of writing, not one local authority has granted PiP for a single unit of housing.[31. A Royal Institute of Town Planning (RITP) survey has raised doubts PiP will spark more house-building as such permissions are still vulnerable to legal reversal by later political and public opposition. RITPs respondents also warned PiP could trigger land speculation, ultimately driving up the price of new homes. See ‘Planning Risk and Development’, RTPI, April 2018]

Suggested reading

Rogue landlords are a poor solution to the housing crisis

By Peter Franklin

Following Corbyn’s electoral gains in June 2017, and with Theresa May vowing to take “personal charge of fixing the housing market”, Chancellor Philip Hammond unveiled an eye-catching “£44 billion home-building fund” in November 2017. The package of capital funding, loans and guarantees, added just £630 million to the Home Builders Fund for SMEs. But it added £8 billion of financial guarantees “to support private house-building” seem designed for use, once again, by the “volume” developers.[32. There was also an administrative reorganisation, with Homes and Communities Agency expanding to become Homes England, which Hammond said would “bring together money, expertise and planning and compulsory purchase powers” to deliver news homes.]

Hammond pledged 300,000 new homes a year by the mid-2020s – “the biggest annual increase in housing supply since the 1970s”. The OBR, meanwhile, said it was making no changes for its forecast for new homes based on the Chancellor’s budget policies.

What does not seem to be on the Government’s agenda is one very obvious supply-side policy –measures to encourage a major increase in building by Local Authorities and Housing Associations.[33. While independent, Housing Associations are regulated by the state and often receive public funding. While non-profit, some Housing Associations also issue bonds and/or accept charitable donations – and any trading surpluses are reinvested in building and maintenance. They have their origins in the UK’s mid-nineteenth century philanthropic and voluntary organisations – early examples including Guinness Trust and Peabody Trust. Under the Thatcher government, some councils prevented from subsidising housing directly channeled money to Housing Associations, while permitting social housing tenants to buy their homes at a large discount. Facilitated by the Housing Acts of 1985 and 1986, many local authorities transferred their remaining housing stock to Housing Associations – which are now the main providers of new housing for rent across the UK, while also running shared ownership schemes for those lacking means to buy a home outright.] Over the last two decades, only a few thousand council houses have been built each year, falling to just a few hundred for several years under Tony Blair. And the Grenfell Tower tragedy of June 2017 highlighted the poor quality of much of the UK’s social housing.

Referring to Grenfell in her party conference speech five months later, Theresa May offered, “an extra £2 billion in funding for affordable homes”. Downing Street later confirmed that would pay for around 25,000 new homes, or 5,000 a year over the period the funding would be introduced. This hardly seems an adequate response.

Since 2010, despite granting many more planning permissions, successive governments have failed to incentivise an increasingly concentrated private sector to build faster, while doing little to reinvigorate the social housing sector either. In 2016, the House of Lords Select Committee on Economic Affairs concluded “the government must recognise the inability of the private sector, as currently incentivised, to build the number of homes needed”. The committee argued that without far more new social housing, the UK has no chance of building the homes required over the coming decade and more.[34. ‘Building More Homes’, House of Lords Economic Affairs Select Committee, HL Paper 20, July 2016]

If the UK is to build the 300,000 new homes now required annually, it seems inevitable that around 100,000 units of affordable social housing will be needed each year, to both rent and buy – a three-fold increase.[35. In 2016-17, Housing Associations built 30,180 homes across the UK, while Local Authorities built 2,960]

The Government has recently shown early signs of moving policy in this direction, with May suggesting Housing Association debt might be taken “off the books”, allowing them to borrow more to build in high-demand areas. But these ideas are currently very vague and a long way from fruition. On the basis of the current evidence – not least the structure, organisation and recent performance of major developers – the private sector alone will fail to provide the homes required over the coming decades. The gap between housing demand and supply will continue to grow ever larger. Only radical and disruptive government action will change that.

Read the rest of  Liam Halligan’s in-depth investigation of the UK housing crisis, Home Truths.

Britons are often accused of fetishising home ownership. Yet the number of people living in the rented sector in Britain has risen precipitously in recent years. According to Knight Frank, by 2021 it is estimated that a quarter of us will be living in privately rented accommodation.

With so much demand for flats and rented rooms, the buy-to-let market has boomed for those with money to invest. Between 2007 and 2016 total mortgage lending for such properties doubled from 8.5% to 17%. Much of the housing stock is former social housing: more than 40% of council homes  sold to tenants through the Right-to-Buy scheme are now owned by private landlords. At a time of stagnant wages and stratospheric property inflation, the attraction of investing in a property for those who can afford to take the plunge is obvious enough. In 2015 for example, 38% of workers earned less than the amount the average homeowner made from the increase in the value of their house.

It has thus become both more expensive to buy a house and easier, at least in theory, to seek out a landlord. The problem is that increasing demand for rented properties has heaped inflationary pressure on rents; and has also encouraged unscrupulous landlords to enter the market in search of a quick buck. According to the Economist one in 30 UK adults – and around one in four MPs – is now a private landlord. And while many maintain their properties appropriately and treat their tenants well, almost 30 per cent of private-rented dwellings are officially classed as ‘non-decent’. That means they fail to meet even basic standards for things like heating and repair.

