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Thursday, 13 February 2020

Do we need another book on the housing market?
A BIG-NAME AUTHOR of Irish origin who writes for the Telegraph.
Liam Halligan really ‘gets it’!
The UK’s chronic housing shortage— how it happened, why it matters and how to solve it
(19 Nov 2019) London: Biteback Pub   £20 or less hb

As a journalist Liam writes well in an easy readable style. He position has enabled him to grill important insiders — government ministers, captains of industry, bankers, civil servants, and many more. For his recent Channel 4 documentary ‘Britain’s Newbuild Scandal’ (July 2019) programme he’s even got out on-(building)-site and talked to both builders and home-buyers. His academic credentials are excellent as well (Warwick, Oxford, IMF, LSE).

So this is a great book on the crisis of the housing market. It goes beyond the usual ‘poin-and-sigh’ — listing all the deep problems and their dire effect on homebuyers. 

He digs deeper to explain the underlying reasons WHY the housing market is in such a dreadful state. 

And best of all, is the raft of policy suggestions aimed at fixing the market, fixing the policy mistakes of the past, and really getting a grip on our dysfunctional housing supply.

[This is Part 1 of a two part posting. Here I review the book, picking up especially his good bits, where he really understands what’s going on. In later postings I’ll dig a bit deeper, to see where Liam could have been clearer, explained more, come up with better solutions]

Ch1 The history of Housing in the UK 1920-1960. This is very good if you are unfamiliar with the 1930s triumph of housing. It also deals with the wartime debate about planning and taxing windfall gains that ensue (Uthwatt and ‘betterment’). The (mostly) post-war New Towns and the secret of their success. Then the dash to build huge numbers of Council houses, which led to the system build disasters.

Ch2 Today’s Housing Crisis It’s all about prices which have gone mad, and pricing homes out of the reach of many. Prices, prices, prices — he is quite right to concentrate on the price of houses as THE core problem. It is the Crisis of Capitalism. (OK Quality and Quantity — number of houses built matter too)

Ch3 The Dream of Owning a place of one’s own or The Great Home-owning Democracy
The dream is withering, young people are systematically excluded from joining in. Liam does make the point that homeownership is a drag on the Labour market, reducing mobility. 

Ch 4 The housebuilder-developers have a dysfunctional model of production
 Useful description. Well, dysfunctional for us, because we are not getting the plentiful supply of new houses that would drive down house prices. Liam describes the Volume-builder model where the profits revolve around land-banking. Good details
1.     Slow build-out
2.     Big players too dominant (I’d call it oligopoly)
3.     Green belt [too sacrosanct?]
4.     Viability loophole [means dodging S106, BRegs
5.     Landbanking
6.     Speculative inflows [hope value on farmland near booming towns]
7.     Lobbying power [of the builders]

Liam then (p105) produces his brilliant picture (analogy, image, metaphor?) to explain the failure of the Housing Market:

THE IRON TRIANGLE of interests 
which have the Housing Market clamped into failure mode

THE HOUSEBUILDERS                                 THE HOME-OWNERS

This image is so good that I’ll be using it again. Each of these three players benefit hugely financially from today’s crisis-stricken Housing Market and will fight tooth-and-nail to prevent it being changed. 

The one change these three sides all fear is falling house prices. To succeed any reform of the housing market MUST bring down house prices. But this is anathema to
            —the o-o’s who fear losing their ‘nest-egg’, their legacy to the next generation, their wealth built up on ‘hard work’ (!) which will see them through to a comfortable retirement,
            —the Banks who lend recklessly, trusting that house-prices never go down. Any mistaken lending to NINJAs will soon be fixed by rising prices,
            —the Housebuilders locked into this dysfunctional market, but by acting rationally make good profits out of land-banking and land speculation.

Ch 5 Government stupidity

“Supply and Demand” Liam is an economist, so no surprise to see his approach. Obviously HTB — help to buy — is insane and the results — higher house prices, vast profits for builders especially theor CEOs. Credit though to Chancellor Osborne who hiked SDLT again and again. This worked. A little bit of over-heated demand for high-end London property was contained. And he got away with it! A hated tax was increased by a Tory Chancellor, and there were no riots, only a few pathetic mumblings against it in the Telegraph (ref?)

Absent, despite tragedies like Grenfell, was any hint that LAs or HAs should be given a major boost to start building the 10s or 100s of thousands of homes that are urgently needed/

Ch 6 Is there a shortage of Supply? No. Rabbit hutches for all (youngsters)

There is an evil elite plot to pretend there is no housing problem, no need to build more houses, it’s all the fault of immigrants anyway, cooked up by house-builders, the Treasury (on behalf of the banks) NIMBYs, and of existing o-o’s, says Liam. Read on…
Fun to hear from a contrarian, in this case Ian Mulheirn, formerly Oxford Muellbar outfit, now Tony Blair think tank. Mulheirn thesis — no shortage of house because there are empties, and no so many households forming. Liam spends 29pp debuking this nonsense.

