Can I recommend a read of the Joseph Rowntree Foundation report on housing, published today?
This is a vital issue at the core of the concerns of many in our economy, and rightly so. A desire for a stable location in which to love is fundamental to human wellbeing and too many are being denied it.
The key recommendations are:
- The UK has one of the most persistently volatile housing markets, with four boom and bust cycles since the 1970s. These cycles distort housing choices, drive up arrears and repossession rates, inhibit housebuilding and heighten wealth inequalities.
- Improving housing supply is the key to reducing the risks of market volatility in the longer term but cannot remove them altogether. Moreover, a substantial increase in housing supply is required just to maintain current affordability levels.
- Credit controls could be employed and Council Tax and Stamp Duty reformed to reduce the extent of housing market cycles in the short term.
- The current system of safety nets for home-owners is inadequate. It should be replaced by a system based on a three-tier approach, comprising more responsible lending and borrowing as well as an effective safety net. This could include a partnership insurance model based on contributions from borrowers, lenders and the Government.
- Private renting provides a flexible alternative to ownership for many younger and more mobile households, but it is unlikely to provide a suitable alternative for households requiring longer-term secure and affordable housing — particularly families with children. This highlights the importance of maintaining an affordable social rented sector as a part of the UK's mainstream housing system.
- The social and economic rewards that would accrue from the creation of a more sustainable housing market are considerable, and urgent action is needed to avoid yet another cycle of boom and bust.
I recommend the rest as well based on what I've read so far.
NB: I am funded by the Joseph Rowntree Charitable Trust, which is distinct from the Joseph Rowntree Foundation.
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The purchase of property always carries an element of “risk” to both lender and borrower …
Responsibility by both parties is the solution – a feature conspicuously lacking in the past.
Particularly by commission greedy banks who would lend money to anybody for anything to boost their monthly bonuses!
That the basic human staple of housing should be caught-up in this avarice is outrageous.
But then the financial services industry appears to think that feeble regulation allows it do anything.
Particularly when based in the Crown Dependencies.
When the Joseph Rowntree Foundation was set up it was specifically tasked with supporting the land value tax propounded by Henry George. It continually fails to accept this obligation, although it did provide start up funding for the Labour Land Campaign in early 80s. It’s a pity that the report fails to make the connection with land and property prices, instead targetting supply constraints. House price volatility has nothing to do with supply/demand, as proved by the Irish, Spanish and US experience. The value of UK residential property is c £4tr and a large part of that is land value, which could all be extracted for public benefit instead of private greed and speculation. The fault lies with the economics ‘profession’ which has expunged land from economics.
Land is so much less ‘sexy’ than the mathematical models (no pun intended) that so many economist nowadays know and love, Carol. As do the academic journals they get published in. After all, why deal with something real when you can use numbers to model and “prove” pretty much any theory you like.
The report does actually consider land and other property taxes and does not suggest that supply is the only solution. It does however have to be part of the solution as our very sluggish supply response does leave us vulnerable to house price bubbles. In our discussions with various experts – economists and otherwise – we did not identify a suitable way to benchmark UK land prices to create a land tax. The recent Treasury Select Committee Review of the principles of the UK tax system also noted the practical difficulties with land tax. It’s worth a look. Working for the JRF I can honestly say that we are charged with understanding and tackling the causes of poverty and disadvantage through the research and policy development work we do – not with supporting any one political position (or tax) or another. I am considering further work on land supply in other countries which will look at what incentivises owners to bring land forward and what lessons we can learn.
@Kathleen
“In our discussions with various experts — economists and otherwise — we did not identify a suitable way to benchmark UK land prices to create a land tax. The recent Treasury Select Committee Review of the principles of the UK tax system also noted the practical difficulties with land tax.”
No surprise there. As I’ve said, most economists know nothing about land and conflate it with capital. And we know all about the Select Committee expertise here. They received multiple submissions on taxation of land values but only queried accountants on the practicalities. Vested interests abound in this area.
Let me assure you, Kathleen, that there is no problem in valuing land and we can prove this to you. You can find my email on http://www.labourland.org. (Sorry to hijack your blog, again, Richard.)
The recommendations are in the main sensible but “Private renting provides a flexible alternative to ownership for many younger and more mobile households” is just silly. Young people, especially professionals, should not be driven out of socially mixed communities. Stable, healthy, communities need diverse populations and cannot be composed mainly of those who live chaotic lives or have needy personal circumstances.
The financing of home ownership is a major problem. Mortgages used to be provided by building societies who had a simple business model of lending out a sensible multiple of savings invested. The banks used to deal with loans for the purchase of capital goods – real investment. Nowadays most loans are made on residential property, with land as the collateral (bricks and mortar are, after all just capital and subject to depreciation). The banks incur very little risk with mortgages because, here at least, very few borrowers default owing more than the value of the property. They are in effect collecting rent via interest payments on inflated land values – one of the reasons why they are so very profitable – without actually creating any real value. Even business loans are often backed up by land values. If all the land rent was collected for public benefit, the banks would not find mortgages so attractive and would probably be happy to quit the field in favour of mutuals again. Meanwhile the banks would have to have some real knowledge about the businesses they lend to and become more supportive – like in the past.