For once, an article on LC actually proposes a solid, workable solution rather than just complaining or saying “we need a new narrative”/”we need to reconnect with the white working class” blah blah blah.

Well done Jenny.

Community Land Trusts are really good, particularly useful when used to reassure a community that a particular asset – green space, exception farmland, an historic building, etc, will be appropriately used and managed.

They don’t address the national supply and demand problem, though – after all if I am prepared to pay £x for a flat of a certain size, then as long as I have security of tenure I don’t care all that much who the freeholder is. Regulating who we allow to purchase or rent them could reintroduce a mixed community and social element to them, but the overall balance is still out of line.

Absent those measures, this simply amounts to the taxpayer subsidising cheaper housing for a lucky few – more likely to be supported in a rural community which needs to grow to remain viable and wants to provide housing for those with a family connection, than in an expensive city where, to be honest, everyone who isn’t rich or in a secure tenancy is pretty much in the same boat.

The solutions are a greater volume of housing, encouragement of people sharing the space more densely where they currently don’t (and, until we prove we can do those things, probably scepticism about the rate of growth in the population). Affordable and well-managed rented, especially social rented, are important too, given that some people will simply never be able to buy in some parts of the country, even if prices fall 50% in real terms.

If these homes will be available at a cost lower than the market rate who decides which forunate people will get to live in them?

Apologies if this is covered in one of the above links.

yes, echoing Jimmy, if you think privately owned home prices are going to increase at a rate that is much higher than these community owned homes (and if not, where’s the benefit?) then if you project forward a few years, you end up in a situation where these homes are selling very significantly below market rates. So you’ll need what, a lottery or something to decide who gets to buy them? There’ll be pressure for a black market it them too.

(and can you be sure the ‘community’ that owns the land won’t decide to cash in on it?)

Well, there have been similar projects over the years – this is a fairly well known one – and the problems are pretty much as Jimmy and Luis have outlined them.

This is not to say “do nothing”. One positive benefit of the fact that younger people are priced out of owner-occupation (at least in the South-east) is that there will be a growing constituency for the re-introduction of Schedule A or some other tax on the notional increase in the value of such homes.

