House prices are too high. Government needs to abolish Stamp Duty, slash red tape and ensure 500,000 new homes are built every year.
House prices are too high. Not only should government stimulate more house building, it should actively engineer a fall in property prices.
Hi. I’m Leon Hawthorne. We’re talking about the housing market and how to create more affordable homes, especially for young families.
The average home has more than doubled in price, in real terms in the past twenty years.
If you look at the ratio of house prices to average earnings for first time buyers, you see house prices are ordinarily three times average income. But it’s been climbing steeply since the mid 1990s. It’s now five times average earnings across the UK; and it’s much worse in London… ten times average earnings.
That’s the reason why the typical first time buyer is now aged 32 years old. We’re expecting adults to stay at home with their parents or rent for 10-15 years before they can afford to buy a home of their own.
This property bubble is in part due to measures adopted after the 2008 crash in the financial markets. With bank interest rates stuck below 0.5%, wealthier people have taken their money out of the bank and invested in the buy to let market. This has inflated house prices.
At the same time, there’s been a massive increase in the UK population due to immigration. Net, around 3 million people came to Britain in the past 10 years. They all need somewhere to live.
Old people live longer, so their homes are not being recycled back into the housing market.
Like any other commodity, house prices are a product of supply and demand. Too much demand, not enough supply, so the price goes up. But the current prices are un-sustainable. The market bears all the hallmarks of a bubble and there’s only one thing that happens to bubbles. They burst.
And that’s a good thing. The function of housing is to provide homes, not to exist as an investment vehicle, especially if a lot of that investment is dodgy Russian and Chinese money, which is flooding into London, buying housing stock as a safe haven for laundered corrupt cash.
Meanwhile young British adults are paying exorbitant rents, dreaming of joining the home-owning democracy their parents’ generation promised. The taxpayer spends £26 billion a year on housing benefit.
This is money from your pocket paid mostly to private sector landlords, who benefit from high rents caused by the inflated property market.
One million people are on the waiting list for a council house. But government has no place being a builder or a landlord. Government however can solve the housing problem by changing elements of both the supply and demand side of the equation.
The government says around 275,000 new homes should be built every year. But currently, it’s nowhere near that. In any case, this is not enough. The number should be closer to 500,000 new homes a year.
The problem is property developers like the situation as it is. It’s in their interest to have too few houses, selling at very high prices, than it is to flood the market with new homes, depressing the price. That’s why they sit on land banks and count their cash.
We need to change the planning laws to properly motivate them. For example, planning permits could set a time limit for completion of construction, or else developers pay massive penalties.
Central government should streamline and minimise the role of local councils in the planning process. This is an area notoriously rife with corruption, red tape and nimby-ism. The process could be refreshed, so councils merely go through a tick-box process, clearing most applications in 28 days.
Local and central government are massive landowners. They should sell off most of this land to developers on the strict proviso that X numbers of homes are completed within a specified period.
And Stamp Duty, the tax you pay when you purchase a home, should be completely abolished.
On the demand side:
You cannot look at housing without also addressing regional policy. There are too many people, especially immigrants, wanting to live in London. The country’s economy and population is massively imbalanced; and we need to shift it outward to the regions.
As an employer, government could kickstart this by moving government departments and public sector agencies out of the capital. The BBC’s creation of its Salford broadcasting centre is a good example of this.
But there needs to be much more.
As far as immigration is concerned, Brexit gives us an opportunity to create new rules. These might include work permits that have regional restrictions on where new migrants can work.
I think the target for house prices should be back to three times average earnings, or less.
However it is achieved, house prices must come down and government must act to achieve this.
I’m Leon Hawthorne. Thanks for watching.