How the government could build one million homes


4:05 pm - November 18th 2010

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contribution by Charles Seaford

Both sides in the recent debate about housing benefit and cuts to the social housing programme assume that the trade off is between how fast we can reduce the deficit and how many people can have decent homes.

But there is a third player in this game, along with the tax payer and the tenant: the land owner. Or the land speculator if you like.

And as things stand he or she is the only one who always wins.

A typical green field site with planning permission for housing is worth at least £1m an acre. Agricultural land rarely costs 1% of that. In other words 99% of the value of the land is created by the planning system – in effect by the agents of taxpayers – and then more or less given away to private owners.

Measures that helped to retain at least some of this value for the taxpayer, combined with measures to reduce the interest rates that social landlords pay and some rent rises on new stock (but not old stock) could transform the social housing sector.

The Government has set a very modest target of 150,000 new affordable homes over the next four years – justified by the need to cut the deficit. This reveals a lack of ambition and imagination – our analysis shows that as many as 200,000 affordable homes a year could be built within the same budget constraints if government and the industry worked together to reduce the subsidy per home needed.

First of all government needs to reduce the cost of that £1m an acre land in a way that is workable and fair. We propose it does this through a mix of tax and planning measures: an 80% capital gains tax on profits on all land sales at more than £80,000 an acre (say), the bulk of this to be hypothecated to subsidise social landlord land purchases; and residential planning permissions above a certain minimum size to be granted only to social landlords – they would be entitled to sell on to private developers for owner occupation, but subject to detailed regulation on how they use the profits.

Second, government and the sector working together needs to reduce the cost of capital for new homes. Currently housing associations are paying around 6% on their bank loans. By contrast, United Utilities Water plc is paying as little as 1.381%.

We don’t think social landlords can get their cost down that low, but inflation indexing should cut costs to 3.5%. It may be possible to push rates even lower by designing instruments directly linked to housing benefit payments and thus partly government guaranteed. It might even be worth government guaranteeing all the debt.

Finally, if 200,000 new homes a year were to be built – a million over five years – there would be an opportunity to re-assess the rent levels and target operating costs on what could in effect be a whole new tier of housing, positioned between the existing owner occupied and social sectors (this does not imply higher rents on existing stock of course). A substantial proportion of the stock could be used for low cost home ownership schemes too.

In our initial report ‘One million homes’ we have modelled 30 scenarios, taking different assumptions about how far the cost of land and capital can be reduced, and different average rent levels. There is a great deal more work to be done, but this work suggests reforms along these lines could have enormous potential.


To download a copy of the report visit this page. Charles Seaford is head of the centre for well-being at the New Economics Foundation.

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See also http://www.newstatesman.com/society/2010/10/land-tax-labour-britain

“In sum, 69 per cent of the acreage of Britain is owned by 0.6 per cent of the population. Or, more pertinently, 158,000 families own 41 million acres of land, while 24 million families live on the four million acres of the urban plot.”

“The question of who owns Britain, how the land came to be owned, and what it means for the rest of us, has never been answered adequately.”

The SMF published a pamphlet on the Green Belt back in the ’07. The idea went away when the housing market dropped, but its relevant again now I reckon.

Well I’m a one-nation Tory and Parish Councillor and I agree completely with relaxing the planning laws. I apply a simple principle: “if someone is prepared to invest/spend their own money, then I should help them, not hinder them. Dormer windows or large developments are all the same to me.”. Of course, I don’t agree with the taxation proposal, but if you increase the supply then the cost will reduce. As you propose.

Don’t start me on s106 monies – I would kill them off at the first opportunity.

Watch out though – rent will set its own level, again based on supply and demand. All we need is lots of supply. Property prices will adjust corespondingly, because conceptually they ‘are’ rent…

Tories aint known for their house building programmes. They are for selling off housing not building affordable homes. So dream on Macduff.

@Rae – er, did you read my comment?

