Housing: where’s the plan?

A new book by the economist whose work first established the 250,000 homes a year benchmark has to be worth reading – especially when she’s not convinced it’s possible anymore.

Kate Barker’s seminal report on housing for the Blair government nailed the idea that the UK and especially England need to build houses at a much faster rate. A decade, and a separate study of planning, later and it still the ultimate source for targets of 200,000, 250,000 and even 300,000 homes a year to cope with demand and make up for the shortfall.

Now she’s back with Housing: Where’s the Plan, a short book setting out the housing challenge and potential solutions to it. With the new homes deficit rising by the year, she starts with a sober assessment of the possibilities:

‘To create a fairer and less harmful housing market, a combination of strong central direction about housing supply and unpopular taxation changes would be required. But politicians find it hard to grasp these nettles: there is far too much short-term pain and the gain will go to their successors. It is easier for them to carry on with somewhat ineffective knee-jerk and populist help for first-time buyers.’

While a perfect market may not be possible the book suggests ‘criteria for what a better housing market might look like’. However, she injects a note of caution from the outset:

‘I have become less convinced that it will be possible to meet demand in much of southern England, given the strength of local opposition in many places. So building more housing will not be the only answer, we also need to ameliorate the consequences of demand continuing to exceed the available supply.’

In less than 100 pages, the book covers an immense amount of ground including the sort of outcomes we want, post-war housing and planning policy, the housing market and the wider economy, market risks and taxation.

She also sets out, and knocks down, a series of ‘myths’. For example, the UK does not have an abnormally high rate of owner-occupation; rising prices do not mean housing is unaffordable for all; and we are not running out of land. Some of these are more clearly myths than others but all are put in a wider context.

The great strength of the book is that it avoids easy answers to what is a highly complex problem. While she argues that planning can be self-referential and planners don’t consider the costs of their decisions, she does not fall into the same easy trap as other economists of pinning the blame for under-supply on planning and assuming that new supply is enough on its own to solve the housing crisis.

The record of the 1950s and 1960s shows that ‘there is nothing about nationalised development rights and a plan-led system that intrinsically inhibits residential development’. Instead a retreat from active public policy, plus subsequent changes in planning regulation and funding of subsidised housing and in attitudes to development have combined to reduce the building rate.

In such a short book, some things are inevitably missing. For my money, she’s rather too complacent about what’s happened since the financial crisis, even arguing at one point that ‘lack of new supply was helpful’ because it helped stop prices falling. There is not much discussion of the role of buy to let or (surprisingly) the structure of the housebuilding industry.

I’d also question the assumption behind her decision to focus mainly on the private market. ‘Social housing deserves its own book,’ she says. Including it would certainly have made this one much longer but in an era of marketisation I’m not sure the distinction is so clear anymore. What we think of as ‘the market’ is in reality an inter-connected system of complex markets under-pinned by the state not just through development subsidy but through housing benefit, taxation and now billions of pounds worth of financial instruments.

However, these are quibbles about a book that asks some vital questions. The final chapter asks the crucial one: what would good look like? Barker confesses she was dispirited by what she found in her review a decade ago. Since then the financial crisis and downturn have reduced the capacity of the homebuilding industry and the housing market remains a source of inequality in living space and in location. Against that, she argues that the NPPF has brought improvements in planning and the mortgage market is better regulated.

She draws out four key reasons why our housing problems are so intractable and why it’s ‘vital’ to get new building back ‘towards or above 200,000 a year’:

  • Demand for housing space rises strongly with income – meaning that the rich will buy more space and the poor will need subsidy
  • Land remains the fundamental problem – we need more planning permissions and we need to reduce landowners’ expectations about their share of the gains
  • There is no easy solution to the UK’s regional imbalances – London’s status will increase development pressure in the South East and she is sceptical about attempts to halt economic decline in the North and elsewhere
  • Opposition to new development in the South East makes it questionable whether supply can keep up with demand.

Her recommendations are designed to boost housing supply while ensuring greater fairness and reducing the investment motive for owning housing. But she admits they do not try to address the issue of how to distribute economic activity more evenly around the country.

Most of the recommendations are familiar: local housing plans with greater borrowing and land assembly powers for local authorities; plans that judge their success in terms of achievements such as reducing the waiting list or improving affordability; incentives for local communities to accept development; new settlements and urban extensions; and encouragement for self-build. This is a similar agenda to the one laid out in the Lyons Review. She also calls for more risk sharing in mortgage finance and stronger regulation of quality and financial fairness in the private rented sector.

She calls for a holistic approach in contrast to the ‘knee-jerk’ responses of the past. That will require cooperation between a vast range of different government departments and agencies including a new ministerial committee chaired by the chancellor and aided by a new public advisory group of experts.

But her most controversial recommendation is designed to address demand rather than supply. Alongside reform of VAT and the council tax, she calls for the end of the exemption from capital gains tax (CGT) for main residences:

‘If objections to development lead to some effective rationing, then it seems perverse not to tax the benefit of owner-occupation that comes from price increases for the existing housing stock. If politicians are not prepared to face up to the need for much more housebuilding, they must instead face up to taxing capital gains on housing.’

It’s hard to fault the logic but whether you build more homes or tax existing ones it means taking on the same powerful lobby of voters who are already on the housing ladder. Where are the politicians prepared to do that?

Housing: Where’s the Plan is available from London Publishing Partnership. For other reviews, see these blogs by Alex Marsh and Brian Green

Originally published as a blog for Inside Housing


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