Solving The UK Housing Crisis

The love affair between the ‘great British public’ and the Residential Property Market is very enduring and whilst it has always been a prevalent feature of this country, Margaret Thatcher spearheaded the home owning revolution with her reforms and sales of council houses in the 80s.

Anyone who participated in buying their own home, for say £35,000 at the time, would now be looking at an asset value of circa £600,000. As a result, not only does a home provide a sanctuary for the family, but also could be a quasi pension for old age, should the property be sold and the owners downsize.

Lets face it, existing homeowners, governments, banks and building societies all need a healthy, growing residential property market. With asset inflation, debt shrinks in relation to the value, SDLT receipts increase, loan to value ratios become safer for the lenders and this process encourages consumers to go out and increase retail spending, which stimulates the economy and powers growth.

In the main, Germany, hitherto, has been a nation of home renters rather than home owners and they have not benefited from asset inflation and the absence of this stimulus on consumer retail spending, which at the same time being a nation of hoarders, is very telling and perhaps is one of the reasons why the country does not grow as fast as it might, given its undoubted manufacturing prowess.

Unfortunately, there are only two solutions for the first time buyer in the UK, who are not yet on the property ladder: a) cataclysmic collapse in the Residential Property Market, b) expansion of government backed Help-to-Buy schemes. The former would be disastrous for the UK economy and the latter should certainly be considered as part of government reforms.

I am not sure if I agree with the adage ‘the rich, are getting richer and the poor, are getting poorer’. I believe that the asset owners are getting richer and the non asset owners, are getting poorer. As the inflationary tide comes in it lifts all boats, small, medium and large and the sooner that renters in the UK become owners the sooner that they will benefit from asset inflation.

The former Chancellor, Osborne, clearly didn’t understand the dynamics of the Property Market, when he reformed the SDLT ‘slab sided’ calculator in favour of a progressive escalator. He dropped the Stamp Duty rates at the lower end of the market, as an ‘election bribe’, which served to stimulate an over excited sector, which stoked up price inflation to circa 10% and this ‘hovered up’ the housing supply. This stimulated demand and by doing so, hit the vulnerable first time buyer hard. Whilst they were ‘skimping and scraping’ to raise a deposit, with the help of the ‘bank of Mum & Dad’, prices were running away from them at a heady rate. There is no doubt that the UK needs a liquid property market which rises gently at 3-5%, but not one that grows at an unsustainable rate. Is it any wonder why, therefore, we are short of housing at the lower prices ranges across the country?

Observers comment about the present ratio of house prices to average earnings, being currently 10, rather than at a more historically affordable 3.5-5. However, this ignores the fact that these previous figures were calculated 25-30 years ago and do not take account of their being two equivalent wage earners (rather than just one) in a young family today and this is why these historic ratios are not relevant now. In addition, we are in a low Interest Rate environment, therefore the proportion of average wages which is devoted to servicing mortgage payments has far more headroom than has been hitherto the case.

Stamp Duty is a transactional-based tax, which is perfectly collectable and perfectly avoidable, simply by not moving. Observers have suggested raising more revenue, by reviewing Council Tax Bands, some of which have not changed for many years. This presents two problems; the first is that the money goes to the local councils and not the Treasury, which undermines the government. Secondly, it adds a further burden to owning a property which may well ‘snuff out’ the reduced liquidity of the Property Market in the middle to upper ranges, that is presently in a parlous state. Let us not forget the object of Council Tax is there to pay for local borough domestic services, i.e. roads, police, refuge collection etc., and not as a socialistic driven, punitive tax on success.

The ‘stuffing has been knocked out’ of the Property Market above £1million in London where there is huge oversupply, spasmodic demand and house builders are ‘nursing’ losses on their schemes that doesn’t exactly put them in the best position to acquire more land and build more homes. All this nonsense about developers sitting on land banks waiting for prices to rise is complete balderdash. These companies are more often publicly quoted and they have a duty to their shareholders to relentlessly provide profits at an ever-increasing rate and leaving perfectly developable sites lying fallow soaks up their limited capital and runs contrary to this logic.

I hope that the new Chancellor will review the draconian Stamp Duty rates at the middle to higher end of the market, not so much to look after wealthy ‘oligarchs’ and their Mayfair palaces, but to raise more revenue for the government. This is much needed towards the herculean task of reducing the Budget Deficit which is proving stubbornly resistant at circa £65bn or 4.5% GDP. Ironically, according to the OBR, Stamp Duty receipts across the Electoral Term ending 2020, will be down by £10bn and will be half of the newly revised Budget Deficit for the period.

I have made an audacious suggestion in the past, that Stamp Duty should possibly be shared with the purchaser and by doing will reduce its ‘forbidding effect’ on the buyer, which is causing such a problem with illiquidity in certain sectors. For instance, at the higher end, if the buyer and seller were to each pay 6% of the SDLT liability it would spread the load between them and would be so much less of a burden on the buyer alone. It may be seen by the ‘middle classes’ as the thin edge of the wedge in terms of a Capital Gains Tax on ones primary residence, but I think it may be a small price to pay for the benefit of enhanced liquidity.

With ‘blue sky’ thinking, I wonder if local authorities should go back to building affordable council homes, as they did in the past and this would take some of the pressure off the private sector in this respect.

An existential reform of the entire local authority planning system, and its relationship with the Department of Environment, is much needed. The process is far too strangulated and there are simply not enough planning consents being granted today.

There is considerable amounts of local authority owned land which the ecologists have zoned as ‘quasi’ Green Belt, for their own judicious reasons, but could be easily developed into sites for affordable new homes which would help ‘break the back’ of the housing problem in the UK. This was the product of an over zealous bygone era, where the colour ‘green’ for zoning or political purposes was being ‘splashed around’ as a designation, more liberally than ‘Henry Cooper and his beloved Brut Cologne’.