Economics

How can we make London affordable again?

 

How Will We Ever Grow Roots In London?

 

There is a housing crisis in the UK. What should we do about it?
There is a housing crisis in the UK. What should we do about it?

This week’s discussion is about the problem of unaffordable housing costs in the UK. This is a problem that most people feel very strongly about as it’s become almost impossible to get on the property ladder in the many parts of the country.

Jonathon Kitson has been a member of the Policy forum since 2014 and is particularly interested in inequality, the rise of developing economies and UK public policy. Louis Akerman has been a member since 2015 and his main economic interests include the rise of China, the recent economic crises and how to reform the global financial system so that it is becomes both fairer and more stable.


Louis Akerman:

“The words ‘housing crisis’ have become all too familiar to those living in London or any other part of the UK where demand is far outstripping supply. As someone in my early twenties living in London actual house prices here have become an almost meaningless series of numbers stretching off into the distance. I grew up in London but my parents have recently left after deciding to cash in on the biggest domestic policy failure of recent times. From the time they bought their first flat in NW3 in 1991 to when they left that postcode in 2011 the value of the flat we lived in went up sevenfold. If my parent’s generation won the lottery then we are left picking up the pieces resulting from their after-party. Young Londoners are currently left a simple choice: rent or leave.

Everyone is now agreed there is a problem – even the patron saint of not giving a toss about young people’s issues, George Osborne – and yet nothing is being done about it. This is partially because it precisely those who are benefiting from rising house prices who are also the decision makers on the issue. Combating the housing shortage is probably going to involve bringing down house prices and nothing is going to make you less popular at a dinner party than having knocked 10% of the value of everyone in the room’s house – not to mention the fact it will lose you votes among the over-45s.

However, this maintenance of the status quo on the basis is that it only affects a small proportion of people is very short sighted and soon enough this will become everyone’s problem. London’s strengths – both cultural and economic – lies in its diversity and dynamism. Not only is it unfair to exclude those not on six-figure salaries from living here but without the flow of new ideas and entrepreneurship that come from allowing people from all socio-economic backgrounds and cultures to come and settle here London will become rich but stagnant, an English-speaking Luxembourg for rich individuals and multinationals to plant their money, but with no innovation or invention to speak of.

The solution is simple – build more homes – but getting it done is the problem. Worries about falling house prices, NIMBYISM and complicated building regulations and governance structure are combining to make it hard to build homes despite a public appetite for more to be built. Firstly, existing home-owners in London must get used to the fact that their asset will stop rising in value and that the queues at their local supermarket are about to get longer. In terms of getting the homes built more powers must be delegated from the national government and local councils to London’s central authority so that there can be an effective and coordinated drive to build the new homes that London needs, and so that we will have somewhere to live and buy in future just like our parents.”


Jonathon Kitson:

“It is obvious, again highlighted by the BBC last week, that there is a housing crisis in the UK. As Shelter points out, fewer people are able to afford a house at the age their parents got on the property ladder, and the cost of rent, particularly in London is huge.

So, being policy focused, what should we do? There are the many usual responses; these range from caps on the price of rent to huge increases in the amount of social housing in the capital.

Trouble is, these are both bad things. Rent caps discourage investment in the housing stock, and usually mean that living conditions worsen. The immediate question to “lets build more social housing” is that who is going to pay for it? The government can’t/won’t, and local governments won’t either, since they have the opportunity to and demonstrably don’t want to. This of course assumes that “social” housing is a good thing in and of itself – I don’t think this is true, with the ghettoisation of many schemes.

The question we should be asking is “how do we get more houses built”. The simplest answer to this is to reduce the cost of building a house, and since most of that cost comes from the permissions needed, we should reduce or get rid of those permissions. Yes, this does mean giving up at least some of the green belt. And no, there is not enough brownfield land to build on.

We know it increases the price of land (“agricultural land around Cambridge was worth £18,500 a hectare, while neighbouring residential land cost maybe £2.9m a hectare”), and we know if the price of land is higher then the price paid to live on the land, be it though renting or otherwise is going to be higher. We need to loosen planning restrictions in order to solve a housing crisis that is caused by a lack of supply created by bad regulation.”


 

The views expressed in this piece are the opinions of the contributors alone, and do not reflect the position of the Policy Forum.

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