The problem with rising house prices

I have a letter in today’s Guardian.

Chris Huhne is absolutely right to warn that changes to pension rules are likely to lead to “another rip-roaring house price boom” (Osborne’s ‘brilliant’ budget could turn out to be a dud, 24 March). The shame is that all three main parties now seem to want above-inflation increases in house prices.

A booming housing market is lucrative for the Treasury but has dire long term social and economic consequences. If housing is the best investment opportunity available, money will pour into bricks and mortar rather than finding more productive outlets. And the impact of increasingly unaffordable housing on social justice and intergenerational equity should be clear.

Property bubbles also result in building splurges and pressure on the countryside, as recently seen in Ireland and Spain, while doing little for those in need because houses are built for investment on the assumption that prices will continue to rise.

We do need to build many more houses. But we should plan them well and locate them sensitively. A building frenzy fuelled by hopes of making a quick buck should be the last thing anyone wants. Which is why it is so disappointing that no party will commit to house price stability as a policy aim.

When I wrote it I had not read Boris Johnson’s entertaining counter-view in the Daily Telegraph, Budget 2014: Lamborghini ride that says: power to the people. “Some people,” he says, “will want to continue to milk the desiccated beast, and rely on the security of the annuity; and others will want to slaughter it, and use the cash as they see fit. I don’t think many will end up blowing it on Italian cars, actually. I think the vast majority will want to put their pots into the market with the greatest yield over the past 40 years – and that is property; and I expect huge numbers of those approaching pensionable age will be thinking about how they – the baby boomers – can do something to help the younger generation with the single biggest problem they face, namely the cost of housing.”

It is enough to bring a tear to the eye, of one sort or another. But my concern is not with the pensions change as such, but with the hopelessness of UK housing policy over decades, and the impact this has on the countryside and the quality of the places we live.

Boris Johnson may (ignoring the growth of the buy-to-let market) rejoice in the generosity of baby boomers helping their grandchildren get ‘a foot on the ladder’. And no doubt there is an improving morality tale for those whose grandparents lacked the gumption and go-to attitude to get on the ladder themselves, and who are facing a lifetime in insecure, over-priced rented homes.

But can we really be happy that housing, a basic necessity, is ‘the market with the greatest yield over the last 40 years’? Or that, to quote a former-head of Shelter, some people’s houses earn more in a year than they do (with the difference that the person is taxed and the house is not)?

Do politicians really want to see house prices continue to outstrip earnings and alternative investments?

The glib answer is to say, ‘no, we will massively increase house building’. But that is easier said than done. Writing on this subject on the Economist blog, self-styled ‘generational jihadist’ Daniel Knowles says we must free up the land so that money goes into building houses, rather than into the pockets of homeowners and landlords. ‘London’s green belt,’ he says, ‘would give way to pleasant new suburbs.’ Like Boris Johnson’s article, that vision brings a tear to the eye.

Knowles is right to say that we need to increase house building – very few people dispute that – though we can do this without either town cramming or giving up on the Green Belt. The trouble is that there are many factors that stop us building enough houses. The planning system is only one of them.

But supposing that we weakened planning and freed up land, would this provide plentiful housing of the sort we need, and make it affordable? It certainly did not in Ireland, Spain and the US before the crash, because housing was seen as an investment, a ladder you had to get on if you were not to be left behind. It sounds familiar.

The Government has fuelled house price inflation first with Help to Buy, now with the pension reforms, and the Opposition seems perfectly content. So it is clear that no political party will be brave enough to take the measures (principally changes to the tax system) necessary to dampen demand.

Instead, politicians will continue to attack and tinker with the planning system; talk about garden cities; blame NIMBYs for rising prices; allow sporadic development (for whom?) to spill into the countryside to show that they are doing something; and quietly celebrate the fact that property-owners, those most likely to vote, are getting richer, and that plenty of property taxes are flowing into the Treasury.

It is enough to bring a tear to the eye.


11 Responses to “The problem with rising house prices”

  1. 1 Graham Holliday March 25, 2014 at 10:26 am

    Given that we have so few world class companies/industries to develop an export led boom the Govt. really did have little choice but to resort to a property boom (bubble if you’re a real cynic) to lead the economy out of recession.
    Unfortunately like any boom it isn’t as planned as it should be in an ideal world
    Have to say CPRE fail to have a cogent view as how development is planned to enable Oxfordshire to accommodate population growth. Not building houses around Oxford where the jobs & population growth means the issues get transferred to the rest of the county hence the massive numbers planned for smaller towns such as Grove Carterton Didcot Wallingford etc.
    CPRE doesn’t accept a sensible relaxation of the Oxford GB to allow for a planned garden suburb with excellent p/t links and instead sits on its hands clinging to an outdated adherence to a City that existed in the 1940’s.
    The consequence is the county growth strategy which leads to the ridiculous commuting strains as people traverse the county to get to work!

