In September the Tony Blair Institute for Global Change released a report on the UK’s crisis in housing affordability. The report is big on solutions and relatively light on historical context, which is handy because one of the people responsible for this crisis is Tony Blair.
House price inflation averaged 21 per cent during Blair’s ten years in power, with the average nominal house price more than trebling between the 1997 election and the summer of 2007. Nearly half a million council houses were lost to Right to Buy and more than 100,000 were demolished during New Labour’s time in power. Gordon Brown removed what he called the “middle-class perk” of tax relief on mortgage interest for homeowners, but failed to remove it for landlords, creating an industry worth tens of billions of pounds per year that was based on tax avoidance and the transfer of money from wages and student loans to the savings of the already wealthy.
Those landlords are now leaving the housing market in droves, thanks in part to Rachel Reeves. According to Rightmove, about a fifth of all properties currently for sale in the UK were previously rented, as landlords sell up in unprecedented volumes. Many have been spooked by the idea that Reeves would impose a higher rate of capital gains tax on property, although it now appears unlikely this will make it into the Budget. Others are leaving the market because Labour plans to introduce regulations on no-fault evictions and energy efficiency.
This landlord exodus is good news for prospective homeowners, because it adds supply to the market at a time when other factors (falling interest rates and rising real wages) are also in their favour. There is some concern that it could add to the deep and ongoing crisis in rents – the inflation rate on private rentals is 8.4 per cent and for one-bed flats in London it’s 10.5 per cent – but if homes are being sold by landlords and bought by renters, this should help balance supply. If Labour is able to push through planning reforms that lead to the building of lots more houses, especially social housing, it could freeze or depress house prices and rents.
It is hard to overstate how much this would benefit most people in this country. So much of the poor health, disaffection with work and financial vulnerability that this government faces are to do with the fact that very large numbers of people are spending more than 70 per cent of their disposable income on rent and bills.
It’s for this reason that some housing experts propose going further to remove the “investment demand” for housing and reorient the market towards providing affordable homes rather than financial returns. A new paper, commissioned by the previous government and written by the economist Josh Ryan-Collins, of UCL’s Institute for Innovation and Public Purpose, proposes getting rid of council tax and stamp duty, and replacing them with a yearly charge of 0.48 per cent on the value of a property (with surcharges for second homes and foreign ownership). The paper finds that, at this tax rate, three quarters of households would be better off (even after accounting for landlords passing the charge on to tenants) and the state would receive the same amount of money.
Even more significantly, because it would make “under-occupied” homes and second homes more expensive, the modelling predicts it would free up as many as 600,000 homes over five years. Given the difficulty of persuading housebuilders to build that many homes, it could go a long way towards helping the government reach its target of 1.5 million new homes.
One snag is that this is probably a ten-year project that will involve a huge amount of shouting. Another is that many people have quite understandably invested for their retirement in buy-to-let.
Some people lose out from every policy decision, but that doesn’t mean it isn’t worth doing. In a country in which young people increasingly put off marriage or starting a family because they can’t afford a home, bold ideas are the only ones worth hearing.
[See also: In defence of my £600 coffee machine]
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This article appears in the 23 Oct 2024 issue of the New Statesman, The crisis candidate