Housing: the IPPR’s answer

Over the last week I’ve highlighted how the Britain’s love of home ownership is not based on any evidence that high home ownership brings economic success (if anything, the opposite is true), that the proportion of people living in private rented accommodation is on a long-term rise and that changes in property prices in Britain are widening rather than narrowing the huge geographic imbalances.

Add to all that the increasing importance that Vince Cable and Nick Clegg, in particular, are giving to the housing market for boosting economic growth, and it is a sector clearly in need of action.

But what action?

Back in November, I outlined the six main areas for action. In a timely intervention, the IPPR has just published a new report which looks into some of them.

It starts with the case for valuing home ownership:

Homeownership is an aspiration that runs deep in the vast majority of English people. It allows us to put down roots, gain a measure of security and feel part of the neighbourhood in which we live.

Owning a home is about far more than accumulating an asset. Indeed, our current housing problems stem in part from various attempts to suggest otherwise. The political right has often encouraged the notion that housing is primarily a personal financial investment and pursued distorting and destabilising policies based on this partial conception. Largely accepting this economic frame, the left has sometimes adopted a sceptical posture towards homeownership, fearing that it drives inequality, instability and exclusion.

Both political traditions have neglected the social value of ownership, the sense of belonging and identity that it can bring, and its potential to support aspiration and security, mobility and roots.

In this respect, the report rather disappoints as it assumes too much in thinking that home ownership is the only form of contractual property rights that, “allows us to put down roots, gain a measure of security and feel part of the neighbourhood in which we live”. In particular, this assumption means the report does not go very far in looking at ways in which people in private rented accommodation can also share in just those benefits, especially in other countries where much longer rental contracts are the norm than in the UK.

However, whether properties are to be lived in by owners or tenants, there is a need for more of them, and the economy needs the construction boost that would come from building them.

The IPPR’s suggested remedies include:

  • creating and capitalising a national investment bank
  • encouraging local authority pension funds (worth over £150 billion nationally) to invest in new housing
  • imposing capital gains tax and a new annual holding tax of 2 per cent of the property’s value on overseas buyers of English second homes worth £2 million or more (measures on which the government is currently consulting)
  • adopting fiscal rules and accounting practices based on general government rather than public sector debt to enable local authorities to leverage their assets and income…
  • encouraging local councils and the mayor of London to release more public land for house building in return for equity stakes that secure public benefit…
  • promoting innovation in alternative models of ownership, including shared equity, mutuals and cooperatives…
  • incentivising owners of empty or under-occupied properties to bring them into full residential use

and a point that will particularly appeal to Liberal Democrats:

  • levying a land value tax on all undeveloped developable land above £2 million in value to encourage new building and raise funds for housing investment

Despite the report’s relative neglect of the role of renting, it does suggest interesting ways of improving the rental market, including:

  • Increasing security for families in the private rented sector by amending the law on shorthold tenancy to offer an additional, alternative ‘family tenancy’ with a five-year secure period and a fivemonth notice period for families with children.
  • Improving the quality and value for money of private rented properties by introducing ‘something for something’ deals at the local level between local government and local landlords. These deals could be codified in mandatory landlord licensing schemes, with the option of including maximum base rates for rents in local housing allowance sub-markets and localised, tripartite rent stabilisation boards for the mid market.

The biggest proposed changes, however, are reserved for the balance between the state spending money on building new homes and spending money on housing benefit.

Although the report does not quite put it like this, just as there is a financial attraction for individuals in home ownership over renting (because at the end of it you have an asset), so too for the state – funding housing benefit provides a public service, but building properties provides a service and creates assets.

As the report says:

In the late 1970s, four-fifths of housing spending went on supply-side grants to support house building, with just a fifth channelled through rent allowances (the precursor to housing benefit). Since then, this balance has been entirely reversed…

Looked at over the longer term, the shift from capital to current expenditure in housing has contributed to constrained housing supply and weak work incentives, and has probably driven rents up. It has certainly delivered poor value for money for the taxpayer and a poor deal for citizens.

Therefore the report recommends,

To unstick housing policy we need to advance institutional reforms which give local areas the power and responsibility to meet housing needs, including by enabling a shift in focus from subsidising rents to building homes. This would require a commitment to local democratic control which far exceeds the current government’s partial and halfhearted programme of localism. It could be done by devolving resources over housing to local councils through the creation of an ‘affordable housing grant’. This would be a single grant channeled to local authorities covering housing benefit spending and the share of capital expenditure for that area.

Under this reform, councils would have the power to use those resources to spread access to affordable housing in the local area, balancing spending on building new homes against providing cash support to those on low incomes, in the service of improved affordability.

Radical stuff.


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