If we want clear pink water between Boris and Ken (or Oona* or whoever) then I would suggest that this might well be it.

~~~~

* Although from the tone of her G2 interview she sounds more like a Lib Dem than a Labour possible, to me.

As others have said, it sounds like a neat structure, but we need something much more systematic to bring supply back in line with demand for housing. Myself, I think a few NIMBYS (usually Tory voters!) need to get squished, in a radical de-regulation of the housing market.

One salary to be used to assess mortgage .
10% deposit
Maximum of 3.5 x salary
Buy to let to require at least 30% deposit
Self certified mortgage to require proof of salary from accountant and only average of 3 yrs income to be used
People to have saved for at least 4 yrs with lender before borrowing

Reduce the amount people can borrow will reduce house prices and risks to lenders. If average salary is £25K, maximum which can be borrowed is £87.5K. As need 10% deposit , this will keep many house prices to £96.25K. Therefore house prices will tend to ris with earnings. There is an issue of supply and demand but the amount people can borrow combined with a need for a 10% deposit will have a large control on maximum prices.

The link to the video’s broken…

(Interesting-sounding proposal, but would love to hear a response to Jimmy and Luis’ points too.)

But the problem with this model, identified by Jimmy and Luis is also a problem associated with social/Council housing. There isn’t enough of it to go around, so the state or its agents exercise huge patronage in deciding who gets a social rented home and who doesn’t. It wasn’t always so.

When Council housing first started to be built in quantity, it wasn’t intended to be subsidised housing so much as better quality housing. The test of whether you qualified was whether you could afford the rent – not whether you were unable to house yourself on the open market. As recently as the mid eighties, Colin Ward was arguing that the rents in some Council properties were higher than was justified by the standard of the property (i.e. higher than the appropriate market rent for the same property) and the fact that these surpluses were being creamed off to fund new development was unfair to Council tenants.

Because rents were relatively high, council housing covered its own costs (or most of them anyway) and lots of it could be built. However, rents have now fallen – not only relative to the open market but also, as far as I can tell, relative to average wages. That has two malign effects.

First, because the capitalised rent from a new affordable home is insufficient to cover the cost of its construction, let alone the land it is built on, new provision is subsidy intensive. This constricts supply. Because supply is constricted, what stock there is needs to be allocated to those most in need – hence the trope that feckless foreigners are being given priority over hard working indigenes. (Please don’t comment on the justice or otherwise of the trope but it is perfectly easy to see how it arises.)

The second malign consequence is that the low rents charged in the social rented sector have an effect on wages. Because employers can access a pool of labour whose living costs are defined by their low cost of accommodation (nationally the average Council rent is about half the average private rent) wages are suppressed by the living costs of those in social rented accommodation. Those who are unable to access social rent but have to compete for the same jobs are therefore caught out. Their wages are too low to live decently in the private sector but there isn’t enough social rented stock for them to get a Council/Housing Association home.

Arguably, if social rents were to rise significantly, so would supply. As supply rose, it would be easier for people to switch between social and private sector renting. Private landlords would then have to compete with social rents and the effect would be downward pressure on private rents – which would take the heat out of buy to let and, in turn weigh down on house prices. The problem is that this “solution” would take a generation to reach and would have very uncomfortable consequences in the short term.

George, are you an adviser to Hammersmith & Fulham Council? You seem to have described their policy to a T.

I didn’t think I was describing a policy at all.

I thought I was describing a problem common to both the conventional social rent and Community Land Trust model and saying that a long term solution to that problem would be very painful in the short term.

Hammersmith and Fulham may have a similar analysis but, as far as I am aware, they also think that the answer is to sell sitting social tenants a share of their property, however small.

This helps with part of the supply problem because it gives you capital which you can pour into new development. It is however, stupid.

The shared ownership model rests on the idea that people don’t feel they have a stake in their home until they own it (or part of it). I don’t consider that to be axiomatic. But the big problem is that the model is tied to the housing market – a housing market which has shown itself to be dysfunctional.

If the housing market goes up (which is a bad thing for the housing situation in general) the part homeowner benefits from the capital growth but at the expense of the person who occupies the home next, who finds it less affordable. This is a subsidy from the subsequent owner to the initial owner – which simply replicates the problem in the open market. In order to keep it affordable, the government has to allow the subsequent occupant to buy a smaller share of the equity than the initial occupant is selling – which can only be done by injecting more subsidy, negating the point of selling the equity stakes in the first place.

However, if the housing market stabilises or declines over time, the idea of equity acquisition – the entire premise of shared ownership falls apart.

Say you buy a 25% share in a home worth £200,000. Under the current rules, you get a £20,000 mortgage and pay a rent on the remainder worth 2.75% of the outstanding equity. So your monthly outgoings are £322 in mortgage and £343 in rent for a total of £665/month plus your service charge and the cost of maintenance.

If the market remains flat (i.e. you do not benefit from capital gains at the direct expense of the next occupant), after 10 years you have spent £79,800 on housing, during which you have acquired less than £12,000 of equity in your home. Moreover, that money remains inaccessible because you still need somewhere to live. And, just to put the tin lid on it, because you are buying a share in a valuable property rather than the whole of a less valuable one, you still have to pay stamp duty. There is a name for this. That name is con.

My personal view is that the way out of this is the creation housing co-ops which feature mutual home-ownership although along slightly different lines to those which have hitherto been proposed.