Of course, should a tenant find themselves in a property that has been neglected, they can move elsewhere. This is, after all, how the free market is supposed to function: eventually rogue landlords will be unable to compete with those who behave with greater care towards their tenants.

Yet, as is so often the case, the reality doesn’t match the theory. The letting agencies used by many landlords often charge tenants a fee of several hundred pounds each time they move into a new property, making it prohibitively expensive to exercise choice by moving from one place to the next. In a welcome move, the Government has pledged to ban letting agent fees. The legislation, however, is not expected to come into force until 2019.

Another cost in the rental process is the deposit. Renting a room typically requires a lump sum to offset against any potential damages caused by a tenant during the stay. This can be as much as one month or even six weeks rent. The prospective renter could need as much as £1,000 to hand before he or she is able to consider moving elsewhere. This poses an obvious challenge to those on low incomes since the tenant will potentially have two large sums of cash tied up with different landlords during the moving process.

Problems of this sort derive from practices which are, for the most part, legal and above board. Stories abound in which no one has broken the law and the landlord has behaved impeccably, yet the tenant has still ended up taking out an emergency loan or sleeping rough. According to Government figures, there has been a big rise in recent years in homelessness caused by evictions (within the law) at the end of an assured shorthold tenancy period.

But landlords who do break the law are a depressing feature of every town and city. According to the charity Shelter, an estimated one million private renters were victims of law-breaking landlords in 2015. This included landlords turning up to rented properties without prior permission, or disposing of a tenant’s belongings.

https://youtube.com/watch?v=7CWn9p7iLzk

Those who find themselves on the receiving end of unscrupulous treatment in the private rented sector are very often migrants to the UK with little understanding of their rights under the law, or British citizens who are vulnerable because of a low income. As I travelled around England and Wales researching my book on the low pay economy, I heard many stories about rogue landlords. Chris, a Romanian Amazon worker I lived with in a bedsit in Rugeley, Staffordshire, told me that the landlords he had stayed with when he first came to the UK had demanded exorbitant sums of money at random intervals with the threat of eviction hanging over him if he failed to hand the cash over. Describing the experience, he said:

“For many Romanian tenants you’re gonna have rats in your house, really small single rooms; a single room is gonna be just a bed, and that’s it for £65 a week – everything included. And they try to scam you for money – for more money. A lot of these [property] agencies, they’re not quite legal.”

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The horror of renting from one of London's rogue landlords

By Charlotte Pickles

In Blackpool I met an English father and son in a similar situation. They had been recipients of housing benefit, but out of the blue their landlord had vanished. Thus, with the landlord gone, there was no longer anywhere for the job centre to send the housing benefit, and so, as far as the local authorities were concerned, the father and son were now classed as squatters.

“With the housing benefit cheque, who are you gonna pay it to?” the older man, John, had asked me rhetorically. “[The council] put us into what’s called emergency housing…Because with the landlord not accepting the rent, or being around for the rent, the windows were getting broke, the place was getting smashed up outside [by kids]”.

Some tenants do have a positive experience renting – this is, in part, thanks to new laws which have been introduced in recent decades, such as the Housing Act (2004) and the Housing and Planning Act (2016). Yet as with the lower end of the labour market, I suspect that abusive practices are more widespread than most of us realise – with the worst abuses hidden from view. This is a failure on the part of policymakers, but it is also a dereliction on the part of journalists and commentators. It is our job to pull back the carpet on social injustice, even if some in our audience would rather not see what lurks beneath the floorboards.

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Home Truths – Part III: The nine drivers of a broken market

By Liam Halligan

“The vast majority of people have aspirations to own their home. It is only by rethinking how the housing market works that those aspirations will be achieved”.[1. Sir Edward Lister, Chairman of the Homes and Communities Agency. Foreword to ‘Disrupting the housing market: A policy program to save the home-owning democracy’, Localis, October 2017]

The Government’s white paper of February 2017 was right to describe the UK’s housing market as “broken”. Over many years, the industry has failed to respond to higher prices by significantly raising output. The resulting housing shortfall, pushing price growth increasingly ahead of earnings, has sparked a now chronic affordability crisis – that is causing widespread economic and social damage. This is a market failure with very significant societal implications, given the importance of housing not only as a place to live and raise children, but as a traditional generator and store of long-term wealth and security for the majority of British families.

Part III of Home Truths identifies and outlines nine inter-related characteristics of the UK housing market that are now preventing it from working adequately for all but several groups of entrenched vested interests. These features, taken together, have helped create our shortage of homes – which has grown far more acute over the decade since the financial crisis, as the housing industry has become ever more dominated by large “volume” house-builders (those producing over 2,000 homes a year).

1. Big players too dominant

In 1960, the ten biggest UK house builders accounted for 9% of all new homes. By 2015, there had been very considerable consolidation, with the top ten developers accounting for 47% of all new-builds.[3. Fred Wellings, ‘British House-builders: History and Analysis’, Oxford: Blackwell, 2006] That consolidation continued into 2016, by which time a quarter of all new homes were built by the top three providers, with over half by the biggest eight.

