One of the most intractable drags on the British economy is very expensive housing. This is particularly acute in areas of highest growth potential, ie London and the south east.
The stat that sends chills down my spine has always been this from the homeless charity, Shelter: “If grocery prices had increased at the same rate as house prices since 1971, then: A chicken would cost £51.18.”
And this analysis is now 10 years’ out of date. My rough and ready updating of their analysis for a house-price-indexed chicken would now be more than £87. Coq au vin for all, I think not…
The shelves of think tanks are heaving with ideas about how to solve this: liberalise the planning system; scrap the Green Belt; densify cities; local incentives/bribes (and votes) to support development; scrap environmental regulation; pile more money into social housing; housing targets for local authorities etc etc….
The Government has tried a few of these, but at the end of last year felt if had to step back from its Lilliputian housebuilding targets (and associated fines for those that did not meet them) under significant political pressure. It has since pivoted to more specific efforts, such as plans to hugely expand Cambridge (which immediately and inevitably met with opposition). Labour has committed to build, build, build, including some new proposals for new towns.
I am far from a housing policy expert, but an idea has been bubbling around my head for the last few weeks on what the housing sector could learn from the energy sector. I think this tackles the fundamental unfairness at the heart of housing policy. I am amazed no-one else has thought of it….
Could we try and keep house prices flat across the country?
Why should house prices be different in different parts of the country? Why should we put up with this postcode lottery in housing costs, both for owner-occupiers and for renters? I know we see signs of a such unfairness in petrol prices, food, public transport provision, even bins (thankfully now being clamped down on). But in energy, you have a consistent wholesale cost across the whole of Great Britain (Northern Ireland has its own idiosyncrasies). Some are currently proposing flattening out any remaining bits of locational disparity, such as TNUOS charges.
Think of the economic benefit of this proposal. You would get cheaper housing in places which are currently the most economically productive in the UK (London, Golden Triangle, perhaps Bristol), which would help further boost economic growth and attract more people and businesses into these areas. Cambridge, Milton Keynes, Brighton, Oxford would all thrive.
I have not yet thought through the full mechanics of how the policy would work in practice. But in simple terms, the policy would work by people in parts of the country with low cost housing — or indeed any property, domestic or commercial — subsidising the cost of housing in parts of the country with higher cost housing.
You could do this through some jiggery-pokery with stamp duty, or perhaps an annual charge on housing in the north and Scotland that could then be paid directly to mortgage providers to properties in the south. People in Glasgow would be helping out people in Surrey (with the wider trickle-down economic benefit for all of the UK), or people in North London (disclosure: this is where I live).
Over time as the property prices are lower, the south will become even more productive and prosperous, attracting more and more industry and economic activity. We could stop talking about fiddly innovations like densification or low-cost modular housebuilding. And it would undermine support for tough regulatory proposals like rent control.
I can see some political risks from people in the less expensive parts of the country objecting to paying for housing for wealthier parts of the country. But I would mitigate this by subsidising a flood of new investment in housing and new property in those parts of the country, creating good housebuilding jobs and investment. People would welcome that, even if they would not benefit directly from the cheap housing being produced in their local area (and there may be some tail risk of oversupply, which I have not quite thought through yet). China’s support for its property market over the past 20 years is a compelling example here.
‘Ah, but people and businesses will just move from the north to the south where the property is subsidised below market rate…’ But that is the beauty of this policy, we know from the history of the cost of energy that people and businesses never respond to price signals like the cost of energy (I know some people suggest things like economic geography of the industrial revolution and Iceland’s strange ability to attract data centres and aluminium smelters is linked to cheap energy, but I remain to be convinced).
So if people do not move, as I expect, you will have a predictable and consistent supply of new contributors to your new anti-postcode-lottery-in-property tax (particularly if you are able to drive massive investment in new housing and property in the areas likely to end up paying most of this tax, as I have suggested above).
As I said, this is not my policy area of expertise and, as always, very open to challenge. But I thought the example of the evolution of GB electricity markets over the past 20 years so relevant, so compelling, and so inevitably destined to economic prosperity, I thought I had to write it down to be tested…