People could buy a share of the Co-op which would entitle them to own a home but the value of the shares would be linked to incomes – not to the housing market. This means that you acquire capital, which you can take with you when you leave but any capital gains are linked to overall prosperity rather than the vagaries of the housing market. If you move out, you take the capital you have fairly bought with you when your successor buys in. The advantage that this has over a rent is that, typically, one pays off a mortgage over the course of one’s working life. This means that, by the time you retire, you can live rent free – except for the service charge. This latter point is an important one to grasp. There is about to be a pensions crisis. Lots of people are going to have very little to live on in retirement. If you can think of a way of housing people which means that their housing costs fall over time rather than rising (as with rent) then you ease the pensions crisis.

I don’t think that is Hammersmith and Fulham’s current policy is it?

[11] As you say, shared ownership is a con – I have to admit that I didn’t know it was H&F policy but it fits.

More generally, the problem with your approach – apart from the “can’t get there from here” aspect which you have correctly identified – is the land supply. Despite what Tim W will tell you, this is not all about the planning system.

An example. A couple I’ve met (their son used to go out with my daughter) exercised the RTB on their Council house overlooking Clissold Park, Stoke Newington. I don’t know what they paid for it, but it was a fair while ago and I doubt it was more than £20k/£30k tops. The house is now worth more than two million pounds – in effect, they have won the lottery without buying a ticket.

This is why I have called for the re-introduction of Schedule A – the income tax payable by owner-occupiers on the “imputed rent” (obviously you offset any mortgage payment).

However even that does not deal with the issue that areas’ relative popularity changes over time, which means that – under your system – a tenant who stays in the same house/flat for much of their life would be faced with rent increases/decreases induced by changes in fashion: I doubt you would be able to persuade many people of the fairness of such an arrangement. As so often, there is a disconnect between economic theory and real life.

In the 1950s a skilled worker – let’s say a train driver – could pay the rent on the flat I’m living in without his wife having to work or the Borough Council having to charge less than a market rent. This is manifestly not true to-day: London rents have doubled in real terms because the demand is not for housing per se, it is for housing in specific locations and the increase is a consequence of the fixed land supply. Neither the State nor the market can increase the supply of land in desirable city suburbs – except at the margin, leading an unquantifiable but probably small and certainly temporary reduction in the rate of increase of housing rents and prices. (An example would be Ken Livingstone’s support for taller residential blocks.)

If the supply cannot be increased, and it is desired to reduce the price (to-day and to-morrow) then all that can be done is to reduce demand. Harold Wilson dreamt of relocating Parliament (and the Civil Service) to Yorkshire. Another possibility would be to disperse the entire University of London (including the teaching hospitals). Such projects might be thought to have other disbenefits, however.

Hmmm,

The couple you mention have indeed won the lottery without buying a ticket. But, even if they hadn’t exercised their Right to Buy, the property would still be worth that much and they would still be occupying it at vastly below its market value – they’ve still won the lottery.

Or, put another way, the lottery that they won was not the introduction of RTB, it was being allocated a subsidised home in an area where values were going to rocket upwards.

(Obviously, had they not exercised their Right to Buy, the same lottery win would have been available to some other family when they moved out. As it is, when they die, a big chunk of the money will go to the state in death duties and their kids will spend the rest – either on housing or on some other goods and services)

As to the assertion that a nineteen fifties train driver could have afforded the rent on your flat without his wife having to work or a subsidy from the Council but he couldn’t now – you’re probably right. I don’t know the rent on your flat but a modern train driver in London earns £42,000 apparently – would that cover it? Perhaps not. But the fact is that a train driver’s wife in the fifties would not have worked. Whereas the expectation today is that she would.

Part of the reason rents have gone up so much is that the biggest difference between household incomes now and a generation ago is that women flocked into the workplace. That meant that households had dual incomes and could afford to spend more on rents and mortgages to secure homes in nice places.

We may bemoan the fact that landlords captured so much of the benefit of women’s emancipation and their hard work but neither the Tories nor Labour took the slightest step to prevent that from happening. So, we now have a situation where dual incomes are the economic starting point, households where one partner stays home to look after the kids or whatever are now held to have placed themselves at an economic disadvantage.

I don’t understand your point about Schedule A, you may be right but I don’t know how it used to work. You seem to be saying that it is a tax levied on capital gains realised during the occupation of the house. So, if I buy a house worth £100,000 and, without improving it, it rises in value to £110,000 over one year, I have to pay a share of that value increase in tax. Is that how it works? I can see how it might have prevented the excesses of the housing market boom but it wouldn’t it be rather hard on retired people? They are elderly, they don’t want to move but the tax on the increase in the value of their home – an increase they cannot realise without selling the house – could absorb a lot of their pension. Wouldn’t this also segregate neighbourhoods by income?

I am still trying to work out whether the top of a boom (and, relatively speaking, we are still near the top) would be either the best or the worst time to introduce such a tax. But I’ve probably misunderstood. Could you explain?

[13] Schedule A worked on rental value, not capital value. It was the tax on income from land (rent) or in the case of owner-occupiers, notional rent. I don’t know how that was calculated, and in any case the tax was abolished many years ago.

14. Mike Killingworth. Part of London’s problem is the collapse of well paid jobs in the former industrial parts of the UK. Consequently people from the former industrial parts of the UK are migrating to London and SE England plus many foreigners. Until there are well paid jobs in the private sector in the fromer industrial parts of the UK, the pressure on London housing will be immense.