A recent inquiry by the House of Lords said the sector displays “all the characteristics of an oligopoly”.[4. ‘Building More Homes’, House of Lords Economic Affairs Select Committee, HL Paper 20, July 2016] A former housing minister has told the author that the UK’s house building industry “is now acting like a cartel” – a charge implying illegal restrictive practices, which large developers deny.

2. Too few small firms

During the mid-1980s, when the UK last consistently built 250,000 houses a year, there were over 10,000 small and medium-sized enterprises (SMEs) building homes, accounting for two-thirds of all new-builds. By 2014, just 2,800 SMEs were operating in the sector, between them building only a quarter of all new homes.[5. Michael Lyons, ‘The Lyons Review: Mobilising across the nation to build the homes our children need’, 2014 ] In 2007, before the financial crisis, the smallest local operators, those producing less than 100 units per annum, accounted for 28% of the industry’s output. By 2015, it was just 11%.

Keen to build fast to aid cash flow, SMEs quickly translate planning permissions into marketable homes. The current lack of small, agile operators not only seriously limits industry-wide competition. It also means fewer small plots are developed –as large firms find such land less economically and logistically attractive.

3. Powerful Nimbys[6. Nimby stands for “not in my back yard”]

The claim that “Britain is full”, that there is “no room” to significantly increase house building, is arrant nonsense. Only 11% of land in England is classified as urban, according to the 2011 National Ecosystem Assessment, and only 2% is covered with actual buildings. The ‘green belt’ covers 13% of England’s total acreage. Releasing just 0.3% of the green belt would provide space for almost 200,000 new homes.

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Loosening the Metropolitan Green Belt would make Britain fat

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The introduction of the National Planning Policy Framework (NPPF) in 2012 simplified planning guidance, introducing a presumption “in favour of sustainable development”. Reflecting on-going Nimby power, though, the NPPF did not change the green belt or other similar protections – which continues to prevent new housing construction in large parts of high-demand areas. Kate Barker estimates that “up to 25% of England is probably protected in some way” – and political opposition remains widespread, and often decisive, in many of the areas where new housing is needed most.[6. See Kate Barker, ‘Where’s the plan?’, London: Publishing Partnership, 2014]

4. Go-slow house builders

Having said that, the annual rate at which planning permissions are being granted has increased markedly in recent years. Permissions were given for around 150,000 units in 2012, rising to 260,000 in 2016. With housing completions having risen far more slowly, though, the stock of outstanding permissions has ballooned over 40% – from 496,000 residential units across England in December 2012 to 684,000 by July 2016.[7. Internal MHCLG memo, based on Glenigan data, obtained by the author.]

This reflects “slow build-out”, with large developers sitting on viable building land, drip-feeding new homes onto the market to keep prices high and rising. The campaign group Shelter estimates one in three homes granted planning permission between 2012 and 2016 has not been built – 320,000 units. In London, the share of these so-called “phantom homes” is one in two.[8. Marcus McPhillips, ‘Phantom Homes – Planning Permissions, Completions and Profits’, Shelter Research Briefing, July 2017]

5. Super-normal profits

While the rate at which planning permissions were granted increased 70% between 2012 and 2016, annual private sector housing completions rose just 20%. Over this same period, the profits of the UK’s five largest house-builders soared 388%, reaching £3.3 billion.

In what is now a highly consolidated industry, with SMEs lacking access to finance and finding it hard to source land, powerful large operators are able to use “contrived scarcity” to prioritise profitability per unit over volume. In doing so, they have put home-ownership beyond the reach of the majority of the UK’s young adults. 

6. Land banking

In an international context, UK house-builders are unusual in that they combine the acquisition and long-term development of land with actual construction.[8. See Barker, 2004, ibid; and Matt Griffith, ‘We must fix it: Delivering reform of the building sector to meet UK housing challenges’, IPPR, 2011]  It has been officially recognised for some time that the large UK developers are primarily land speculating firms that build houses on the side.[9. The Callcutt Review said “identifying, acquiring, preparing, developing and selling land is the key activity of all UK house building companies”; John Callcutt, ‘The Callcutt Review of House-building Delivery’, Department for Communities and Local Government, 2007. The Office of Fair Trading, a decade ago, was even more blunt in its description: “Rather than thinking of homebuilders as construction firms that have integrated upwards into land development, it may be more realistic to think of land developers who have integrated downwards into home construction”; Office for Fair Trading, ‘Homebuilding in the UK: A market study’, London, 2008] In 2015, the biggest three house builders – Persimmon, Taylor Wimpey and Barratt – completed 44,000 homes between them, but had planning permission to build another 200,000. They also owned combined ‘strategic land holdings’ for well over a quarter of a million more homes.[10. See House of Lords, July 2016, ibid]

Some view land banking as a rational response by developers to planning vagaries and other risks. Others see it as a method used by a cynical building industry to constrain supply and speculate on rising land values. As the large players have become far more dominant in recent years, though, it is clear that the scope to use land banks in a deliberately restrictive and anti-competitive manner has been singularly enhanced. “Land banking, sitting on plots while the value of the land rises, is clearly endemic and compounds the overall supply difficulties we’re facing”, a senior civil servant has told the author.

