Housing

Hammond must think big on housing

BY Sam Hall   /  21 November 2017

The Chancellor needs some bold announcements on housing in the Budget. This is a political and economic imperative. Together with policy issues like climate change and health, policies on housing should be central to the Conservative Party’s efforts to win over the younger voters they need to regain their parliamentary majority. According to Bright Blue research, among 25-49 year olds, housing is seen as the second most underdiscussed issue by senior politicians.

There is a consensus that for decades the UK has failed to build enough new homes, especially in the more desirable parts of the country. This has contributed to a steep increase in house prices in recent years, causing homeownership rates among young people to decline.

Published at the start of this year, the Government’s housing white paper proposed a number of sensible reforms, for instance on improving design standards and increasing accountability of local authorities over their local plans. But further measures are needed. A key obstacle to building more homes, particularly in areas where there is high demand, is getting more land released for development. Here are two ideas for how the Chancellor could do this, while tackling common objections to new homes by existing homeowners.

First, the Government should loosen restrictions on Green Belt development in return for improved local green spaces. The Green Belt covers around 13% of England’s lands and has essentially frozen the boundaries of some of the UK’s most successful and desirable cities, such as London, Oxford, and Cambridge since the 1950s. Its original aims to prevent urban sprawl and encourage greater density have largely failed. In London, for instance, new house building has simply been pushed to more distant towns, as commuters leapfrog the Green Belt, and density remains low compared to similar European capitals like Paris.

So, where local authorities are failing to deliver sufficient housing to meet local demand, they should be forced to grant planning permission for new homes on Green Belt land. But in return, developers who gain permission should be given a responsibility to increase the local area’s stock of natural capital, for instance by creating a new park or forest. This would increase the supply of new houses in areas where demand is particularly acute, while ensuring that the natural environment is improved.

Second, the Government should accelerate the release of surplus government land and use the revenue to improve local services. The public sector owns a large amount of land in the UK, estimated to be around 40% of the land suitable for development. The Government has a target in this parliament to build 160,000 new homes on surplus land, but one estimate by the estate agent Savills suggests there is enough public land for up to two million new homes. More ambition is needed.

The Chancellor should establish a system of financial penalties for relevant government bodies that fail to sell off any surplus land they have for development where there is a local shortage. Where possible, surplus public land should be sold to the private sector with planning permission already granted, so government nets the benefit of the uplift in land values. Receipts from these sales should partly be kept by departments to strengthen their incentive to encourage the selling of land and partly be ringfenced by the Treasury to invest in improving local infrastructure and public services or in increasing the number of affordable homes.

As well as a shortage of homes in desirable locations, getting on the property ladder initially is made more expensive by Stamp Duty. Recent academic research has found the average Stamp Duty bill costs Londoners at least a third of their average annual earnings. Significantly reducing or eliminating this tax for nearly all first-time buyers would tilt the market in their favour over existing homeowners. The change would also be part of a broader shift away from taxing property transactions, which is economically inefficient and gums up the market, towards taxing property assets. Any lost Treasury revenue could be found elsewhere by adding extra bands on Council Tax for high-value properties.

Admirably, Theresa May has pledged to dedicate her premiership to fixing the housing market. But on Wednesday, her Chancellor should avoid left-wing solutions that involve huge state borrowing and regulation. This approach would be unnecessarily expensive and increase costs on private developers, potentially meaning fewer new homes. The current housing shortage could be addressed effectively with conservative ideas such as regulatory reform and tax cuts. The Chancellor should enable the private sector to build more homes.

Sam Hall is a senior research fellow at Bright Blue