PEOPLE'S LAND TRUST--
A BRILLIANT NEW IDEA FROM THE N.E.F.
How
do you burst the housing market bubble in slow motion? One idea that might be worth
exploring is a People’s Land Trust and Building Society[*] (PLT hereafter) – a publicly
backed but independent non-profit institution which would buy land from
underneath houses and lease it to members.
There
are two groups likely to be interested in leasing land, instead of owning it.
The first is highly indebted homeowners who could sell the land from
underneath their homes to the PLT, and use the income to pay down their
mortgage debt. This ‘mortgage rescue’ element would help to protect banks and
building societies from defaults and debt write-downs.
The
second is people who want to be homeowners (privately or mutually) but cannot
meet the current mortgage deposit requirements. Households or housing coops
could approach the PLT when they’d found a house they wanted to buy and ask the
PLT to cover the cost of the land and to grant them a mortgage to cover the
cost of the bricks and mortar. Since bricks and mortar can account for as
little as 30% of the price of a property, this would require people to save
much lower deposits than is conventionally the case. Like the first group, the
new buyers would sign a lease with the PLT which would entitle them to
exclusive and indefinite use of the land in return for paying a land rent.
A
PLT could thereby create a pool of renters ready and able to buy as soon as
investors decide to sell, mitigating the risks of a precipitous fall in prices
and a sudden shortage of rental properties. We can think of the PLT as a lever
for introducing ‘desirable’ sources of demand into the market as ‘undesirable’
(speculative) sources of demand are exiting the market. In this way, the PLT
could make all sorts of other housing and land reforms – such as the
introduction of a Land Value Tax – more feasible too.
Depending
on how it was financed, the PLT would sooner or later start to run a surplus
which could be used to proactively purchase land for social housing, and/or be
partially redistributed as a dividend to all members who have been paying into
the PLT for some minimum number of years – 25 years, say. The latter option
could improve the attractiveness of PLT membership compared to the mainstream
model of homeownership.
Of
course, if people wanted to leave the scheme before this point they would be
free to go. When moving house, members of the PLT would sell only the bricks
and mortar. The land itself would remain in the Land Trust, and the lease (and
obligation to pay land rent) would transfer to the new occupant.
There
would be no scope for making windfall gains or unexpected losses from such a
sale, because land rents would be adjusted in line with changing land values,
with the explicit aim of making sure that the sale price for the bricks and
mortar remained roughly stable. This adjustment is essential to ensure that
changes in the value of land do not result in arbitrary rewards or punishments
for homeowners who have done nothing to deserve either. However, to protect PLT
members from unexpected hikes in land rents (e.g. in the case of a gentrifying
area), land rent increases could be capped in relation to wage inflation and
only fully adjusted when the property changed hands.
To
summarise, the purpose of the People’s Land Trust and Building Society
would be to:
◦ protect ordinary households who
bought at the height of the boom from ending up in negative equity.
◦ make it possible for people to
own their own bricks and mortar without buying the land underneath.
◦ improve financial and
macroeconomic resilience, by reducing the likelihood of mortgage defaults and
making house price adjustments more gradual.
◦ allow for the gradual
socialisation of unearned land rents which are currently captured privately by
banks and landlords.
Needless
to say, there are numerous questions to resolve in relation to this proposal.
Perhaps the most obvious is the question of how the PLT ought to be financed:
options could include bond issue; borrowing through the Public Works Loans
Board; Strategic
Quantitative Easing; a Land Value Tax, or taxation of the capital
gains and rental income of property investors. The form of finance will
obviously have a bearing on how quickly the PLT can grow and deliver a surplus.
There
are challenges to overcome in relation to the valuation of land in periods of
economic adjustment. And in the case of households who wished to sell their
land to the PLT in order to pay down debt, there is the added dilemma of
whether they ought to be remunerated for their land at the price they paid
during the boom, or at contemporary (lower) values. The former option would
seem fairer in the case of first time buyers who would not have benefitted at
all from the preceding boom through ownership of previous properties. But of
course, if the PLT were to buy the land at its value before house prices
began to decline and then charge a land rent in proportion to new lower land
values, it would take longer for the land rents to cover the PLT’s initial
outlay.
There
is also the challenge of ensuring that the separation of land and housing does
not make it difficult for people to move house, as Shared Ownership
schemes have sometimes done. If a new buyer could not be found to
buy the bricks and mortar and take on the land lease, one option might be for
the PLT to offer to buy the bricks and mortar at a price determined by
independent Chartered Surveyors, and then sell it at a discount to social
housing providers.
And
finally there is a question about how the scheme would operate in the case of
flats, where ownership is of a leasehold, and not a freehold. Perhaps the
scheme could precipitate an end to
leaseholds altogether?
The
purpose of this article is to not to present a perfectly polished proposal, but
to stimulate discussion. There is a risk, I realise, that the complexity of the
challenges presented here might induce some readers to put their heads in the
sand. Some might be thinking to themselves: ‘Perhaps we can solve the housing
crisis without affecting Buy To Let profits?’ This is delusional on several
levels.
High
rents are inhumane: they mean children growing up in overcrowded, damp and
unsafe conditions, and workers wasting hours every day on the commute. High
rents are a drain on public resources: every year £8 billion of public money is
paid out to private landlords in housing benefit. And high rents are driving a
wedge through society. Until the 1980s, the housing costs facing renters and
homeowners were broadly similar. Today, average private renters hand over twice
as much to landlords as mortgaged homeowners hand over to banks in interest.
There
are faster or slower ways of addressing these injustices. Theoretically, a
massive state-led house building programme would, eventually, reduce pressure
on the Private Rented Sector and improve tenant bargaining power. But there is
a huge backlog of housing need to address (DCLG estimates as many as two million
households) and major skills shortages
in the building sector, to mention just two of the potential hold
ups. We don’t have time to wait for these hurdles to be cleared. Rent hikes and
evictions are ruining lives now.
It
is time to face reality and listen to the demands of increasingly organised
renters – in London, Scotland, Bristol and beyond. Rents must come down,
security of tenure must be improved, and we must prepare for the long overdue
bursting of the UK’s housing bubble. This means finding a way to cancel the
unpayable debts of homeowners in negative equity, prevent banking insolvencies,
and ensure that it is ordinary renters – and not second home owners – who
benefit as investors flee the market. The People’s Land Trust may not be
the answer. But it is time for fresh and bold thinking in this direction – or
the societal fault line that has opened up between property haves and have-nots
will only continue to widen.
[*] The idea presented here was
originally inspired by a draft paper from the New Economics Foundation, making
the case for a gradual but mandatory separation of the ownership of land and
housing. See McCann et al. (forthcoming). Modern Land Reform. New
Economics Foundation.
I FOUND THIS ARTICLE AT
No comments:
Post a Comment