7. Opaque market for land

The UK housing market is further complicated by the existence of “land promoters” – extremely influential companies that thrive in a dysfunctional and opaque market. Buying up farmland directly or via options agreements, these firms spend years developing potential housing plots, navigating labyrinthine systems of planning applications and appeals, and capturing massive financial gains when permission is granted. While an acre of agricultural land may sell for £5,000 to £10,000, land with residential planning permission is normally worth £1-4 million per acre, depending on location.

Alongside the land banks held by the large house builders, non-building land promoters now own an incredible 55% of all land with full planning permissions across the UK, and no less than 87% with outline planning permission.[11. ‘The role of land pipelines in the UK house-building process’, Chamberlain Walker, September 2017] Such holdings are gradually auctioned off to developers at vast profit, all of which is obviously reflected in the price the homebuyer ultimately pays, the size of the deposit needed to buy the home, and the scale of the mortgage that will be serviced over 25 years or more.

Because the UK’s Land Registry remains extremely patchy – and with no legal requirement to register the widespread options agreements between promoters, developers and land-owners – no-one knows who ultimately controls some of the UK’s prime potential housing acreage. What is clear is that the developers and promoters have every incentive to drive prices higher – and, between them, they exert enormous influence over how many houses get built, where, by whom and when.

8. Political donations 

Gallagher Estates is, according to its own website, “one of the largest strategic land companies in the UK”. In October 2016, the company’s billionaire founder Tony Gallagher hosted a 50th birthday dinner for former Prime Minister David Cameron, at Sarsden House – Gallagher’s 17th-century mansion near Chipping Norton in Oxfordshire. The year before, Gallagher had given over half a million pounds to the Conservative party.

Powerful large developers and land promoters benefit handsomely from the chronic market failure across the UK’s housing market. Highly resistant to potential corrective measures, some leading industry figures may take steps to influence lawmakers in a bid to make sure nothing changes. Britain’s property industry, over many years, has been second only to the financial services industry in terms of political donations.

Industry research suggests the sector accounted for over a third of the Conservatives’ corporate donations between January and May last year.[1. Property Week, Adam Brason, ‘Property provides 37% of Tory corporate donations’, Property Week, 2 June 2017] Electoral Commission data confirmed that the Tories received large donations from property and construction companies ahead of the June 2017 election.[12. ‘Tories boosted by construction donations’, Construction Index,  25 August 2017]

9. Purely speculative inflows

Speculative demand is, to some extent, an in-built feature of the UK housing market. The compelling impulse felt by so many to buy their own home stems in part from the observation over many generations that prices generally rise. As such, property ownership allows ordinary working people to secure a modest, but all-important, degree of financial security.

Problems emerge, though, as now, when house prices race so far ahead of earnings that the majority of young adults are unable to buy and, in turn, benefit, from rising property prices. With the median price approaching eight times the median average wage across Britain, homes have never been less affordable.

The impact of slow building on prices has been exacerbated of late by a marked increase in investor interest in residential property. This partly reflects quantitative easing, which has warped bond markets, flattening returns on savings to such a degree that millions of UK adults have invested in a buy-to-let property rather than a company or personal pension.

A growing and in some areas very significant share of new build properties are now also being bought “off-plan” for rental by non-UK based institutional investors. This trend has extended beyond central London, to the capital’s suburbs and also to parts of Manchester, Birmingham, Oxford, Cambridge, Brighton, Leeds and other areas of acute property shortage.

****

The bad news for young, priced-out adults struggling to buy their own home is that these nine egregious features of the UK housing market work in favour of three enormously powerful coalition-of-interest groups. Between them, they form an “iron triangle of vested interests” that supports the restriction of new housing supply. The powerful firms that now dominate our house building industry are only one of those groups.

The second group are existing property owners themselves. While the Government pays lip service to more house building, the reality is that homeowners vote in large numbers and still, just about, form a majority. Ministers know well that rising house prices garner the support of ‘middle England’ – where elections are won and lost. Contentious planning decisions can also swing elections in key marginal constituencies.

As concern at the UK’s property apartheid grows, though, the political geometry is starting to shift. Young adults are increasingly angry and more and more older voters, having bought a property themselves, are upset and alarmed their children are unable to do the same. But for now, the electoral arithmetic still means the “property-haves” rule – with rising house prices leading to lots of re-mortgaging and related consumer spending by owner-occupiers, in turn bringing buoyant GDP numbers and more likely electoral success. This “feel-good factor”, though, is increasingly at the expense of “generation rent”.

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The third side of the “iron triangle of vested interests” is the banking sector. Following the 2007 financial collapse, the UK’s still rather fragile banking solvency apparently remains closely linked to housing. More than three-quarters of all outstanding UK bank loans are property related and if house-building ramps up significantly, the argument goes, and prices flat-line or even fall, there are fears bank balance sheets could suffer.

It has become a near-orthodoxy among senior HM Treasury officials in recent years that a significantly higher build-out rate of UK residential property will spark another banking collapse. It’s nonsense – and probably has more to do with the fact that senior Treasury officials, often with homes in attractive parts of Surrey, Buckinghamshire and other home counties, have conveniently elided their “judgment” of what is good for the economic stability of the country with their inner NIMBY.

