Boosting Housing Supply in the UK: Addressing Inefficiencies and Balancing Stakeholder Interests to Improve Long-Term Economic Growth
Over the past few years, the British property market has been facing a housing crisis. With the lowest number of houses per 1,000 people in Western Europe, housing in the UK is among the smallest and most expensive. The lack of affordable housing has limited homeownership, and with elections looming, the Labor Party has proposed forced buy orders (CPOs) that require landowners to sell land to municipalities at lower prices to stimulate housing construction.
While Labor’s proposed plan may be a step in the right direction, expropriation and CPOs set an undesirable precedent. Such directives may not reduce the housing shortfall by more than four million homes due to the country’s sclerotic planning system and local vested interests. Thus, the government must address underlying issues to make affordable housing a reality across the country.
The Problematic Planning System and Local Vested Interests in the UK
An inefficient planning system that allows a case-by-case veto has resulted in uncertainty, making it difficult to set a fair price for forced land purchases. Establishing a less discretionary system that allocates areas for development would be desirable. It would provide local municipalities with greater ability to retain property tax revenue, which would incentivize the construction of homes.
Additionally, the Green Belt in England covers a more extensive region than developed land and infrastructure put together, while height regulations constrain horizontal and vertical housing. Local vested interests, such as Nimby’s (not in my backyard), regarded new developments as an eyesore and threats to property values. Property tax reform could also risk losing older and wealthier voters.
Stamp duty, a tax on the purchase of property, drives the market up by hindering the cost of buying a home, discouraging larger property owners from commuting and increasing burdens on the young and vulnerable. England also imposes council tax on property based on outdated valuations that exposes younger people and less fortunate citizens to more significant financial gasps. The Labour Party suggested a simple 0.5% tax on current property valuations for encouraging building and making land available.
The Opposition’s plan – ‘First dibs’ on new homes and Banning ‘Whole Developments Sold to Overseas Investors’
Labour’s proposed “first dibs” plan aims to prioritize new homes for first-time buyers to battle the current decline in homeownership. It would also ban “whole developments” sold to overseas investors and promote construction within the country. However, amid concerns that such measures may further fuel demand and not effectively address housing shortages, the government should explore more comprehensive solutions to foster balanced stakeholder interests.
Reforming the Planning System for Long-Term Economic Growth
Addressing housing inefficiencies in the existing housing stock must go hand in hand with unlocking more land. A 100,000 new homes program, a new housing zone in London, support for first-time buyers, and a 0.5% tax on current property valuations are among the comprehensive solutions put forth in the Fairer Share manifesto released by a charity. By increasing the supply of land and unlocking existing housing potential, stakeholders can align interests for a more comprehensive solution that encourages long-term economic growth.
A long-term solution to the UK’s chronic housing shortage will require stakeholders to abandon ineffective attempts to appease prospected and existing homeowners simultaneously. This long-term solution will vastly improve labor mobility outcomes and reduce high living costs. By improving the local planning systems and mitigating vested interests, stakeholders can foster balanced solutions for all.
Summary
The United Kingdom is currently facing a housing crisis, with one of the most expensive and inadequate housing markets in Western Europe. With Labour proposing forced buy orders to stimulate housing construction and being seen as the “homeownership party,” the current government must work towards addressing the underlying issues. Challenges include ineffective local planning systems, local vested interests such as Nimby’s, outdated property taxation systems, and insufficient housing stocks. Reforming the planning system requires prioritizing the supply of land, unlocking the potential of existing housing stock, and creating an equitable taxation system. By fostering solutions where stakeholders’ interests are balanced, stakeholders can create long-term economic growth prospects and ultimately deliver affordable housing for everyone in the UK.
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The British property market is in crisis. England has the lowest number of houses per 1,000 people in Western Europe and housing is among the smallest and most expensive. UK house prices are around nine times average earnings; they were last seen at such heights during the reign of Queen Victoria. With homeownership down, the Labor Party is bracing itself plans this would force landowners to sell land to municipalities at lower prices to stimulate housing construction via so-called forced buy orders. It is part of a wider attempt by the opposition party to be seen as the “home ownership party” ahead of next year’s elections.
The plans would create an undesirable precedent for expropriation and the CPOs are unlikely to significantly reduce the UK’s shortfall by more than 4 million homes. That’s because the country’s sclerotic planning system and local vested interests will continue to hinder home construction. Unless these underlying issues are addressed, an affordable home will continue to be a pipe dream for many.
The Conservative government has already watered down housing-building targets and reform planning following opposition from MPs. Prime Minister Rishi Sunak could instead restart measures to support new buyers. Together with the CPOs, Labor proposed “first dibs” on new homes for first-time buyers and a ban on “whole developments” sold to overseas investors. Both sides, however, risk fueling demand more than supply by not doing enough to address blockages in the housing market.
Britain’s planning systems create uncertainty, with authorities able to veto projects on a case-by-case basis. Indeed, not knowing what can be built and where is one of the reasons why it will be difficult to set a fair price for forced land purchases. A less discretionary system that allocates areas for development would be better. Municipalities would also benefit from a greater ability to retain property tax revenue, which would give them greater incentives to build.
Increasing the supply of land is also important. In England, the Green Belt – protected land – covers a larger area than developed land and infrastructure combined. Height regulations mean that housing in London is both horizontally and vertically constrained.
Addressing inefficiencies in the existing housing stock is also important, as well as unlocking more land. Stamp duty – a tax on the purchase of property – drives the market crazy by increasing the cost of buying a home and discouraging larger property owners from commuting. England also levies a council tax on property based on decades-old valuations. This has led to greater burdens falling on the young and less well-off. Both taxes in England could be replaced by a simple 0.5% tax on current property valuations in a revenue-neutral way, according to Fairer sharing, a charity. It could also apply to undeveloped lots with planning permission to encourage building.
The problem is that these measures go against the interests of homeowners, the majority of voters. The new developments annoy so-called Nimby’s who see them as an eyesore and a threat to property values - that’s why forced purchases no longer guarantee construction. And property tax reform risks alienating older and wealthier voters. Successive governments have instead pushed cosmetic measures. Labour’s recent rumblings around building more on the greenbelt and hiring Nimby are welcome. Following is the challenge.
Britain’s chronic housing shortage has contributed to its low-growth malaise. It reduces labor mobility and high housing costs dampen demand. The next government will have to abandon ineffective attempts to appease both prospective and existing homeowners simultaneously. If Britain can’t quickly start building more homes and increase home ownership, its long-term economic growth prospects will remain lackluster. In that case, no one wins.
https://www.ft.com/content/6bb4fa70-7410-481f-813e-9cff2c7bb6c9
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