The author and journalist Ross Clark has written a very interesting 15,000 word ebook, available on iTunes and Amazon, entitled A Broom Cupboard of One's Own. It's only £2.25. You can read it in 90 minutes, and it's a very easy read. Go buy.
Its subject is the UK housing market and its theme is that, having spent much of the 20th century becoming a nation of homeowners, the process is now unravelling and that, if we don't intervene, we will end up back in the state our Victorian forebears came from, whereby 20% of the population owned the housing stock and the other 80% rented it off them.
The first half of the ebook describes the problem. It starts in Mitcham, South London, in the 1930s and looks at what was on offer there from Wates. Namely new suburban homes for just £315, or eight shillings a week. By today's inflation adjusted standards, this would be the equivalent of £18,000. In fact, these Mitcham homes now sell for £300,000.
Clark traces the factors behind the huge increase in prices and discusses the two main culprits, namely our restrictive planning system and our lax mortgage market. His analysis is bang up to date and includes the views of the current planning minister Nick Boles who sits firmly in the Bash-a-NIMBY camp, espousing a ripping up of planning boundaries and a free-for-all buildathon. The spectre of what happened in Ireland and Spain is brought to bear and the Bolesian solution is summarily dispatached. In its place, Ross Clark suggests that we bring back compulsory purchase, thus removing the speculative profit element from our housing scene. "Paradoxically, using powers of compulsory purchase would result in a much freer housing market. House building would be democratised." I'm all for this: it is essentially the way the German housebuilding system works (see previous blog).
Clark then goes on to look at the mortgage market and shows how it evolved over the years to give ever bigger loans to an ever wider circle of people. He's particularly interesting on the evolution of the buy-to-let mortgage which didn't even exist until 1996 but now accounts for 1.4million loans, all based on using rental income to cover the mortgage payments. If you want to look for reasons for unaffordable housing, here is a prime suspect.
Clark concludes with six proposals to improve the state of the housing market. They are probably far too interventionist for Nick Boles to ever contemplate, but to my mind they are all reasonable. The only one I would quibble with is his call for building regulations to be watered down in order to keep a lid on costs. Whilst I am no fan of enforced onsite micro generation, I don't think that the building standards we have at the moment are so high that we should be abandoning them. Just as with the Community Infrastructure Levy (which is briefly touched on but whose abolition doesn't form part of his proposals), the extra cost of building is reflected in lower prices paid for development land: building to higher standards may cost more, but it shouldn't therefore contribute to higher house prices.
If there is an underlying theme here, it's that the housing market is not really a free market in the sense that free marketeers (OK, Nick Boles again) like to think it should be, and that pretending it is foolish and destructive. To operate well and to satisfy the people who aspire to live in it (and own it), there has to be a great deal of intervention. And that the less dogma comes into play, the better. On this, Ross Clark is spot on.
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