Yet, this is the view that pervades Whitehall’s most powerful ministry and, however often senior ministers issue rallying cries to “get Britain building”, it is a view that has thwarted countless attempts by other departments over recent years, and even No 10, to implement policies designed to make UK housing supply more responsive to price.

While some will dispute that, it is unanswerably true that UK banks, heavily exposed to property as they are, have absolutely no incentive whatsoever to challenge the growing concentration of the housing industry. As such, unless compelled to do otherwise, leading banks will continue to extend little in the way of finance to the SME builders that have, in previous generations, kept UK house building relatively competitive, so contributing to more modest price rises.

This iron triangle of interests, and the nine housing market features within it, form a formidable coalition against change. As such, attempts to “fix” this market will need to be coherent, determined and carried out consistently over a long period of time.

If the UK is to thrive during the decade after Brexit, with a relatively buoyant economy, it is vital that the government puts house building at the heart of its economic strategy. If we fail to build more homes, ordinary working people will find it ever harder to keep a roof over their heads, and the damage to the wider economy, and society, will only get worse.

On top of that, though, a major programme of house building will bring significant benefits in terms of future labour market flexibility and rising productivity – and a more general economic boost. Every UK recovery from recession over the last century has been associated with a sharp rise in house building – with the exception of the post-2008 recovery. It is no coincidence, given the absence of anything approaching a building boom over the last decade, that Britain has just chalked up the longest and slowest economic recovery in our history.

“The problems we face with housing market have serious economic implications and fixing this market is now the government’s number one domestic priority,” says Communities Secretary Sajid Javid. “But, above all, high house prices are the biggest barrier to social progress in the UK today – which is why I’m determined to tackle this crisis.”[12. Interview with the author for UnHerd.com, April 2018]

Part four of this series will examine the government’s response to the crisis. The fifth and final part will present Liam’s manifesto for radical reform.

“It’s a constant concern,” says Whitney Joseph, as we drink tea in a bustling café on the outskirts of East London. “As each year passes, house prices are rising – I’m worried it’ll just get worse”.

“The average salary in the South East is around £34,000,” says her fiancé Aaron Senessie, “while the average house price is well over £400,000 – 11 or 12 times more”. Aaron looks at Whitney, then back at me. “Even applying jointly, no lender will give us a mortgage anywhere close to that,” he says. “We’re saving hard and have professional jobs – but still we have no chance”.

This is the plight of two successful, highly motivated graduates, both of whom earn good money. Whitney is a 27-year old trainee at a prestigious London law firm. Aaron is 28 and teaches mathematics at a leading secondary school. Together for several years, they are keen to get married and, while pursuing their careers, eventually start a family. “Our natural next step is to buy a home,” says Whitney, her frustration obvious. “We’re putting as much aside as we can each month, but there’s no hope – the housing market is failing ordinary people like us”.

To help her save, Whitney still lives with her parents. Aaron, meanwhile, rents a small bedroom in a shared house – lacking privacy and even the space for a proper desk to mark his pupils’ books. “We’re not after hand-outs or an extravagant property,” he says. “We’ve studied hard and we work hard – and now we desperately want, and feel we deserve, the opportunity to buy a place of our own”.

The story of Whitney and Aaron is the story of a generation – across not just the South East but large parts of the country. That’s because the UK house-building industry represents one of the most important failures of capitalism in Britain today. Such is the scale of the failure, in fact, and the extent of the economic and social fall-out, that it is provoking – for Whitney and Aaron’s generation – a crisis of confidence in “the system” itself.

In her October 2017 party conference speech, Theresa May spoke about the “British Dream” – a concept embracing home ownership and each generation being better off than the one before. Labour leader Jeremy Corbyn, too, while wanting more social housing to be built and owned by the state, has often argued that “everyone who works hard should be able to own their own home”.[1. See, for example, transcript of Prime Minister’s Questions 1 March 2017, jeremycorbyn.org.uk]

Home ownership in the UK peaked in 2005, as mentioned in Part I of Home Truths. Since then, the share of owner-occupier households has fallen from 70% to 63%, rising among pensioners, but dropping very sharply among every other age group. Some might say that declining home ownership does not matter – not least institutional investors increasingly backing the construction of apartment blocks entirely for rent. But that is by no means the view of the British public. Some 71% of those renting aspire to own their own home, as do 86% of the population as a whole.[3. See ‘CML Research shows 80% of people aspire to own a home in ten years’, 20 October 2016; British Social Attitudes Survey 28, ‘Chapter 8 Housing’, 2012]  With home ownership now below two-thirds and falling, that suggests a large slice of the population – and a majority across several age groups – wants to buy, but, like Whitney and Aaron, face the locked door of unaffordability.

Right to buy

This desire to own should not be surprising. Buying a home is, for millions, an important ambition and right-of-passage, as well as a strong incentive to gain skills, work hard and live responsible lives. Being an owner-occupier has traditionally given ordinary working people, even those on modest incomes, a chance to accumulate capital, providing them with more control over their lives and a tangible ‘stake’ in the economy. As such, broad home-ownership, makes societies more stable and productive – and less prone to populism.

