The Great British Housing Famine
himbonomics.com
himbonomics.com
They will fight it at every turn.
Not openly, of course. You cannot openly oppose affordable housing. But through lobbying, they will prevent rezoning, put hurdles in the way of easing building regulations. Ensure that NIMBYs protest cheap housing near their upper-class neighborhoods. Whatever it takes.
The excuses are typically a mix of
1) Too many immigrants
2) Lack of rent controls
3) Greedy developers
4) AirBNB
5) Empty houses
Depending on their political views.
They also leave out the biggest single problem: years of very low interest rates inflating prices, making it hard for people to afford deposits though. There is BoE research showing interest rates are the biggest factor in the earnings to house price ration.
"Immigrants" also leaves something out. Foreign investors and rich foreigners buying holiday homes/second (or third or fourth etc.) homes are a factor in some places (especially London) - in much the same way that people from London and other big cities push up prices in places like Cornwall.
Notoriously, many newbuild flats end up empty because not many people can afford the rent, and they're really just investment tokens anyway.
Property is like Bitcoin with bricks.
https://www.actiononemptyhomes.org/
London, where the main problem is (two people on minimum wage can buy a 3 bed house pretty much everywhere in the country outside the south east) has under 2.5% either empty, in use for short term lets like airbnb, or used for people who have a flat in London and a family home elsewhere.
https://static1.squarespace.com/static/6553693f7d629a133b6a4...
https://www.theguardian.com/society/ng-interactive/2023/jun/... take a look at this map - all the bits of Britain that are actually nice to live in are in "can't buy, can rent" or worse.
Prove me wrong, give me an example area?
Instinctively it feels like about 2/3rds of people live in "unaffordable to buy" areas. Worse it's probably the best paid 2/3rds of the country.
Urbanization has been failed. Supply of housing has not kept up with labour around in most urban areas.
Definitely so in London where you also get a lot of very large houses (big enough to be converted into multiple flats) being bought by the rich and super rich. Talk to someone in a business linked to luxury London housing and see how long phrases like "family office" take to come up.
Maybe in the UK, but in Canada we have the same problems (larger by the looks of it) and our government blocked foreign money with zero noticeable impact.
I think foreigners are a scapegoat for the cumulative impact of decades of bad government policy at all levels of government, including bad monetary policy.
Those numbers do not count the people who moved to the UK (mostly London) to avoid paying tax under "non-domiciled" exceptions which the government has promised to abolish next year. The main opposition party has endorsed this policy AFAIK so things should start changing from next year as far as those go.
From an economics perspective, lets assume there was no govt regulation at all. I am not sure if the problem would be fixed. There is a trite old sayings .. "they aren't making any more land" or "location-location-location". But this inelastic supply of land is nothing new. So why is this happening now?
Interest rates have been ultra low (versus historic norms) in the developed world for two decades. And prior to that they were on the decline.
Similarly, the developed world has largely not been building housing in line with population growth. For decades.
We are at the natural conclusion of decades of bad policy and we aren’t going to squeeze out of it in a few years. It will take decades of good policy to fix this and our leaders don’t seem programmed for maintaining good policy for more than a few years until there’s a hint of prosperity and then they fritter it away.
The problem here at least is that many homebuilders went bankrupt after the housing crash and the supply of skills and willingness to build homes decreased for a generation.
We desperately need a pro growth government next. Desperately.
The situation is even more extreme in places like Italy where the young are even less numerous compared to the old than in the UK.
It's the political equivalent to deflation. If every generation is smaller than the last, you end up with a gerontocracy and no-change society. To maintain pro-growth policies, you need a critical mass of young people who embrace change and want to grow. Otherwise you get stuck in a positive feedback loop of more and more power and money concentrated among the old which depresses the birthrate.
We can't have a situation where demand is outstripping supply to this extent and expect our economy to grow. We need workers able to live somewhere near where they work, we need them to not have a mortgage so high that they feel unsafe in moving jobs, starting a business or going freelance. We need folk with disposable income to spend on other sectors besides overheating the property market.