Ten years ago Patrick Keiller made a film for television which remains unbroadcast, The Dilapidated Dwelling http://www.audacity.org/Dilapidated%20Dwelling.htm , it asked the question: why don’t houses depreciate when everything else bought new does? It contained the unforgettable observation that at the rate of replacement (of ten years ago, its worse now) some British houses will need to last longer than the pyramids. So I don’t think there will ever be any real effort put into satisfying demand.

Gratuitous plug just because I like Keiller’s films: His new one, Robinson In Ruins opens on Friday with a special screening followed by a Q&A at the Renoir, Brunswick Square, London. http://www.youtube.com/watch?v=v4Sr0Y–ldI

I presume that capital gain you want to tax occurs when land obtains planning permission … and then what, you’re going to give that money to help social landlords buy land with planning permission (at inflated prices thanks to scarcity of planning permission)?

well … it’s an idea. might it not further raise the price of land with planning permission by introducing new tax payer subsidized demand for it?

isn’t a simpler option to change the planning permission laws to grant planning permission for social housing more easily?

A typical green field site with planning permission for housing is worth at least £1m an acre. Agricultural land rarely costs 1% of that. In other words 99% of the value of the land is created by the planning system – in effect by the agents of taxpayers – and then more or less given away to private owners.

Um, not really. Why do you think land with planning permission is so much more expensive than land without? Because it’s incredibly time consuming and expensive to get planning permission. The only ‘giving away’ that’s going on is from land-owners to lawyers, planning consultants and architects.

presumably the (unrealistic) competitive outcome is that private agents keep increasing purchases of land without planning permission and attempts to obtain it until the profits from doing so fall to the minimum required to make it worth their while, presumably a quite high return on capital in view of riskiness of planning applications. So the “value” created by the planning system isn’t so much “given away” to private agents, as consumed by the efforts to obtain it. Tim J is right the beneficiaries are lawyers etc. and other gatekeepers.

oh, and all of use that benefit from the wisdom of planning restrictions, protecting the British countryside etc.

A typical green field site with planning permission for housing is worth at least £1m an acre. Agricultural land rarely costs 1% of that.

So 99% of the value of farmland is taken away, by the planning systems insistence that it not be used for anything else?

You could make the country a lot better off simply by allowing people to build whatever they liked on their own property.

11. Luis Enrique

oh look it’s the f*cking nef, i mean, what’s the point.

“need to reduce the cost of capital …. currently housing associations are paying around 6% … but inflation indexing should cut costs to 3.5%”

what does that even mean? “inflation indexing”? what?

“It may be possible to push rates even lower by designing instruments directly linked to housing benefit payments” – my Lord the nef has just invented mortgage backed securities for the public sector! let’s lend to developers at low rates by pretending the debt will be paid by super safe future rents, what can go wrong?

“it might even be worth government guaranteeing all the debt”

yes, yes it might be worth allowing any “social housing developer” to borrow money, knowing that if things go tits up the government will repay creditors.

Well now they are going to start building these new giant American cow farms where they milk 24 hours a day that should free up acres of land that can be built on.

Very interesting to watch how this plays with all those free market loving farmers.

@4. Apart from it being Harold Macmillan who was the housing minister who went full steam ahead for building 300,000 homes a year, spurred on by a cheering Tory Conference?

New houses also need to be built to a decent standard. Bring back Parker-Morrison!

Planning procedures have become a bit of a monster. Its important that some standards and protections are enforced but the system has grown more arcane and complex, which it seems to me was never the intention.

I’m still astonished at house prices. Surely the long-term consequences socially are only just being seen as young people find they cannot afford a home? It looks to me that there’s another bubble slowly getting ready to burst.

Is there a good way of making housing more affordable and deflating this bubble at the same time?

15. Chaise Guevara

“Is there a good way of making housing more affordable and deflating this bubble at the same time?”

Ban usury?

It might not be perfect, but it gets the job done!

First – change the planning laws so that they aren’t so restrictive. Everyone is so concerned about the countryside. Even though a lot of the countryside is not needed any more due the increase in productivity of farming. Village boundaries force builders to use fill in plots which means lots of house crammed into a small area. The UK has the smallest houses of Europe. Yes we are a small country with a bit population, but houses only take up less than 1% of the whole of the land.