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Renting is now far more expensive than owner-occupancy, particularly for young adults – who, on average, spend almost 30% of their monthly disposable incomes on rent, around half the share of those repaying mortgage interest. Owner-occupancy frees families from the inherent insecurity of tenancy agreements, while encouraging them to maintain and invest in their properties – which benefits the broader economy. And those paying-off their own home loans, rather than paying rent ‘down the drain’ to service their landlord’s mortgage, will ultimately benefit from tax-free capital gains and outright ownership of a valuable asset.

The UK’s chronic home shortage, though, means millions of young adults are now priced out of the housing market altogether – unable to rent or buy. One sad result is that more young adults are not leaving their childhood home. The number of 20-34 year olds living with their parents is up 28% since 2006, to 3.4 million according to ONS data – including 20% of women in that age range and an astonishing 32% of men.

In addition to single adults living with their parents, this housing affordability crisis has driven up the number of “concealed households”. Internal government estimates indicate that the number of couples (with or without children) living within another household has increased 50% since 2006, to 2.5 million. Homeless family units living within other households in London are up an incredible 80% over the last decade, to an estimated 720,000.[4. Internal Ministry of Housing Communities and Local Government memo obtained by author. These estimates are based on Labour Force Survey data.]

Despite spending more than previous generations on housing, today’s young adults also have to endure longer commutes to work if they want to buy – as high house prices push them further away from city centres. In total there are now 3.3 million workers with daily commutes exceeding two-hours one way, some 34% more than in 2007.[ 4. John Evan, ‘Calling time on long commutes’, Trades’ Union Congress, November 2017] As people move to less central locations, in a bid to buy an affordable home, resulting longer journeys not only lower productivity but also negatively impact family life and general wellbeing.

And, of course, as prices spiral way ahead of wages, ever-more young adults – including those holding down professional jobs – need financial help from their family to buy their first property. This is one of the major property market trends of our time. Around half of all first-time buyers (FTBs) now rely to some extent on “the bank of Mum and Dad”, rising to two-thirds in London and the South East.

In 2017, family and friends contributed an estimated £6.5 billion to help FTBs, 30% up on the previous year, supporting almost 300,000 transactions.[6. Legal and General, ‘The Bank of Mum and Dad Report’, August 2017] With mortgage rates still close to record lows, few struggle to make the monthly repayments once, with family assistance, they have bought their own home. The big obstacle is the deposit – with 70% of those who received parental help admitting they would otherwise still be renting.

Such assistance is, of course, only available to those from relatively wealthy backgrounds. This lays bare an uncomfortable truth – the growing gulf between Britain’s “property haves” and “property have-nots”. The UK housing market, traditionally a source of social mobility and financial security, is now fuelling social immobility and resentment. This goes a long way towards explaining the surge of support for Jeremy Corbyn in the June 2017 UK general election.

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Youthquake?

At the May 2015 general election, David Cameron’s Conservatives gained 36% of votes among 30–39 year olds, compared to 34% for Ed Miliband’s Labour. In June 2017, that position was transformed. Corbyn took 55% of votes within the same age range, while Theresa May’s Conservatives won just 29%.

Some young voters angry about Brexit clearly wanted to punish the Tories – even though the Labour manifesto also pledged to honour the referendum result. But the housing affordability crisis also worsened after 2015, and was far more widely discussed. With even high-achieving professionals often unable to buy their own home, a growing number of young voters began to conclude that capitalism is unfair – a theme featuring prominently in Corbyn’s campaign. And just as owner-occupiers are more likely to vote Conservative, young adults desperately upset they can’t buy a home are increasingly prone to vote for a politician offering to “shake things up”.

The reality is that broad and largely accessible UK home ownership has, for many decades, guarded against an unhealthy and potentially extremely destabilising concentration of wealth. Yet this long-standing feature of British society, a natural corrective, is now going into reverse. While some inequality is inevitable and even desirable under capitalism, as the recent UnHerd audio documentary explored, the distribution of wealth across the UK has become far more skewed over recent years.

In June 2017, the Resolution Foundation estimated that the wealthiest 10% of UK adults now own half of Britain’s wealth, with the richest 1% controlling no less than 14% – 15%, in contrast, have no or negative wealth.[7. ‘Britain’s increasingly unevenly shared property wealth is driving up inequality after a decade-long fall’, Resolution Foundation, June 2017] And while wealth inequality fell during the decade from 1995 to 2005, it has since risen steadily, not least since the 2008 global financial crisis.

While total wealth across Britain – not just housing, but also private pensions, shares, land and other physical objects – has risen from £9,900bn in 2007 to £11,100bn now, the wealth of the typical ‘median’ adult, lying exactly in the middle of the distribution, has dropped – from £99,000 just before the financial crisis to £84,000. And this fall in large part reflects the changing distribution of property ownership, linked in turn to the inability of increasing numbers of young and middle-aged adults to buy their own home.

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House prices have almost doubled since 2008, while wages have barely risen – with the majority of successive generations of young people now priced-out, their families increasingly being forced into a life of private renting. While the number of homes purchased by people aged 25 to 44 with a mortgage dropped by over 1.6 million over the last decade, the number of homes owned outright by those above 65 has increased more than 1.4 million.

