Sean Oldfield is chief executive of Castle Trust
The spotlight has again landed on the national housing shortage prompting demands for the loosening of planning regulations.
The National Housing Federation sparked the latest round of debate declaring that the housing market will be plunged into "crisis"' without government action to address the "chronic under-supply of homes".
It highlighted three central problems: lack of supply; historically high prices while employment prospects and wages fail to keep up; and tighter mortgage lending.
The NHF predicted further falls in home ownership rates and even higher rents, warning that, without reform, “entire generations will be locked out of decent housing”. By 2012, it said, London will have fewer owner–occupiers than tenants for the first time in decades.
For its part, the government said it has released thousands of acres of public land for house building and expects to deliver up to 170,000 new homes over the next four years. It also intends to reform planning system.
In the last 16 months, planning control has been devolved to local authorities and communities. The government has also incentivised construction employing a bonus pot worth £250 million this year to encourage councils into building more affordable homes.
Under the ‘neighbourhood planning scheme’, communities will be able to take charge of local planning and build new homes and businesses as and where they wish. The hope is that communities will be less resistant to construction if they are in charge. Many people believe that decisions of this kind should be made at a local level, surely there is an inherent conflict of interest in having local communities of homeowners give their consent to the amount of new housing needed in their area.
Flooding an area with more housing is likely to bring down prices of existing homes. Why would communities give their consent to this, unless they were compensated in some way?
Also, why would local councils give their blessing when they know it would upset the community on whom they rely to get re-elected? Would you re-elect your local councillors if they reduced the value of your home?
For this solution to work, existing homeowners need to be compensated in some way and/or local councils incentivised to fulfil their objectives, with penalties for failing to do so.
The government intends to match the council tax raised on all new homes built for six years, giving local councils the money to spend on local facilities or to reduce council tax bills but does this make up for the fall in value of your home? These are not new ideas and the solutions certainly aren’t straightforward.
The renowned economists, Professors Edward Glaeser and Joseph Gyourko, discussed them at some length in their 2008 work, ‘Rethinking Federal Housing Policy’. While it relates primarily to the US, much of this book can also be applied to the UK.
Glaeser, Gyourko and Professor Albert Saiz and Dr Kate Barker also conclude that having tight restrictions on housing increases the risk of housing bubbles (and, by implication, busts). Not only is housing supply important to booms and busts, but so is how housing is financed and as Professor Susan J Smith explains in a feature in August’s Mortgage Introducer.
What is needed is a constructive debate using the best information and experiences from around the world about what changes to regulatory barriers and financial incentives could be introduced to unlock home ownership for the next generation