All this promotes growth in our economy, housebuilding also of course generates work for builders, electricians, trades, road designers, rail companies etc etc
In my experience, the people adopting these explanations are usually neutral or hostile to actual new housing, aside from their pet solution of punishing their chosen scapegoat.
The challenge is there's a grain of truth to all of these explanations. House prices and rents would go down if vacancies were outlawed. But these solutions that target scapegoats are probably insufficient to move the dial much. The vacancy rate in Ireland has gone down over the last decade while prices and rents have skyrocketed. AirBNBs are a small fraction of housing.
The two biggest things you can do to reduce prices and rents is to build a lot by removing obstacles (whether private or public housing), and reduce incentives (tax and otherwise) for investors to buy and hold land.
Well, (1) isn't. It says demand outstrips supply, as the birth rate on its own would be a shrinking population in the UK. The obvious, low cost answer is to reduce demand. An 'x' in a box, saying no to immigration. Instead we have yes, and then thousands of pounds buying land, building houses, co2 emissions, loss of countryside, environmental destruction, loss of arable land and so on.
We could reduce immigration to pre 1997 levels, when the economy grew at similar rates to now. The arguments for mass immigration in the UK are unproven simply because stopping immigration and seeing the result hasn't been tried. You could argue that with 10x 1997 levels we should have a measurable increase in annual GDP better than pre-1997. We don't. With a shrinking population, Japan's economy has stagnated and contracted a little. But nothing catastrophic. Perhaps the pursuit of 'GDP' is simply the wrong thing to be concerned about.
House builders are happy with the current situation. They're pretty much a cartel, as they're solely responsible for the supply of new houses. They don't want to lose money on sites they've paid over the odds for. They don't want to be told to deliver more houses, if they could, as more supply would be competitive and prices would potentially drop, as would profit. Which is why they donate huge amounts to the national political parties, as well as locally as well to keep the status quo.
Near me there's several fields of Grade 1 land owned by Bellway and Redrow for the last 2 decades. 20 years. The land has permission. They've not yet built on it. Can't think why.
The fact is that the UK is creaking at the seams and the elephant in the room is too many people. Yet, for the NHS it's 'Tory underinvestment' (despite never having more money, and the highest ever staffing levels), and for all the potholes it is again... Tory underinvestment, despite vastly more traffic and no new roads. Similarly with pretty much everything else. Demand is people using the NHS. Demand is people using the roads. And yet somehow we've not raised silly amounts of extra tax from the extra people to pay for any of the extra stuff.
But it's always fashionable to blame the Tories (as they're mostly in power), rather than apply a bit more critical thought to the problem. Next 5 years at least, will be Labour, but it will still be the Tories' fault. And I'll place a small wager than net immigration to the UK will still be 200k per annum, so another 1mm people, but that will be ignored in favour of 'Tory underinvestment'. Every government casts a shadow on the next one, some shadows are longer than others. This one started in 1990, and got worse in 1997.
> honestly considers all the different factors that contribute to the housing crisis
It's not really a 'crisis', it's just, well, business as usual. I remember the same topic covered in the late 80s and early 90s. 'We're not building enough', 'there's a housing crisis'.
Sadly the UK housing market is so entwined in the economy, it will be decades for a correction to happen. Homeowners won't sell below purchase price. House builders won't sell without making a profit. Lack of house sales paralyses the economy. No labour mobility, loss of stamp duty and so on.
We cannot force prices down without causing problems in the economy - tradesmen, solicitors, estate agents, investors, and so on. There needs to be a multi-decade plan from 'the Government' to somehow reduce house prices. But that seems to be well above the level of ability of our politicians and political system.
Stamp duty is terrible, it stops movement. Replacing with increased property tax (say at 1/10th of stamp duty per year) would be far more sensible. Or we could just tax the land -- good look offshoring that.
What has happened to house prices since 2016 for example?
(I actually don't agree that legal immigration is bad, if folks want to come from wherever to buy our houses, work in our cities and so on that's actually great for our economy. However we do need to build new housing in line with that, not just pretend it's not happening)
Population of 18-65s and percent of total population
2008: 39.2m, 63.4%
2018: 40.9m, 61.6%
2028: 41.3m, 59.3%
2038: 41.3m, 57.2%
Given that tax relies heavily on taxing working people, and the number of working people, and that immigrants tend to be of working age, immigration is essential in stemming the retiree-centric population.