Falling UK home ownership among young adults, then, continuing as they move into middle age, has become a source of inter-generational conflict.

Economic drag

Fifteen years ago, in her detailed review of the housing market, Kate Barker wrote that a failure to increase house building would lead to “problems of homelessness, affordability and social division, decline in standards of public service delivery and increasing the costs of doing business in the UK – hampering our economic success”.[8. Kate Barker, ‘Review of House Supply – Delivering Stability: Securing our Future Housing Needs’ HM Treasury, 2004] The undersupply of housing clearly contributes to national economic stultification – with far too high a share of savings channeled into housing rather than more productive assets. While longer commutes harm productivity, high rental and property prices also hinder the ability of firms to attract workers to the industrial, tech and service-sector clusters vital for future UK innovation and growth – not just in London and its outskirts, but across smaller cities too.[9. Sabah Meddings, ‘Oxbridge blues: tech hubs bursting at the seams’, The Times, 3 September 2017]

What is most galling, though, is that the UK’s lack of homes is a cruel limitation on the aspirations of hard-working young people who want to settle down and form family units while owning their own property – people like Whitney Joseph and Aaron Senessie. “It’s an uphill struggle – we’re saving as much as we can, but always battling rising prices,” Aaron tells me. “It’s actually really upsetting – and constantly on my mind,” Whitney continues. “However hard we try, the market keeps pulling away from us”.

Since Labour came within a whisker of power, the Government has become alive to the reality that millions of voters in their 30s and 40s who should be natural Tory-voting property owners are instead unhappily renting or living with their parents, and are prepared to vote for Corbyn. As such, ministers have been talking a great deal lately about the importance of home-ownership, while making solemn declarations about their determination to “fix the UK’s broken housing market”.

The following part of this series considers the nine crony capitalist characteristics that have driven the housing crisis.

Part four, examining the government’s response to the crisis, will be published tomorrow. The fifth and final part will present Liam’s manifesto for radical reform.

“The housing shortage isn’t a looming crisis, a distant threat that will become a problem if we fail to act. We’re already living in it”.[1.  Fixing Our Broken Housing Market, Ministry for Housing, Communities and Local Government (MHCLG), February 2017, Cm 9352.]

Housing is increasingly unaffordable in many parts of the UK, with prices and rents rising much faster than earnings because far too few homes have been built. Since the 2008 financial crisis, the homes shortage has become more acute – sending affordability to the top of the political agenda.

The rate of house building has long lagged the UK’s natural population growth and net immigration. Since the mid-1980s, an estimated 2.3 million too few homes have been built.[2.  Professor Paul Cheshire of the London School of Economics, quoted by Liam Halligan, ‘Home to Roost‘ The Spectator, 5 November 2016.] The seminal Barker Review of 2004 presented “considerable evidence” of a homes shortage, suggesting 245,000 new homes were needed each year to match household formation.[3.  Kate Barker, Review of ‘House Supply – Delivering Stability: Securing our Future Housing Needs’ HM Treasury, 2004. Since Barker, two other “independent reviews” – have come to broadly similar conclusions regarding the UK’s shortage of homes. See John Callcutt, ‘The Callcutt Review of House-building Delivery’, Department for Communities and Local Government, 2007. And Michael Lyons, ‘The Lyons Review: Mobilizing across the nation to build the homes our children need’, 2014] For decades, building has fallen way short – as shown in Graph 1.

From 1979 to 1990, under Thatcher, 220,404 new homes on average were constructed each year by private builders, housing associations and local authorities.[4.  Housing Associations are private, non-profit organizations that provide low-cost “social housing” for those in need. They often receive public subsidy and some borrow or issue bonds, reinvesting any surpluses.] That fell to 194,310 under Major, as fewer council houses were built, before rising gradually under Blair, then plummeting under Brown – as small and medium sized builders (SMEs) were wiped out during the credit crunch. During the Cameron years, 2010 to 2016, an average of only 141,132 homes were built annually.

New household formation is now estimated at around 270,000 per year, 25,000 higher than when the Barker report was published. Yet just 178,450 homes were completed in 2016-17 – still 50% adrift of annual demand, to say nothing of the shortfall generated over recent decades.[5.  House building; new build dwellings, England: December Quarter 2017, Ministry for Housing, Communities and Local Government. For UK-wide numbers see also MCHLG live table 209]

From World War Two until the mid-1990s, rapidly rising wages and steady building made house prices manageable for most aspiring homeowners. Between 1997 and 2016, though, amid slow building and much faster population growth, the average house price rose 267%, while average incomes grew just 68% – as shown in Graph 2.

Since 1997, while house prices have soared, equities have been broadly flat (volatile, but ending up roughly where they were). This has attracted speculative investment flows to housing, bidding prices up further. Similarly, since 2009, ultra-low interest rates related to quantitative easing – resulting in negative real returns on government bonds – have pushed yet more speculative money into property.

The UK-wide median house price is now 7.7 times median annual earnings – an all-time high and up from 3.5 times in 1998. But the extent of the homes shortage varies across the country. Official regional data on housing demand and supply in Graph 3 suggests a cumulative building shortfall since 2000 of 343,000 homes in London and 96,000 across the South East outside the capital.[6.  Figures cited in Chris Philp, ‘Homes for everybody’, Centre for Policy Studies, December 2017.]

