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.

 
 
 
 

Community-powered policies should be at the top of Westminster’s to do list

A generic election picture. Image: Getty.

Over the past five decades, political and economic power has become increasingly concentrated in the UK’s capital. Communities feel ignored or alienated by a politics that feels distant and unrepresentative of their daily experiences.

Since the EU referendum result it has become something of a cliché to talk about how to respond to the sense of powerlessness felt by too many people. The foundations of our economy have been shifted by Brexit, technology and deindustrialisation – and these have shone a light on a growing divergence in views and values across geographies and generations. They are both a symptom and cause of the breakdown of the ties that traditionally brought people together.

As the country goes through seismic changes in its outlook, politics and economy, it is clear that a new way of doing politics is needed. Empowering people to take control over the things that affect their daily lives cannot be done from the top down.

Last week, the Co-operative Party launched our policy platform for the General Election – the ideas and priorities we hope to see at the top of the next Parliament’s to do list. We have been the voice for co-operative values and principles in the places where decisions are made and laws are made. As co-operators, we believe that the principles that lie behind successful co‑operatives – democratic control by customers and workers, and a fair share of the wealth we create together – ought to extend to the wider economy and our society. As Labour’s sister party, we campaign for a government that puts these shared values into practice.

Our policy platform has community power at its heart, because the co-operative movement, founded on shop floors and factory production lines, knows that power should flow from the bottom up. Today, this principle holds strong – decisions are best made by the people impacted the most by them, and services work best when the service users have a voice. Our policy platform is clear: this means shifting power from Whitehall to local government, but it also means looking beyond the town hall. Co-operative approaches are about placing power directly in the hands of people and communities.


There are many great examples of Co-operative councillors and local communities taking the lead on this. Co-operative councils like Oldham and Plymouth have pioneered new working relationships with residents, underpinned by a genuine commitment to working with communities rather than merely doing things to them.

Building a fairer future is, by definition, a bottom-up endeavour. Oldham, Plymouth and examples like the Elephant Project in Greater Manchester, where people with experience of disadvantage are involved in decision-making, or buses in Witney run by Co-operative councillors and the local community – are the building blocks of creating a better politics and a fairer economy.

This thread runs through our work over the last few years on community wealth building too – keeping wealth circulating in local economies through growing the local co-operative sector. Worker-owned businesses thriving at the expense of global corporate giants and private outsourcers. Assets owned by communities – from pubs to post offices to rooftop solar panels.

And it runs through our work in Westminster too – with Co-operative MPs and peers calling for parents, not private business, to own and run nurseries; for the stewards of our countryside to be farmers rather than big landowners; and for workers to have a stake in their workplaces and a share of the profit.

Far from being ignored, as suggested in last week’s article on community power, our work has never been more relevant and our co-operative voice is louder than ever.

Anna Birley is policy offer at the Co-operative party.