The other alternative would be to swing more of the economy to looking after non-workers (mainly the over 65s), but we won't tax those people despite the massive wealth they have.
The problem is the Tories were re-elected on the basis of 'leveling up' the regions but f-all has actually happened so the metaphorical well has been poisoned.
Meanwhile we have derelict properties and a lot of empty commercial real estate.
I don’t know how to solve it but it seems to only takes a handful of homeowners to scuttle a project. And I fear my town will slide into irrelevance and decay at this rate.
And for some reason popping up another strip mall or box store doesn’t cause the same ire? It’s all very strange.
The first step is to move these questions back up to the national levels. Localism has been a policy disaster.
The true solution is simple, reverse the infringement on property rights that is causing the issue in the first place.
The only one who should have any say about what gets built in a plot of land should be the owner.
I would posit that the real tragedy is the inclosure Acts, which in a couple of decades undid centuries of social progress away from feudalism towards community-focused common land use, which was not only an efficient system but also a fair one.
The local vs global incentives differ, which is why removing local power will help. At the global level, voters care (a bit) about things like social unrest, homelessness, their kids being priced out of housing. And the 'burden' of increasing housing is shared roughly equally across everyone. At the local level, the incentives work very differently. If the local community restricts housing, they get all the benefits and push the costs (homelessness, housing crisis, etc) onto broader society.
That said I feel like making NIMBY plaintiffs really deal financial pain of frivolous lawsuits is part of it. Maybe by tax payers demanding NIMBY plaintiffs pay the city and developer legal costs?
You have to have this discussion again and again. People simply refuse to accept this simple fact. Increasing supply is the best way to make housing affordable.
Instead of making limits to housing prices, create mandatory new zoning and housing construction when there is not enough affordable housing. People who can afford expensive apartments are in lower numbers than those who can afford low cost housing. Just build more and prices drop and quality of housing increases.
They don’t want to build more, because they would also have to lower their service charges significantly or see them fail to sell once they’ve saturated the section of the market that can afford them.
Each year we had an AGM where we elected directors (I was one for a few years) and make the appropriate decisions.
Ground rent (especially those expoential ones) is a problem, but all leaseholders have a right to manage their flats even if it's not set up that way.
The far bigger problem is the fleecehold houses, where there is no right to manage, or even see the invoice -- https://inews.co.uk/news/housing/new-build-homeowners-nda-so...
Replacing the management (or attempting to purchase the freehold) is tricky in buildings where the majority of units are sublet under ASTs; leaseholders who are landlords themselves generally don’t care how effective the management is, as long as it isn’t so bad as to disrupt their own income.
Even when a critical mass can be found, the up front costs associated mean that it is often impossible unless all the residents have access to large amount of capital.
https://www.gov.uk/right-to-manage-a-guide-for-landlords
Nothing to do with the freehold
If I own a lease and then rent it out on an AST I want to reduce my costs to increase my profits. If I can manage the block myself for £4k and an annual vote for a director, or let the freeholder manage it for £8k, then clearly I'll do the former.
Same incentive as if you are an owner-occupier leaseholder.
The right exists in principle, but 50% of flats (as I understand it, all of them, including flats that are not demised under lease, but under AST from the freeholder, and who do not form part of the quota) must agree to form a management company before it can take effect.
> If I own a lease and then rent it out on an AST I want to reduce my costs to increase my profits.
In a demand-skewed market you will just pass the higher cost on in rent; it’s not going to make it any less likely that you manage to let it out.
Furthermore, even contacting the owners of sublet flats, let alone convincing them they should spend money and endure potential disruption, can be difficult, making it hard to reach the threshold.
In a small block it might be easy, in a high-rise with 200 apartments, it’s trickier.
In a demand skewed market you'll charge the same regardless.
Two people owning identical flats, one with a 90% mortgage at 5%, one with no mortgage at all, will charge exactly the same rent.
Costs don't come into the rent charged, this is a lie perpetrated by landlords who want tax breaks.