This “under-build” has also been significant across the Midlands, the East and the North West – other areas where prices have markedly risen. In Northern Ireland, the North East and Scotland, in contrast, a small excess of supply has been built, helping explain weaker price growth in those parts of the UK.[7.  House prices in Northern Ireland are still below their 2007 peak.]

Where the demand-supply mismatch is greatest – London and the South East – house prices are 12.2 times and 9.1 times earnings respectively, as shown in Graph 4. With banks rarely lending over five times salary, a couple who both work full time will still struggle to buy, even outside the capital. And that’s before childcare costs.

But crushing affordability multiples now extend way beyond the South East – reaching 7.6 times in the South West and 6.5 times across the Midlands. Across the entire UK, in fact, affordability multiples are well beyond the long-term UK average of 3 to 4 times.

After the 2008 collapse, lenders restricted mortgage availability. Home loans for first-time buyers (FTBs) dropped particularly sharply, from around 100,000 to 40,000 per quarter. That number has recovered to 85,000, but remains well below the 1985-2000 average of 125,000.[8.  See data from UK Finance, formerly the Council of Mortgage Lenders.] In October 2017, the average income multiple granted on a FTB mortgage was 3.6-times – the highest on record. But even the UK-wide price multiple faced by FTBs was 5.2-times – a significant affordability gap.

With price growth outstripping earnings, low savings interest and limited mortgage availability, FTBs now find it far harder than previous generations to get that fabled “foot on the ladder”. Saving a tenth of their gross income, FTBs now need ten years on average to amass the necessary deposit, compared to just two years up until the mid-1990s.[9.  ‘Home Affront’, Resolution Foundation, September 2017]

After a century of growth, UK-wide home ownership peaked at 70% in 2005 and has since declined to 63%. This is now lower than in Canada (68%), the Netherlands (67%) and the US (65%). But this steady fall in owner-occupancy, to levels still comparable with similar countries, masks a dramatic ownership decline among young adults – as shown in Graph 5.

While over a third of 16-24 year-olds owned their home in 1991, it’s now a tenth. The share of 25- to 34-year-old owner-occupiers has meanwhile collapsed from 67% to just 38% – with well over half a generation locked out of the property market at this crucial family-forming age. Moving into middle age, 78% of 35-44 year-olds were homeowners in the early-1990s, falling to 56% now. The share of pensioners owning a home, in contrast, has soared – from roughly 60% to 80%.

Only 40% of those born in the mid-1980s were owner-occupiers by the age of 30. This compares with 55% of the 1940s and 1970s cohorts and over 60% of the 1950s and 1960s cohorts.[10.  ‘The Economic Circumstances of Different Generations: The Latest Picture’ Institute for Fiscal Studies, IFS Briefing Note BN187] Today’s young adults have less chance of owning than any post-War generation.

Four out of every ten 30-year olds now live in private rented accommodation, compared to one in ten during the 1960s. And overall housing costs for today’s young adults are higher than any generation for a century – with unfortunate renters driving that trend, not lucky homeowners.

When those born in the 1940s were aged 26 to 30, they spent 10% of their income on housing costs, whether they rented or bought – as shown in Graph 6. By the time those born in the 1950s were in the same age range, their housing costs were 15% of income, with high interest rates meaning mortgage-holders paid slightly more. The cohort born in the 1960s spent 20% of their income on housing in their late-twenties, as did those born in the 1970s.

Those born in the 1980s – today’s young adults – spend 22% of their incomes on housing, not much more than their predecessors. But this average figure masks a large and growing discrepancy between renters and those who have bought. Owner-occupiers aged 26 to 30 now spend 15% of their income on housing. If you can get the large deposit needed to buy, mortgage service costs are relatively low.[11.  This calculation includes only the cost of mortgage interest payments by homeowners, with capital repayment considered a form of saving. According to the property consultant Savills, renters paid private landlords £54 billion during the twelve months to the end of June 2017, more than double total mortgage interest paid by home-owners, as rising prices pushed more and more people into the rental sector. The interest paid by owner-occupier borrowers fell by £6.4 billion to £26.5 billion between 2012 and 2016, Savills calculate, while the amount paid to landlords rose £14bn over the same five-year period. ‘Renters pay £54bn to private landlords’, Financial Times, 1 October 2017]

But young renters are spending almost 30% of their income – much more in London and other hotspots. And that makes it even harder for them to save for a deposit, compounding their disadvantage.

The UK’s long-standing homes shortage, more acute in recent years, has seen house prices spiral – sparking a near-nationwide affordability crisis. Today’s generation of young adults are spending more on housing, and are less likely to be owner-occupiers, than any cohort since the 1930s. Some say home ownership no longer matters. But that isn’t the view of “generation rent” – those priced-out of the UK’s dysfunctional property market.

The next part of the Home Truths series  – ‘A place of our own‘ – examines the impact of the housing crisis, while part three diagnoses  the nine crony capitalist characteristics that have driven the crisis.

Part four, examining the government’s response to the crisis, will be published tomorrow and the fifth and final part will present Liam’s manifesto for radical reform.