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.

 
 
 
 

Leeds is still haunted by its pledge to be the “Motorway City of the Seventies”

Oh, Leeds. Image: mtaylor848/Wikimedia Commons.

As the local tourist board will no doubt tell you, Leeds has much to be proud of: grandiose industrial architecture in the form of faux-Egyptian temples and Italian bell-towers; an enduring cultural legacy as the birthplace of Goth, and… motorways. But stand above the A58(M) – the first “urban motorway”  in the country – and you might struggle to pinpoint its tourist appeal.

Back in the 1970s, though, the city council was sufficiently gripped by the majesty of the motorways to make them a part of its branding. Letters sent from Leeds were stamped with a postmark proudly proclaiming the city's modernity: “Leeds, Motorway City of the Seventies”.

Image: public domain.

During the 1960s, post-war optimism and an appetite for grand civic projects saw the rapid construction of motorways across England. The construction of the M1 began in 1959; it reached Leeds, its final destination, in 1968. By the early 1970s the M62 was sweeping across Pennines, and the M621 loop was constructed to link it to Leeds city centre.

Not content with being the meeting point of two major motorways, Leeds was also the first UK city to construct a motorway through the city centre: the inner ring road, which incorporates the short motorway stretches of the A58(M) and the A64(M). As the council put it in 1971, “Leeds is surging forward into the Seventies”.

The driving force behind Leeds' love of motorways was a mix of civic pride and utopian city planning. Like many industrial cities in the North and Midlands, Leeds experienced a decline in traditional manufacturing during the 1960s. Its position at the centre of two major motorways seemed to offer a brighter future as a dynamic city open for trade, with the infrastructure to match. In response to the expansion of the roads, 1970s council planners also constructed an elevated pedestrian “skywalk” in an attempt to free up space for cars at ground level. Photos of Leeds from that time show a thin, white walkway running through blocky office buildings – perhaps not quite as extensive as the futuristic urban landscape originally envisaged by planners, but certainly a visual break with the past.

Fast forward to 2019 and Leeds’ efforts to become a “Motorway City” seems like a kitsch curiosity from a decade that was not always known for sustainable planning decisions. Leeds’s historic deference to the car has serious consequences in the present: in February 2019, Neville Street – a busy tunnel that cuts under Leeds station – was found to contain the highest levels of NO2 outside London.

City centre planners did at least have the foresight to sink stretches of the inner motorways below street level, leaving pedestrian routes largely undisturbed. Just outside the centre, though, the roads can be more disruptive. Sheepscar Interchange is a bewildering tangle of arterial roads, Armley Gyratory strikes fear into the hearts of learner drivers, and the M621 carves unsympathetically through inner-city areas of South Leeds with pedestrian access restricted to narrow bridges that heighten the sense of a fragmented landscape.

 

Leeds inner ring road in its cutting. Image: author provided.

 

The greatest problem for Yorkshire's “Motorway City” in 2019, however, is not the occasional intimidating junction, but the complete lack of an alternative to car travel. The dire state of public transport in Leeds has already been raised on these pages. In the early 20th century Leeds had one of the most extensive tram networks in the country. The last lines closed in 1959, the same year construction began on the A58m.


The short-sightedness of this decision was already recognised in the 1970s, as traffic began to build. Yet plans for a Leeds Supertram were rejected by successive Conservative and Labour governments unwilling to front the cost, even though smaller cities such as Newcastle and Sheffield were granted funding for light transport systems. Today, Leeds is the largest city in the EU without a mass transit system. As well as creating congestion, the lack of viable public transport options prevents connectivity: the city's bus network is reasonable, but weaker from East to West than North to South. As a non-driver, I've turned down jobs a short drive away that would be a logistical impossibility without a car.

Leeds' early enthusiasm for the motorway was perhaps premature, but there are things we can learn from the 1970s. Whatever else can be said about it, Leeds' city transport strategy was certainly bold – a quality in short supply today, after proposals for the supertram were watered down to a trolleybus system before being scrapped altogether in 2016. Leeds' rapid transformation in the 1960s and 70s, its grandiose visions of skywalks and dual carriageways, were driven by strong local political will. Today, the long-term transport strategy documents on Leeds City Council's website say more about HS2 than the need for a mass transit system within Leeds itself, and the council has been accused of giving up the fight for light rail and trams.

Whilst central government's refusal to grant funds is the greatest obstacle to Leeds' development, the local authority needs to be far more vocal in demanding the transport system the city deserves. Leeds' desire to be the Motorway City of the Seventies might look ludicrous today, but the political drive and utopian optimism that underpinned it does not.