‘The housing crisis is storing up huge political anger’
Liam Halligan on the causes and consequences of Britain’s chronic housing shortage.
Britain’s housing crisis can no longer be ignored. Governments of all stripes continually pledge to tackle the chronic shortage of homes and the soaring costs of renting and buying. But little ever seems to change. Liam Halligan’s new book Home Truths investigates the origins of the housing crisis and its dire consequences for the economy and for society. spiked spoke to him to find out more.
spiked: How bad is the housing crisis?
Liam Halligan: In the UK, the average home costs just over eight times average annual earnings, and the historic norm is between three and four times. That’s the crux of the unaffordability problem. On top of that, we’ve got far too few homes for social housing. And then on top of that, we’ve got a homelessness epidemic. The rate of homelessness has increased fourfold in the past 50 years. There is a chronic shortage of homes.
Young adults, in particular, whether they are young professionals or young people working in industry or manual labour, whatever they are doing, find it very, very difficult to buy a home. Half of all first-time buyers, rising to two thirds in the southeast, rely on the so-called Bank of Mum and Dad to buy a home. That’s fine if you’ve got parents who can do that for you. But if you don’t, you get left behind because then you end up paying a lot more each month in rent than you would if you were paying off a mortgage.
Also, when you’ve paid off a mortgage, you end up with a valuable asset. Living in a house with a mortgage, even if you don’t pay it off completely, gives you options to move throughout your life as you have a family and you need more space. You have none of those options if you rent. Then in old age, if you’ve rented all your life, you can’t keep paying rent when you’re not working. The state pension isn’t going to pay your rent so you do need social housing.
The housing crisis is storing up huge intergenerational strife and huge political discontent. It’s storing up a fiscal problem, too. A big cohort will have to fall back on to the state. It’s also a bigger economic problem. It’s at the core of the UK’s productivity crisis – people are living further and further away from where they’re working and are spending more and more time travelling. That’s bad for the environment. It’s bad for mental health. It’s bad for family relationships. Everything points to the need to build more homes in order to gradually bring prices more in line with earnings. We need to make housing, whether to buy or to rent, more affordable and to make social housing more available.
And it’s not like there isn’t enough space for new houses. People say Britain is full – that’s complete nonsense. Only 1.1 per cent of England’s land is used for residential housing, including gardens. There’s an awful lot of space if we want to use it. What there is a shortage of is land with planning permission in the hands of people who are prepared to build straight away.
There’s a lot of land. And there’s even quite a lot of land now with planning permission. But those planning permissions are held by big builders and land agents who sit on them because they are an appreciating asset. By helping to bring about the shortage of housing, they make their holdings more valuable.
spiked: What has happened to the quality of housing?
Halligan: Because the price of land with planning permission is so high, when developers buy land, there is very little money left to build the actual house. So the houses we’re building are very small – we’re building houses with the smallest living rooms since the 1920s. Bedrooms are getting much smaller, too.
And the quality of the homes we’re building is very low. New homes are often quite flimsy, and are too often put up without sufficient fire-safety facilities. I’ve seen lots of homes that have been built by leading builders that are simply substandard. I did a documentary for Channel 4’s Dispatches last summer and we found houses built by Persimmon, in this case, which were absolutely shocking. Persimmon says it is working to put that right. But if you look on social media, Persimmon are still pretty much the most complained about developer in terms of the quality of new-build homes.
Even though land is very expensive, the profit margins in housebuilding are absolutely huge because houses are being put up quickly, using low-quality materials. This is because there’s not enough competition. There are very few small builders compared to 20 years ago – certainly compared to before the financial crisis, which wiped lots of them out. We need to shake up the housebuilding industry. We need a Competition Commission inquiry because it seems to me there is very, very strong evidence that the market isn’t functioning.
spiked: Why has change been so slow?
Halligan: The main barrier is that there are very, very big vested interests to tackle. In my book Home Truths, I talk about an iron triangle of vested interests. One side of the triangle is existing homeowners who vote, who don’t want more houses to be built next to them – the so-called NIMBYs. Another side of the triangle is the housebuilding industry itself – the big housebuilders and the land agents. They are very, very powerful. They give an awful lot of money in campaign donations to the Tories in particular. And then you have the third side of the triangle, which are the banks. The banks are up to their necks in property loans. About 70 per cent of all bank loans in this country are linked to property. Banks want the value of the underlying assets that their loans are linked to to keep rising, to make their balance sheets look stronger. So they have got no incentive to lend to small builders to build more homes.
Government ministers, instead of tackling the supply side of the problem, tend to fall back on quick, headline-grabbing, demand-side fixes like Help to Buy. But all Help to Buy has done is throw petrol on to the fire. It has jacked up demand for housing even more by giving young, aspiring homeowners a state loan. It has given them more spending power, which means the prices go up when we are faced with a fixed supply.
In fact, the big housebuilders are building far fewer homes since Help to Buy came in. But their profit margins for some firms are two or three times higher because Help to Buy has just fuelled demand and led to lots of captive buyers. If you use Help to Buy you can only buy a new-build home, which means a lot of these big housebuilders see the young homebuyers coming. These buyers often need to buy a house quickly. Maybe they have got a family coming or they desperately want one. And I’ve seen a lot of these people be abused and rushed into housing that’s unfinished – all in order that these companies can hit their sales targets and the executives can get big bonuses. This is not how capitalism should work. This is not a functioning, competitive market.
The central idea in my book Home Truths is that when landowners and land agents get planning permission for land they own, and the value of the land goes up, I think that planning uplift should be split between the owner of the land and the state. And then this state share should go straight into infrastructure spending for the local area to make homebuilding popular, to get new schools and hospitals, new roads and new rail links. That will help to slow down the growth in land prices, which will help house prices gradually adjust so that they are more in line with earnings.
spiked: Is there a role for the state in building houses, in particular social housing?
Halligan: There is definitely a role for the state in making sure that the market works. That sounds like a paradox, but it isn’t. You need competition law and antitrust measures from time to time to make capitalist systems work. It’s an act of neglect to just leave everything alone. That’s not capitalism. You have to regulate properly, but in a way that allows enterprise rather than constricts enterprise.
In terms of social housing, Home Truths also calls for a big increase in social housebuilding. There will always be a need for subsidised rented accommodation for people whose wages aren’t high enough to pay market rents, especially in certain parts of the country where we need them to live to make the economy work – or for people in a vulnerable household. We haven’t got nearly enough social housing in this country and we need to build a lot more.
Liam Halligan was talking to Fraser Myers.
Listen to Liam Halligan discuss the housing crisis and the need for a clean Brexit on The Brendan O’Neill Show.
No paywall. No subscriptions.
spiked is free for all.
Donate today to keep us fighting.Donate online
To enquire about republishing spiked’s content, a right to reply or to request a correction, please contact the managing editor, Viv Regan.