How could a Labour government de-financialise Britain’s housing market?

Some Labour leaders look at some houses. Image: Getty.

To end our crippling housing crisis we first need to dispel the myths about its causes. Housing costs haven’t soared simply because there “aren’t enough homes to go around”: this narrative is popular with anti-migrant campaigners and landowners/developers seeking to tear up planning red tape, but it is not supported by the data. In fact, the number of dwellings in the UK has grown faster than the number of households throughout the decades of house price inflation.  

House price booms and busts in the UK are explained far better by studying drivers of housing demand, than by looking for shortages of supply relative to housing need. Specifically, demand has been inflated by institutional changes – property tax breaks, Buy To Let mortgages, repression of tenants rights, and so on – that have encouraged the treatment of land and homes as financial assets.  

The result is that ordinary buyers have increasingly found themselves in a bidding war with landlords, speculators, second home owners, even international money launderers. Importantly, this bidding war has been fuelled by seismic deregulation of the UK mortgage market, which increased the supply of easy mortgage credit, and created a dangerous feedback loop between the finance and house prices.

One aim of our Land For The Many report, commissioned by the Labour party, and published today, is to explain how such inflationary forces can be brought under control.

We recommend major tax reforms to discourage the use of land and homes as financial assets and share out some of the eye watering unearned windfall gains from house price inflation.

We recommend measures to reduce to the exploitation and insecurity in the private rented sector – reforms that make sense on their own terms, but have the added benefit of dampening demand from Buy-To-Let landlords.

We recommend interventions by the Bank of England to reduce risky and inflationary forms of mortgage lending. We propose planning restrictions on holiday homes. And we recommend a total overhaul of the housing development model, so that builders compete on quality rather than on their ability to navigate the speculative land market. 

What stands in the way of such reforms is not just the power of vested interests, but a fear among policy makers that such reforms will trigger a house price crash. This is not an unreasonable concern: debt-and speculation-fuelled house price rises are always going to be vulnerable to reversal.

Any reform that makes housing less attractive as a financial asset could result in a sudden withdrawal of demand from investors, and potentially prompt some to try and sell. The resulting price drop could in turn make mortgage lenders more cautious about lending at high loan to value ratios, which would suck even more purchasing power out of the market, putting further downward pressure on prices. 

Although many aspiring homeowners would welcome a reduction in house prices, there are political and macroeconomic risks associated with falling prices that must be avoided. In particular, a house price crash would be punishing for households who bought for the first time at the height of the boom, and could push some into negative equity, making it impossible to move or re-mortgage.


On the other hand, a more timid approach to housing reform will leave a whole generation locked out of homeownership: it will take decades to regain a “normal” house price-to-income ratio if we merely slow the rate of house price inflation and wait for wages to catch up. 

Is there a way to reconcile the apparently conflicting interests of homeowners and non-home owners? In today’s report for Labour we float one possible way out of this conundrum. The proposal is to set up a new body – the Common Ground Trust – with three functions.

The first is to support people locked out of home ownership, who would approach the Trust when they have found a house they wanted to buy and ask the Trust to purchase the land underneath the house. The buyers would cover the upfront costs of the bricks and mortar only (which on average account for just 30 per cent of the price of a property), and then pay a land rent to the Trust. This would enable many more people with small deposits to enjoy a form of home ownership, and with it greater security and control over their living space, without taking on imprudent levels of mortgage debt. 

The second function is to facilitate the gradual transfer of land into common ownership, so that the associated unearned land rents can be pooled and distributed according to need, rather than captured by private landowners and banks at society’s expense.

The third function is to stabilise house and land values. If prices are falling too quickly, the Trust would bid slightly above market prices for the land, to slow the price decline. In other words, the Trust would be a lever for supporting stable and sustainable forms of demand in the housing market, to offset the withdrawal of volatile and socially damaging forms of demand. (Importantly, if prices were rising, the Trust would cease to bid at all, until government had brought the inflationary forces under control.)

The Common Ground Trust is an idea in early stages of development, but we believe it is a useful provocation. If we want bold measures to improve the lives of renters, tax property more fairly and avoid a violent house price crash, then we must develop a plan for deflating the housing bubble in slow motion. The Common Ground Trust is a solid starting point for that discussion.  

Beth Stratford is a PhD student, a fellow at the New Economics Foundation, a co-founder of the London Renters Union, and one of the authors of the “Land for the Many” report. You can read the whole thing here.

 
 
 
 

Older people need better homes – but then, so does everybody else

Colne, Lancashire. Image: Getty.

Towards the end of last year, I started as an associate director at the Centre for Ageing Better, working particularly on our goal around safe and accessible homes. Before I arrived, Ageing Better had established some ambitious goals for this work: by 2030, we want the number of homes classed as decent to increase by a million, and by the same date to ensure that at least half of all new homes are built to be fully accessible.

We’ve all heard the statistics about the huge growth in the number of households headed by someone over 65, and the exponential growth in the number of households of people over 85. Frustratingly, this is often presented as a problem to be solved rather than a major success story of post war social and health policy. Older people, like everyone else, have ambitions for the future, opportunities to make a full contribution to their communities and to continue to work in fulfilling jobs.

It is also essential that older people, again like everyone else, should live in decent and accessible homes. In the last 50 years we have made real progress in improving the quality of our homes, but we still have a lot to do. Our new research shows that over 4 million homes across England fail to meet the government’s basic standards of decency. And a higher proportion of older people live in these homes than the population more generally, with over a million people over the age of 55 living in conditions that pose a risk to their health or safety.

It shouldn’t be too difficult to ensure all our homes meet a decent standard. A small number of homes require major and expensive remedial work, but the overwhelming majority need less than £3,000 to hit the mark. We know how to do it. We now need the political will to make it a priority. Apart from the benefits to the people living in the homes, investment of this kind is great for the economy, especially when so many of our skilled tradespeople are older. Imagine if they were part of training young people to learn these skills.


At a recent staff away day, we explored where we would ideally want to live in our later lives. This was not a stretch for me, although for some of our younger colleagues it is a long way into the future.

The point at which the conversation really took off for me was when we moved away from government definitions of decency and accessibility and began to explore the principles of what great homes for older people would be like. We agreed they needed light and space (by which we meant real space – our national obsession with number of bedrooms as opposed to space has led to us building the smallest new homes in Europe).

We agreed, too, that they needed to be as flexible as possible so that the space could be used differently as our needs change. We thought access to safe outdoor space was essential and that the homes should be digitally connected and in places that maximise the potential for social connection.

Of course, it took us just a few seconds to realise that this is true for virtually everyone. As a nation we have been dismal at moving away from three-bed boxes to thinking differently about what our homes should look like. In a world of technology and factory building, and as we build the new generation of homes we desperately need, we have a real chance to be bold.

Great, flexible homes with light and space, in the places where people want to live. Surely it’s not too much to ask?

David Orr is associate director – homes at the Centre for Ageing Better.