Britain’s housing market is in a mess – we need a housing strategy
Let’s start with the pundits. There are, after all, rather a lot of them. Economists are the worst. They extrapolate figures that were meaningless into theories, hypotheses and projections, which at best are useless, and at worse, damaging. Then there are the journalists who think that because they own a home they are qualified to provide market conjecture. And before you complain or try to pin a tail on this donkey, at least I am a qualified chartered surveyor. You may not agree with what I have to say, however I have worked in and studied the markets for many years.
Let’s be clear. National statistics on house prices are meaningless. As I said in my blog The latest set of guff, Fix the housing market and you fix the economy talking about affordability and home ownership is even more fuel on a pointless fire. The National Housing Federation is calling for a mass building of homes. Yet that doesn’t really solve the problem. It demonstrates that yet another organisation doesn’t understand property, the market, the issues or indeed the solutions.
Property is an asset. It is an investment. It should rise in value. And here is why. If you are putting your money into a property, then you have every reason to expect that property to keep pace with inflation. However there is more… location, size, condition, architecture, layout, outside space and so on are all contributory factors that add to a property’s value. The argument that property is “overpriced” simply doesn’t wash. After all, the rental value of a property rather underpins the value. If you are able to obtain 4, 5 or even 6% income return on your asset and rents are rising… then as interest rates fall, expect property values to rise, not fall.
Then we get into the debate about value. Price and value is not the same thing. Sometimes they can lead to the same number but until there is a better understanding of the two, especially by decision makers, we will have a problem. That problem is exacerbated by supply and demand constraints. We have a planning system because people want green space to be protected. They want neighbourhoods to be protected. They want the environment in which they live free from the blight of over development. As a result of those constraints and the lack of finance available, the seeds for another housing price rise cycle have been sown.
Back to the pundits for a moment. Have a read of this from the BBC I mean really. “Houses are still expensive, by anyone’s reckoning”. If you start with that, inevitably the rest of the article you write will be nonsense. And it is.
And there’s more. Housing is cyclical. Property is cyclical. In an advanced economy like the UK there is inherent demand for property. There always will be. Those who say they want a “stable” market are intervening. Yet that intervention harms the market and the people who invest in it. Indeed they are actually making things worse.
Who are “they”? The politicians. Labour saw the housing market as a way to bolster their own support. Make a nation feel wealthy and you will get re-elected, they decided. They allowed regulators to take their eye off the ball. Too much money was lent to people who should never have been borrowing. Housing has not become any more or less affordable than it was 10 years ago. It’s simply that the tap for cheap and unsustainable debt has been turned off. For now.
All the while, interest rates have fallen. In fact housing is more affordable than it was. However because banks are operating ridiculous lending policies that go too far the other way, we have a logjam. Plenty of people in good jobs, earning good money are unable to borrow what they need.
The Lib Dems and their “Mansion tax” are simply in cloud cookoo land. Why have a tax that would cost more to administer than it would raise? Why punish those who have invested to buy their own home? Why does anyone think this is a sensible move? Chop off the top of the property market and you make it worse for those trying to get on.
Meanwhile the Tories say they don’t like Stamp Duty but have persisted in leaving it there. Not only is it an attack on capital but also it’s halting a market from moving freely. In addition they are freeing up the planning system but increasing localism. Like anyone would actually agree to a new housing development where they live? Forget development land tax, surely it’s locals who need better CPO (Compulsory Purchase Order) payments and to reap rewards when their area is targeted by developers. Anything that prevents market movement makes it even more difficult and expensive. This puts further pressure on the first time buyer. Meanwhile the government are streamlining the planning system. All well and good. However, allow locals too much power and nothing will ever get built. And so the supply side remains constrained.
New homes only get built if developers can secure the land. Secure planning permission. Secure finance and most crucially see a return on their investment.
Having told you that no one knows what they are doing and that most of the market analysis is wrong. Here’s my ten-point plan:
1) Lenders must free up cash and amend their lending policies. Forget income multiples and look (properly) at affordability. Lending fees need to be reigned in too.
2) Stamp Duty should be abolished
3) Estate agents should review their fee structures (Base fee for the transaction and an incentive top-up)
4) The legal process needs to be streamlined (Not a return to HIPs but a process that ensures a property is “ready” to go on the market)
5) Planning rules need to be simplified with powers to identify sites for redevelopment and planning changes. Preferential treatment and tax breaks for regeneration and targeted provision of new homes. Allow for profit to go to locals where appropriate (not just to councils with planning agreements).
6) Tax breaks for savers looking to secure a mortgage with a deposit.
7) An end to national statistics without breakdowns.
8) A return of tax relief for mortgage holders
9) Reduction of VAT for house refurbishment works
10) A reform of tax treatment for landlords and incentives/tax breaks for longer term leases
These measures won’t fix everything. Yes we need more housing but we also need to see the stock replenished with a high architectural quality rather than the identikit nonsense we so often see. There are plenty of sites in towns and cities across Britain that need to be redeveloped. Priority should be given for brownfield sites, rather than simply identifying new greenfield sites for yet more dull and lifeless estates.
Until finance becomes more available, government stops over taxing homeowners, pundits stop hypothesising needlessly and those with an attitude of social change without reality get a better knowledge of the market, Britain’s housing market will remain challenged. Implement my ten-point plan and we’ll be back on the road to recovery.