It seems to lead to ‘rabbit hutches for all’ youngsters as a modern, free-market solution (p136) — allowed for under PDR legislation. Now (p140) government doesn’t even bother to project how many new-builds will be needed in 10 or 20 years’ time.

All this has led to government complacency, emboldened the NIMBYs. Treasury fears a building boom would lead to bank collapse (?So BoE sets bank-stability over decent housing?)(p144)) Throw in a bit of immigrant-bashing (Raab) causing house-price rises, too.

Public Opinion (p153) says the answer to the housing problem is ‘Build more social housing’, and the young (18-34) still want to become o-o’s.

  Ch7 Building crap-Persimmon boss vile profiteer?
This is a gem of a chapter. Liam knows his stuff having recently produced a Ch4 Dispatches programme about it. An appalling tale of poor Quality, and he blames the spec-builders for — 1. Exploiting their size to capture developable land, thus excluding SME builders.  
— 2. Exploiting political donations for influence; construction firms second only to Finance in bungs to Tories. (Liam quotes Tony Gallagher hosting Cameron’s 50th birthday party at Sarsdon House, Chipping Norton.)
The behaviour of the housebuilding industry is outrageous. The CEOs give themselves gargantuan salaries financed by government schemes. They build shoddy pokey houses, knowing that they will sell anyway. They treat their customers with contempt, finding any excuse not to fix bodged work. They further exploit customers through leaseholds. They deserve to be condemned.

Ch8: Fat of the Land—Does Liam really  get it?
Damns with faint praise (p185) “no sizeable nation..would upend its entire’ [tax system] “to adopt single tax LVT”. So he floats around the idea as an alternative to betterment, as a restoration of the revenue side of the 1947 TCPA. Then on p190 he says it: 

This [surging land prices caused by planning control] is the main explanation behind escalating UK house prices over the last sixty years”

He adds that it also explains LA’s and HA’s problems in producing new housing.

Liam then spots the winners in this land-price game—the New Towns like Milton Keynes. They were able to acquire to greenfields at current (agricultural) value. Losers have been successive Labour governments. Three times they tried to introduce a Betterment Levy, which never really worked very well, and was always cancelled by incoming Tories. On p196 Liam notes that 

“soaring land prices, and in turn soaring house prices are at the heart of the business model for all major housebuilders — and to a significant extent, also benefit existing homeowners.

And he adds in the other arm of the Iron Triangle, the banks, whose mortgages are a large part of their business. Political pressure building for existing use compensation, and full-tax of planning gain.

Then he says it again, quoting from  a Report (p198) “Competition [between housebuilders] is focused on acquiring land, rather than satisfying customers. The result is a vicious circle in which high land prices ensure housing out put remains low and house prices high — which in turn feedbacks to sustain higher land prices”.

Liam then goes on to list the great and the good who advocate forms of the already discredited betterment levy. Even suggestions of land nationalisation are given a sympathetic hearing. The law is on the side of the landowner, even when forced to sell at existing land-use, and later permission is granted (Rooff CPO case p208)  Liam applauds efforts to reform this law.

Ch 9 Social Housing
Good summary of its virtues. Thatch. loved RTB, but worm in the core Housing Benefit costs £25 bn (2017, p228). Social housing better built (p229). Any drive towards new wave of social housing thwarted by land value esp hope value.

Ch 10 Manifesto for Change
Liam waffles away for pages about LVC — Land Value Capture at the point of PP — agonises over the previous attempts to introduce it, even referring to Mad Monk Keith Joseph’s trying to convince the Tory Cabinet of its virtue. Liam obviously wants to bring it back in.

And maybe to forestall the obvious alternative candidate on p248 he dismisses LVT as follows:
            “A ‘Georgist’ land value tax requiring high annual payments from all landowners, while scrapping most other taxes, would not help to solve the UK’s housing shortage. Many landowners do a superb job of looking after our rural environment and are far from wealthy — caring for land in part from a sense of obligation and duty. They should not be taxed simply for land ownership.”

So having rejected the only practicable means of fixing the housing market, taken land values out of the equation altogether, Liam is left with a very long menu of fixes which taken together might just do it

1.     Bring back DLT shared 50/50 LA/Landowner
2.     Build New Towns, but with the same current-use land purchase option.
3.     Build lots more social housing. (We’ll always need social housing).
4.     Improve the Planning process
5.     Ease restrictions on the Green Belt
6.     Improve quality standards on new (spec) built
7.     State to release more of its land
8.     Complete the Land Registry
9.     Stop automatic retrospective PP for ‘beds-in-sheds’.
10.  Relieve small builders of S106 liability.

Liam hasn’t finished making recommendations!

11.  Reverse the 1961 Act which gives land-owners full hope-value in CPOs
12.  Reform SDLT (a tax on labour mobility) and CT — more higher bands  
13.  Discriminate against foreign buyers of property

And finally Liam warns, if we don’t do something about soon, capitalism is in danger. But the Iron Triangle persists in blocking progress.

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