Identical flats in the same building will have the same management charge.
Flats in different buildings are not identical, and will generally have different rents; the difference in management charge is one factor that will determine this.
Think about it - if I'm a landlord and have a lower service charge why would I charge less? That just reduces my revenue.
If I am a tenant and see one charging more than another why would I pay for the more expensive one?
I for example hate places like London with moderate passion, living there I consider very low quality life and certainly prefer touch with real nature, no crowds, little to no air/noise pollution, and society being more... social, to certain point of course.
40 minute commute 2x a week is fine with me, most Londoners have way more (not from there nor GB, what I write applies to all big cities to some extent). For raising kids there is no discussion, cities mostly suck despite all benefits and many kids from there show it very clearly.
The golden middle path, as usually, works the best for many after certain point in life. To be more concrete - smaller villages surrounded by vineyards and wild forests, 3 min by car from highway, 20 mins from a million-sized conglomeration with tons of work, 25 min from another bigger city, 5 minutes from beautiful crystal clear 100km wide lake. Village with well-equipped kindergarten, primary and secondary school, few shops and restaurants, in middle of wineyards, on foothills of beautiful mountains, looking at the alps few tens of kms away.
Paradise to many. Expensive one of course. London can be great compared to many places (and its ranked very high on greenery lists), but sorry it doesn't even compare unless you are properly die hard city type.
However if the entire of Greater London suddenly became as dense as wesminster you could house another 9 million people.
If we were able to get a better network of transport it would unlock a lot more of the country where there is land, and there is already empty housing.
It’s also the best way to redistribute wealth from the 50%[0] who own their own homes, and tend to vote, to those who don’t, while also giving those home owners with mortgages negative equity. By which I mean, it’s a total non-starter politically forever.
I don’t own a house and I’d like to, and this affects me directly, but this is purely and 100% an issue of politics and has no solution[1]
0: ish, I can’t find any decent numbers that aren’t completely contradicted by others
1: That I’ve seen, that could get through parliament
1 - Create a independent body for housing growth "The house bank of England" and thier responsibility is to ensure 0% YOY house price growth by increasing supply to the point prices no longer rise, but no further. No negative equity created but also no above inflation price rises for a decade or two. This is not particularly different than when they do QE (for the middle class/wealthy who are often savers).
2 - growth areas: I'm thinking south London, Cambridge, Oxford, Leeds, maybe Manchester. Government builds houses and commits to buy any house for the value of it on $scheme_announcement_date for houses brought before that date. Scheme will last 25 years. Increasing the density of a city should actually draw house prices up in the long run as it will bring better transport links, more economic activity with greater productivity/efficiency.
I suspect the status quo is much more popular with the voters though.
Far from clear that that gets through a Labour majority parliament, even if the government wants it to.
re Oxford, there’s a shed-load of ugly and very well connected land around Kidlington that you could dump a large, high-density town into, and Oxford West is a Con/LD swing seat, but local opposition is fiercely against.
Assuming a £100K bung from mum and dad for the deposit, a 25 year repayment mortgage at 5%, and further assuming you spent 50% of your income on the mortgage, you would require an income of £122K to afford it. That would put you firmly in the top 1% of earners in the UK.
Despite your high income, and paying £45K/year tax, you would live in one of the most deprived parts of the country and your local hospitals and schools would be in special measures.
Also either your description is wrong or the valuation is wrong. 1 mile from e.g. Orpington would be around £500k for a 3 bed house
The poster above mentioned 500k in Orpington, well that's zone 6 so a travel card is an extra 140 per month per person so if there is two of you you're spending alot of what you've saved in the house price on that and you also both have to spend a extra 30mins in travel time each way, so an hour of extra lost time a day. Is it worth all of that to save 100K on the purchase price?
I don’t live in Orpington, but I do live in zone 6. My door to door commute is also 45 minutes
In concert with this they started adding fees, and then more fees and more fees onto construction. Development fees, parkland dedication, public art, you name it, they found a creative way to shove the cost into the price of newly built buildings.
The housing crisis today is 100% the result of government, and now government is acting like individuals caused the problem by buying units to rent on AirBNB, or bidding the prices up too high (also due to government’s ridiculously low interest rates for too damn long!)
