Time to get real: the Government cannot fix the housing crisis. It is the housing market itself, dilapidated fixer-upper that it is, which will have the last word. But that does not have to be a bad thing.
First, the housing market is not one market selling one product: renting is different from buying and buying an investment is different from buying a home. Domestic buyers want somewhere to live, overseas buyers want somewhere to park their cash. London, as always, is different from the rest of the UK. These markets find their extremes in the capital city, which is where the conversation about the housing crisis inevitably starts. Demand is high in London because people want to live there. It is the political, economic and cultural capital not just of the country but arguably the leading world city as well. High prices and limited space means London exports its high costs to the commuter belt and beyond, bending the rest of the country’s housing economy in its direction.
The Government White Paper, published in February, is a step in the right direction, particularly the £3 billion Home Builder’s Fund to help jump start projects by smaller builders. But generally, government intervention to help the poorest (and the not so poor) has typically added to the distortion. Demand side support inflates prices and, however necessary, social housing is not the panacea social democrats take it to be. As prices and rents rise, social housing requires ever greater subsidy, whether directly as housing benefit or indirectly, as an opportunity cost of development foregone. Right to buy is great for people who are eligible and can afford it, but doesn’t help everyone else. Subsidies look increasingly unsustainable in London: you cannot buck the market and attempts to do so have added to the risks that developers have to contend with.
It’s difficult to feel too sorry for developers, but as the builders of most of our housing, it’s worth looking at things from their point of view for a second. First, sites take time and money to assemble and big buildings take time to build. Secondly, the economic risks (think financial crash), political risks (think stamp duty changes or Brexit) and planning risks mean the big developers are incentivised to build only by the prospect of super profits on big sites. Thirdly, these risks act as barriers to entry, making life harder for small developers, entrenching the dominance of the big developers – currently around 60% of new homes are built by just 10 companies. Fourthly, it encourages the building of towers: profit can be maximised and risk minimised by selling off-plan to overseas investors who love a good view. Developers are actively incentivised to build housing that houses the rich.
There are plenty of supply-side solutions which can help matters. Further simplifying the planning process to reduce planning risk has always been a part of the solution, however difficult it is to get the balance right between existing and new residents.
But here’s the real problem. Even if the Government were to remove green belt protection and allow an aggressively permissive planning policy, this would not immediately solve the housing crisis. Big developers do not build a site and put it all on the market at once. That would create a glut of housing in that local market and depress prices and profit. Instead, they drip housing on to the market so that supply increases at a rate that maintains their profit margins. Equally, an aggressively permissive planning policy is never going to happen – communities rightly want to control their environment and London’s pock-marked skyline is testament to the lax planning rules and lack of local accountability of the past.
But if concrete monstrosities make us think of an Orwellian dystopia, we are also reminded of Winston Smith’s thought that if there is hope, it lies with the proles. And by that I don’t mean anything insulting, I mean us, the consumers, who have the ultimate power in what is still, just about, a capitalist market. Because ultimately, what do we want? People who own their homes want prices to go up; people who want to own their own homes want a bargain that will appreciate in value; renters want a decent quality home without getting fleeced. The price of housing in London is now so extraordinary that to be ‘affordable’ in the normal sense of the word, prices have to actually fall in absolute terms. But no private sector firm would build so much that prices fell, and even if the Government itself built so many houses that house prices fell, it would be booted out of office before you could say ‘garden city’.
So back to the consumer, particularly those who live, or are tempted to live, in London. One of the city’s great strengths is that it attracts people from all walks of life from all over the world. A citizen of the world is a citizen of London, perhaps. But there is nothing preordained about that. Last year PwC estimated that 60% of Londoners will be renters by 2025, meaning the labour force will be more flexible than it has ever been. The danger for London, and the opportunity for the rest of the country, is that at some point the tipping point will be reached, when the factors pulling people to London will be outweighed by the high cost of living pushing them away. London, of course, will always have a lot going for it. So rather than the destruction of the capital, expect to see a recalibration. We are already seeing clusters and hubs forming in other cities. With increasing decentralisation to Manchester, Birmingham et al, the rest of the UK has an opportunity it should seize. The Economist suggested last week that the capital should be moved from London to Manchester, the irresistible logic of which meets the immoveable object of a simple fact: the capital city always has been, and always will be, London.
For all the Government’s attempts to fix the housing crisis, the market will get there first. If we’re lucky, the competition from other cities will improve London too, testing what works and sharing good ideas. That’s how a market is supposed to work, after all.
Robert Flint is a member of Bright Blue and a previous conservative GLA candidate. The views expressed in this article are those of the author, not necessarily those of Bright Blue.