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Property perestroika

Published in The Parliamentary Monitor (London), Issue 154, November 2007, p. 23

The British seem to be fixated with house prices and follow the development of the property market like the weather report or the latest football results. Prices have been going up and up in the past, and if annual house price inflation occasionally drops to a mere five or six per cent, commentators clamber ever more frantically to predict a slump.

But as house prices, particularly in London and the South-East, have reached astronomical heights, they are increasingly recognised as a social problem. There is now a growing consensus that something needs to be done about the lack of affordable housing for first-time buyers, key workers and young families. Indeed, the Prime Minister has announced his wish to build three million new homes by 2020. This would mean an increase of completion figures to a level of 240,000 per year (up from less than 200,000 units this year).

That the government – at least in principle – acknowledges this problem is a start, but it remains unclear whether they have identified its origins; Britain’s housing crisis has not occurred only for want of ambitious central government housing targets.

The main problem for UK housing policies is this: Local development does not generate much extra funding for local communities. In fact, not only must NIMBY residents be dealt with, but extra infrastructure must also be provided out of these communities’ core budgets. All cost and no benefits: this has to be a recipe for building as little as possible. It is no wonder, therefore, that for many years the number of new houses built has been consistently below the net gain in the number of households due to increased longevity, smaller household sizes and immigration.

Other countries, Germany and Switzerland in particular, have approached planning for housing very much more successfully. Not only have these countries enjoyed more than three decades of stable real property prices, but the new houses they build are, on average, 40 per cent larger than their UK equivalents. Planning is mainly determined at the local level, where budgets depend on factors such as population, tax revenue generated or even local income taxes. As a result local planners are keen to support their councils by making their cities attractive places to live, and thus attractive to new inhabitants. People get the houses they want and the politicians are the masters of their own (fiscal) fate.

Existing residents also benefit; they have learnt to ask a number of questions. How much would it cost to build more homes? How much new infrastructure would have to be provided? How much would the downsides of that development affect us? And how much would we gain by allowing development? Local communities are thus very comfortable deciding on development proposals, weighing costs such as more traffic or less green space against benefits such as a new public swimming pool or a local tax cut. In that way the German and Swiss planning systems support rather than undermine the preferences of local government and communities.

In stark contrast to these flexible systems, British housing policy has a very centrist and almost Soviet approach which, like all other examples of central planning, does not work. Whitehall simply cannot know best what kind of housing is needed across the country. Local government, on the other hand, would know better. In fact, most locals would have quite a clear idea how much more housing would be desirable. For example, they know how difficult it is for first-time buyers in their areas to make the first step onto the property ladder. But at the moment they do not have the financial incentives to deliver it. This is why the only way our government can think to increase housing stock is to issue central targets. The fact is that, with proper incentives in place, councils would not need anyone, no regional agency let alone the national government, to tell them what to do. They would simply do it out of their own self-interest.

If Britain cannot shift the balance towards more local incentives and devolved decision-making in planning, then good and affordable housing will remain an unachievable dream for future generations.

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