    • 2 Helen Marshall, CPRE Oxfordshire March 26, 2014 at 2:53 pm

      Graham – are you saying that the historic City of Oxford isn’t worth preserving? The Green Belt has served the City, and the surrounding villages, very well over the years by protecting its character and setting and preventing urban sprawl. It has also helped to spread economic growth to the other county towns.

      You may be right about the need for a debate about a Garden City type development, but the Green Belt would be the last place to put it. Our fear is that we would get this AND development everywhere else.

      The massive housing numbers now being proposed are not a result of normal population growth, but a policy-led increase to back an ambitious economic growth plan. This is being driven by Government, not local people who have had little to no say as to whether they believe this is right for the county. I sometimes wonder about the contradiction between the justification for HS2 (to take economic development to the north) alongside an enormous investment in growth in the South East where there are high levels of employment and significant environmental pressures.

      • 3 sspiers March 26, 2014 at 3:49 pm

        For ease of reference I am re-posting Helen’s comment on my previous blog, which was about CPRE’s report on the 2nd anniversary of the NPPF.

        The report doesn’t feel ‘inaccurate’ or ‘exaggerated’ from here in Oxfordshire. Our ‘objectively assessed housing need’ has just been set at 100,000 houses – which would effectively increase every settlement in the county by a third by 2031. As well as being unsustainable, the figures are completely unrealistic. Even at the height of the housing boom, only about 3,000 houses a year were built in the county – these figures set a proposed target of 5,000 a year. You might think our District Councils would take time out to consider the environmental implications. However, one has already adopted the targets and is using them as justification for proposing 1,700 houses in the Green Belt and 1,400 in the North Wessex Downs AONB. Our district councillors say they have spoken repeatedly to the Planning Minister, Nick Boles, but their concerns are falling on deaf ears. Perhaps Mr Boles would like to come and tell the residents of Radley (a Green Belt village, currently 950 houses, 600 new houses proposed within 5 years) how their fears are being exaggerated?

  2. 4 John Croxen March 25, 2014 at 11:55 am

    The next best, and fairly safe, alternative to the miserable rates on offer from banks and building societies is P2P lending where interest rates are well above their rates, but probably below buy-to-rent returns. But we cannot ignore the capital growth you get in a rising market. Let’s hope that people lend pension pots to their children and families, which at least will give them an opportunity to get onto the housing ladder.

  3. 5 Tim Lund March 25, 2014 at 3:02 pm

    Oxford is a great example of the mess we are in.

    Good to have agreement that we need to build more homes, and that planning is one if not the only factor which stops us building enough. But the idea that we need to dampen demand is no more helpful than arguing we need to control population – in fact, the arguments are closely related. Adjustments to the tax system would amount to – tinkering, dare I say?

    So we can build more houses ‘without either town cramming or giving up on the Green Belt’. OK – I understand what is meant by the Green Belt, what is town cramming, and how is it distinguished from densification of suburbia – or any other currently developed land use type?

    • 6 John Croxen April 4, 2014 at 6:08 pm

      One of the best bits of ‘tinkering’ with the tax system would be to equalise VAT on building on building on brownfield and greenfield sites.

  4. 7 Dr Kristian Niemietz March 26, 2014 at 9:06 pm

    “Knowles says we must free up the land so that money goes into building houses, rather than into the pockets of homeowners and landlords. ‘London’s green belt,’ he says, ‘would give way to pleasant new suburbs.’ Like Boris Johnson’s article, that vision brings a tear to the eye.”
    -Knowles is spot on – bring it on! Let’s abolish greenbelt status altogether, and build, build, build, and if it makes the NIMBYs cry, all the better.

  5. 8 Arthur Franks March 31, 2014 at 2:00 pm

    Of course they all want rising prices. I have been saying for years, the only people to benefit are THE GOVERNMENT, financial institutions, solicitors and estate agents.

  6. 9 Andrew Denny (@albiondumsday) April 4, 2014 at 1:55 pm

    It’s Daniel Knowles, not Duncan.

  7. 11 Alex Hills April 27, 2014 at 2:56 pm

    The government still thinks that if you build enough houses the price of houses will fall. We need to make it clear that this will never happen for the simple reason that developers will only build what they can sell at a large profit. It is not in their interest to build so many that prices fall also remember the only thing worse then falling prices is not being able to sell them. I hate the greed of developers but it is important to understand their business model.
    I have never heard Nick Bowels talk about sustainability, food supply or the fact that our population is already double its sustainable level. Air pollution is already proving a big killer, the easiest way to do this is to reduce the size of the population. That is not a easy issue for the CPRE to campaign on but we can campaign on sustainability.

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