could be achieved by local authorities designating some land specifically for private rental building – annoying the landowner, who would then receive a slightly lower price because of the planning restriction – or reducing the affordable housing requirement and other planning obligations for private rented sector sites. In return, investors could be required to keep dwellings as rental properties for a specified number of years, with the added benefit that this would offer greater security of tenure to the tenant. But this raises some risks. In particular, if the private rented sector has expanded mainly because of mortgage market constraints, it is reasonable to expect the demand for rented accommodation to decline as the mortgage market recovers. If private rented units cannot be sold to prospective owner-occupiers, there would then be a risk of voids (periods of vacancy between tenants).
The second policy response has been to try to limit rent rises, which have been a major contributor to pushing up the housing benefit bill. Steps have been taken to control rents, at least for housing benefit tenants, by reducing the level of rent eligible to be counted for housing benefit to those of the cheapest 30% in any area: an attempt to prevent landlords gaming the housing benefit system by raising rents. While this might help to keep rents down for these tenants (although it is likely to mean that benefit claimants will increasingly only be able to access the least desirable housing), there is little evidence of any effect on other rents, so wider rent controls are frequently suggested. But rent controls, unless they are very carefully formulated, will choke off the desired increase in the supply of private rental property. Elsewhere in the EU, controls have not stifled supply, but this is because the controls often fail to keep rents much below market levels. A concerted resort to rent control, then, would simply be an attempt to fight the market by reducing the price of something that other policies have rendered in short supply. It is unlikely to succeed. Changes to encourage longer secure tenancies, or to control rent increases, might achieve a better balance between protecting tenants and retaining an adequate incentive for landlords.
Myth 4London and the South East are too congested, so we need to build more houses in the North and fewer in the South East
It is sometimes argued that people need to move to where the housing is, but it makes much more sense for housing to be built where people want to live and work. If governments really want to tilt the economic geography of the UK from south to north, then improved skills and transport links, the movement of government offices out of London and the creation of new cultural centres all need to come before building new housing. Most experts argue that housing supply should be focused on urban labour markets. Alain Bertaud has pointed out that once cities are thought of in this way, transport issues come to the fore.8 The alternative – restricting housing development in exactly the places where people want to live, and where settling would improve their welfare – is perverse.
Regional policy (and its costs and benefits) is a vast topic and it cannot be tackled here,9 but the balance of evidence suggests that, despite considerable expenditure, little success has come from efforts to regenerate declining cities.
It is also unfortunate that better data on rents in the UK is not available. The Office for National Statistics has introduced a recently developed rental series into a new measure of inflation, but at the time of writing this series was being reviewed. Rental data is important for measuring inflation, and for indicating the trend in housing affordability.
Homes where people want to live
At any time different towns and regions will experience very different housing pressures. During the recovery from the financial crisis, London’s international status has driven up house prices there. But cities such as Stoke-on-Trent, where the housing market was still being regenerated in the late 2000s, have seen a far slower return to upward price pressure.
Spatial policy has recently moved backwards. In 2010, the coalition government ended regional planning, choosing instead to focus on local planning (through ‘local enterprise partnerships’), making it difficult to develop a coherent approach to regional spatial questions. This is a pity both from a development point of view and from an environmental one. Issues of water scarcity, or of biodiversity, are often best considered over quite wide geographical areas, and these debates cannot now easily take place.10
Summary
All governments surely want to see the population decently housed, and yet major housing issues are still not being tackled in a systematic way. Politicians find it hard to resist introducing short-term policies that seem to support the popular desire for home ownership, directing subsidy towards those who are nearly able to afford to buy a house, but this is not the best use of taxpayers’ money in the housing market.
Economists tend to prefer policies that level the playing field between home ownership and renting, but they are not easy to implement. Policy towards the private rented sector is itself confused: it aims to limit rent rises and to encourage more investment, but these are conflicting aims.
The fundamental issue is that a house is inevitably both an investment asset and a provider of housing services. If declining supply relative to demand is likely to result in a long-term trend of rising prices, it will be a major incentive for buying a home.
The UK has experienced a long-run undersupply of housing relative to demand, which rises because of higher incomes and a growing population. (Demand is not the same as ‘need’: the latter would imply we all lived in houses that just met government-determined space and bedroom allowances.) The recent financial crisis has been followed by a sharp fall in supply, but the shake-out of smaller developers and the loss of construction skills means that just getting back to the level of new housing supply delivered in the mid 2000s may take several more years.
On top of this, foreign buying is distorting the market in key cities (especially London), the tax system could be better structured to encourage housing supply, and there is a basic question as to how much housing is compatible with environmental concerns: both for the UK as a whole and for particular areas.
All these complex and interrelated questions need to be viewed through a clearer policy lens. The rest of this book seeks to do just that, focusing chiefly on private housing. Social housing deserves its own book.
Chapter 2
Post-war planning and housing policy
Successive governments have wanted to ensure that all households have a dwelling of a decent standard and, through good planning, that these homes are in pleasant places. Unfortunately, the objectives of those devising and implementing planning regulations have not always been the same as the objectives of those concerned about housing market outcomes, and this has often resulted in frustration between different arms of government at both national and local levels.
This is not the story of planning in the UK as a whole: policies in Scotland and Northern Ireland (and in Wales since 1998) have increasingly diverged from those in England as a result of devolution. This means that much of the following discussion is about England (although some of the quoted figures are UK-wide ones). Devolving planning complicates policy, since some measures (particularly taxes) have remained national and can rub up against the devolved administrations’ housing and planning policies.
A little history helps in understanding today’s housing situation, so I give a brief description below of the key planning acts and other regulations, the major changes in the taxation of development and housing, and the shifts in policy towards social and other ‘affordable’ housing. By detailing some of the relevant history, I give examples of how successive policies have often had unintended consequences because of a failure to anticipate how the market would respond and/or because the impact of economic and credit cycles has been ignored.
The 1950s and 1960s: post-war reconstruction11
The