It’s wild to watch inept politicians fumble around looking to blame anyone but their predecessors for the problem at hand, and in the process hurt a lot of people.
The only answer is more housing, and it will take likely as long to fix this issue as it has to create it - decades. There aren’t enough trades available, material has skyrocketed and will get worse due to demand, and now interest rates are high which makes the economics even more challenging. Essentially, costs have risen faster than rents/sales prices and it takes a long time for either to move in the right direction.
One of the exceptional things about the UK is the 'right to buy' scheme introduced in 1980 which offered people in Council homes the opportunity to buy it, with up to a 60% discount on its guide price depending on how long they've rented. A lot of working class people in Council schemes took them up on that offer and so the amount of available housing stock to cheaply rent diminished sharply. IIRC in Scotland it was ended in the 2010s to curtail that trend. There is surely a generation of older people living in 2/3/4 bedroom houses that don't really need that space, but aren't willing to pay today's prices for a smaller place that hasn't been made their own home- this could affect the affordability of up and coming families. There was a 'bedroom tax' imposed on people still living in Council housing that had empty bedrooms which didn't apply to private housing.
In Scotland the average house price is closer to £200K while in England it's closer to £300K, yet GDP/capita is broadly similar in both countries. UK house prices generally get more exorbitant the closer you get to London, though they're high in Edinburgh also. Would've hoped/thought that with WFH being more normalised with COVID that people could migrate to more affordable areas without sacrificing job opportunities and without much change in culture/climate etc.
Where I live in the Scottish Borders, a couple on minimum wage can buy the average house price at well below 5x their salary. For WFH folks in unaffordable areas, get some research done on somewhere agreeable and take the leap.
And so did the number of people needing to rent.
> There was a 'bedroom tax' imposed on people still living in Council housing that had empty bedrooms which didn't apply to private housing.
A tax massively opposed by the left.
A couple on minimum wage and 37.5 hours a week has a £3,200 a month net wage after tax. Even just 33% on a mortgage means you can get a c. 180k mortgage at 5%, enough to buy a 3 bed house in many parts of England, assuming you can find the required deposit.
https://www.rightmove.co.uk/properties/146612411#/?channel=R...
https://www.rightmove.co.uk/properties/146822492#/?channel=R...
https://www.rightmove.co.uk/properties/146953640#/?channel=R...
https://www.rightmove.co.uk/properties/147046655#/?channel=R...
https://www.rightmove.co.uk/properties/144397493#/?channel=R...
https://www.rightmove.co.uk/properties/144533690#/?channel=R...
https://www.rightmove.co.uk/properties/146820380#/?channel=R...
One problem the UK has with wages is while minimum wage has nearly doubled in real terms since 1999, median wage has increased just 27%. This means far more people earning about the same, and many jobs simply aren't worth the extra time to do it. Why spend 6 years in education and below-minimum-wage training when you can just stack shelves or roll pizzas for basically the same wage.
The other problem we have with housing is the south east, but the solution to that is easy -- just move. You can live in 80% of the UK with a minimum wage job, so drop the sentimentalism and move 100 miles. Hell Americans think 100 miles is a trip to the local theatre.
That a couple on minimum wage can save for a £20k deposit within any meaningful time horizon is a pretty significant assumption.
-It's 16K -They need to wait 4 years.
The point stands if they are aware of the scheme when they start saving and save exactly 4k a year every year (more realistically it will be 2k year 1, 4k year two, 7k year 3..)
Having to save for 5 years doesn't seem unrealistic for people who don't have the bank of mum and dad. Totally doable - though below average house price in any area, preferably somewhere more affordable.
There are a lot of tax instruments available today that never existed a generation ago.
You can get a 3 bed semi in dozens of towns across the UK though. Sure you won't be living in a 5 bed detached with a swimming pool on minimum wage. I don't see that as a terrible thing.
As is the implication that those earnings will be stable and reliable and not subject to periods of unemployment.
Yes if you work less than full time then you'll earn less than £3k a month.
Well given that "nice" here is presumably "one of the top 25% nicest places in the country", it makes sense that not everyone can live there.
