The unsolvable housing conundrum

Whilst the guff of #traingate stalked Jeremy Corbyn during the last full week of silly season, he, and therefore theoretically Her Majesties Opposition, made some intriguing announcements about what they would do about solving Britain’s housing problem.

Commentators from all sides pretty much agree that not enough homes have been built in the last generation to house everyone who needs or wants a property. From what I can gather, it started, as most things seemed to, with Mrs Thatcher. It was goodbye to councils building their pretty ghastly, but affordable, properties. It was hello to people buying them up and then flogging them for vast profits a few years later. It was goodbye to a steady stream of new builds coming on stream each year come what may and hello to landbanking where developers who wait for the bubble to become big enough they can make a killing on the investments. It was goodbye home sweet home and hello profitable investment commodity sweet profitable investment commodity.

Not only did the demand and supply structuring of housing radically alter following the 1980’s but, more importantly, the way housing came to be seen changed as well. Property went from being seen as a home to being seen as an investment – one that would always make more money. You only have to look at real terms houseprices before an after the middle of that decade to see this happening. This translated into the wider economy – one that became ever more reliant on consumer spending, fuelled by the confidence that people had the cash or credit to splurge as they had property that would keep making them money. And whilst this boom-bust property merry go round has plummeted in the 90s and the naughties the fundamental cultural and social belief in Britain that a home is there to make you money persists to this day.

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Which is fine for those with a house but a bloody nightmare who were either too young or too poor to get a foot on the ladder in the first place. Now there are the haves and the have nots. And here is the conundrum – if you try to do anything except build your way out of the problem then it will simply not happen. Yet if you try and build your way out of the problem then the wider economy will tank.

For example, you could encourage private developers to build more homes, but they want to maximise return so will do everything they can to starve the supply of homes to increase profit – so that won’t work. Brexit may provide an opportunity to boot out all those Johnny Foreigners who have the chutzpah to want to have a house in the UK but Britain will also lose most of its builders in the process and it will take yonks to train the next generation. You could tax the bejesus out of second homes and force the middle and upper classes to just have one house – but these people vote so that is out of the window. Likewise getting the rather selfish baby boomers to downsize into a property that suits their ageing needs rather than the 5 bedroom family home they have lived in for the last 40 years is a non-starter as these people exercise their democratic right to put an X in a box every five years.

So, at first glance, Mr Corbyn may have a point when he says his party would solve the problem by building a million homes in five years and borrow an eyewatering £15billion every year to do this. Well, he would, if his idealism were practical in today’s society. But it isn’t and here is why.

Firstly is simple maths. Even by spending such gargantuan sums the logic is not there. A million homes built using £75billion equals £75,000 per home. Now, that may be fine if you build every home as a three bedder in former mining towns like Stanley in County Durham. But you can’t. Well I s’pose you could but no one would move there. So that means that you have to build in more expensive places which will cost more than £75,000 per unit. And you would need to pay labourers who all of a sudden have seen demand for their services rocket – which, using basic demand/supply economics puts their wages up. The cost of land and materials also start to rocket as those who own it see a cash cow walking along in the shape of councils needing to buy a square of mud to put their new rickety properties on or brick to build them with.

Then there is the bit which Labour is silent on and the journalists didn’t even bother asking about – the infrastructure costs. Let’s pretend in lalapixeland a million homes could be built for an average of £75,000. How much would the additional roads, sewers, railways, doctors surgeries, schools, hospitals, leisure centres and general extra buildings like offices and shops that needed to build a community cost on top? You can’t use Section 106/Community Infrastructure Levies. So therefore you would need to build these homes in an area that is already thriving and has sufficient infrastructure – but then you won’t be able to build a house for £75,000. Back to that conundrum.

Yet aside from the simpleton economics is the massive elephant in the room that is the need to change the way people see property. In Germany or France it is seen as a home. In the UK it is seen as somewhere to rest your pound signs. Depress the housing market and you depress the economy. Depress the economy and people still will not be able to afford to get the mortgage that everyone seems to think people should have.

And then there is the psychology of the British. People aspire to be keeping up with the Jones’s. That means once they get a property they want it to start increasing in value. And if you have a house you are far more likely to vote for a party that promises to make your house worth more money. And you will be far more likely to be selfish enough to want to lift the drawbridge up to prevent those who missed the boat this time to get a foot on the ladder at your expense. So we head back to square one. Again.

Yet while I berate the current leader of Labour for his out of date and unworkable policy solution to the housing conundrum no one else, whether government or charity, has a better solution. Charities simply say build more homes yet that still leads down the path of loss of consumer confidence whilst the Conservatives are still persisting with the Help to Buy ISAs and first time buyer discounts which simply help perpetuate the cultural and societal problem of how a home is perceived as an investment and not a home.

As always, everyone argues for one idyllic solution when in the real world things are way more complex. It may not be catchy headlines or a vote winner but there are only two solutions and neither are pretty. Either those in charge need to be honest and say that young and poor people are screwed until their parents die and give them some inheritance money to put a deposit down on a house. Or they explain that building the bazillions of new homes that are needed to squish property prices will lead to a further recession that will lead to millions joining the dole queue and a surge in repossessions as negative equity slaughters vast swathes of Britain. At least by saying this we would know where we stood and we would trust, if not vote, for the politician who said it. Even if that politician told a porky about sitting down in a train carriage.

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One Comment Add yours

  1. daryan12 says:

    To emphasise a point you made, worth looking at this graph from the Huffington post.
    http://www.huffingtonpost.co.uk/2014/01/02/housing-market-uk_n_4531425.html

    As it shows the UK’s stopped building social housing under Thatcher…and sold off most of our stock of them too! Given that 1/3 to a half of all housing building before her reign was by the state, this led to massive drop in housing building, as the private sector has never picked up the slack.

    I bring this up because one of the things I was hearing prior to Brexit was that high house prices, or lack of social housing, was the fault of foreigners. Clearly this is not true, its because we’ve cut back on building new homes, and will likely have to cut back yet more once all the Polish builders leave. Oh and the low value of the pound now makes it an ideal time for foreign investors to buy British property when its cheap!

    Like

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