How would you ration it if not based on cost? Nepotism? Lottery? Sexual favours?
All four are used to distribute housing in the UK, rather than simply building enough for everyone.
> There is surely a generation of older people living in 2/3/4 bedroom houses that don't really need that space, but aren't willing to pay today's prices for a smaller place that hasn't been made their own home
Yes, but what do you do about it?
In the areas I know all sizes of house have gone up in price, so they would make a MUCH bigger profit on downsizing than when they bought houses a few decades ago.
> There was a 'bedroom tax' imposed on people still living in Council housing that had empty bedrooms which didn't apply to private housing.
I thought it applied to housing benefit? You no longer get housing benefit to pay for the extra room. Its also not empty rooms as such: its having more rooms than the govt thinks you need, so things such as young kids having their own rooms rather than sharing.
Granted it's not exactly apples for apples, it's just my comparison as I live in Scotland and the affordability problem seems to be more of an English one, hence the GDP comparison on a pure monetary basis.
>Yes, but what do you do about it?
Removing right to buy, and laws on landlords tax benefits that have changed IMO have already changed the idea that being a landlord provides good ROI, in the main. I had a second property (my previous home) and having to pay 42% income tax on the rent, maintenance, any rent issues and then any potential capital gains certainly doesn't sound appetising vs selling and having cash.
>Its also not empty rooms as such: its having more rooms than the govt thinks you need, so things such as young kids having their own rooms rather than sharing.
You are perhaps right. General gist being that there's housing stock that'd better suit other people, which I guess was the spirit of the law.
It should have an effect, but has not had that much yet. There is a lag so maybe we will see it some time soon. However, we have also had rent increases and falls in house prices in real terms so that might offset it.
As of 2022, the median salary in Scotland is £27,000. It's pretty unaffordable for the average person who doesn't have money from their parents.
In this example we're now talking about first time buyers (presumably and as a couple), wanting an 'average' priced home (could start lower) earning 4K above minimum wage.
There are also some quite generous tax breaks for landlords, including mortgage relief.
The playing field is slanted very heavily towards private ownership and (literal) rent-seeking.
Right-to-buy wasn't this 'awful' thing lots of people made it out to be.
Part of what I was meaning is that a lot of people did take advantage of it from the boomer gen but they're staying in homes bigger than they necessarily need, maybe just a 'bump' of old activity that will even out over the next 10-20 years.
Who gets priority? Do Lord and Lady Middlecott have their stately home rebuilt first? Or does it start with the least valuable property and work upwards, meaning that Mr. Horace Hodge's garden shed is number one to be restored? It clearly can't be exactly proportional, otherwise his Lordship would get one wing of his mansion and Horace would get one wall of his shed, which helps nobody.
I don't think it's callous of me to suggest that providing council housing for those like your grandparents was the only humane thing to do that the country could have afforded. Rather than directly restoring the pre-war social order, the post-war system was orientated towards comfortably housing the masses, and it did that with documented success.
The only question is if younger generations of homeowners remember their experiences as renters and follow a different path.
The restriction is planning permission e.g where are developers allowed to build housing. To a lesser extent the large house builder oligopoly is not great either but fixing the former will probably sort that out.
The UK has at least 10 million more people since 1997 in a country that had 58 million people, we're now over 70 million. Everything is creaking. The NHS queues, the traffic, the roads, the trains, everything. But somehow all of that is always the fault of the current government, where people pick their own arbitrary point in time, not the cumulative result of the last 25 years of 100k+ people every single year. (edit- we don't have 20% more of everything that we had in 1997, but we do have almost 20% more people)
A price correction in housing will take decades. Home owners won't sell below what they bought at, rarely. House builders won't lower prices either, their prices are locked in. I've only once lived through negative equity in the early 90s and it lasted a couple of years. People stopped moving until prices picked up.
And lastly, the UK has never had 100% home ownership. In fact, IIRC, the peak was 60% or so, during right-to-buy.
We’ve basically been living well above our means for quite a while, paying with the wealth we’d stored up, and now our assets are getting bid up past the point where much of our populations can afford it.