Second – The reason for the difference in the interest rates is due o the fact that the banks are lending on the same thing. Buildings are a lot risker than a water company wanting a loan. A water company has income all the time. A building can sit empty for sometime before it’s rented out or sold.

Finally – It’s from nef so it’s not based on evidence from economics, it’s only political posturing.

17. Just Visiting

IMHO house prices are going to fall (in real terms) overe the next 20 years anyway – with maybe a few years of up. among the general down.
Reasons are basically globalisation:
i) employment in the west is slowly decreasing, as are salaries: as more employment shifts to where it is cheaper
ii) this effect is hitting knowledge workers too
iii) less jobs here, being on average less well paid means fewer foreigners come here to work
iv) some Brits will go work abroad, where there are more jobs or ones with better salary/cost of living ratios- whether China or Dubai or wherever is growing best over the next 20 years.
v) declining native birth rates

Result – long term, slow, drop in demand and prices.

18. John Whitley

Ease up on petty minded planning restrictions or just scrap them altogether along with the nimbyite-friendly plan to allow local whingers and whiners to have the last word on any new housing development.

A small step in the right direction.

19. Luis Enrique

take a look at the rate of population growth in Germany and house prices in Germany, if you want to understand what drives house prices.

@16

Of course, we may need more agricultural land as climate change affects food productivity globally and we are forced to produce more at home, less intensively.

@19

Let’s just wait it out then?

This article is utterly insane. nef is one of those organisations that I really want to like, but they appear determined to undermine their own credibility by coming out with nonsense like this. Let’s go through the consequences of their proposal.

1) Land with planning permission for house building is expensive, because planning permission is difficult to secure. Government intervention has raised the price of land without increasing its real value.

2) nef has interpreted this rise in price as a rise in value, and thinks, ‘Hey, I’m the Government! I got to get me a share of that rising value!’

3) An 80% capgains tax on land sales for land valued at over £80,000 at acre means that no-one will sell land with planning permission. They’ll buy cheap greenfield sites without permission instead, and apply for it themselves. The price of land with planning permission goes up, probably by about 400% so that the gain is the same as it was before the tax came in.

4) For larger developments which can now only be applied for by social landlords, the Government will step in to help with these inflated costs, ensuring that people selling land with planning permission stand to make an enormous amount of money as a consequence of this extra liquidity flooding into the market. The value of land with planning permission continues to rise. Revenues from the tax continue to rise, and are ploughed back into buying more land.

5) The price of land with planning permission skyrockets. Landlords make inhuman amounts of money. The value of having planning permission used to be that houses were profitable, but Government subsidies for land purchases now means that simply selling the land itself is more profitable than building houses.

6) No-one builds houses. The homeless start living in shanty towns on greenfield sites with planning permission, waiting for the houses that the glorious republic of nefaria has promised them.

All this is because you’re daft enough to believe that the planning system actually creates value, as opposed to cost.

“take a look at the rate of population growth in Germany and house prices in Germany, if you want to understand what drives house prices”

Not quite the whole story though.
US population has grown rapidly without (until the bubble) the same upward pressure on prices (relative to incomes) as here.

Otherwise of course you are right – nef is as usual completely bonkers.

” nef is as usual completely bonkers.”

I really want to like them, I really do. But I didn’t even understand half of the article. It’s honestly like they are a satire of a think tank.

nef…..jeepers. You think you’ve heard it all and then they top even themselves.

Look, if you want to make land with planning permission cheaper, why not increase the supply of land with planning permission?

That “e” in your name is supposed to refer to fucking economics, isn’t it?

25. Luis Enrique

Luis Enrique’s plan for how the government could build 1m homes.

1. buy enough land to build 1m home on
2. grant oneself planning permission to do so
3. build 1m homes.

Luis, you’ll love this.

The bond costs…..the housing associations are paying regular normal interest rates. The United Water ones are index linked. So, the number that UU is paying is the cash flow part…..what are they paying out in interest.

But the inflation adjustment part is that the capital amount will be upgraded by inflation as and when it is due. Whereas the housing associations only pay back the nominal, unadjusted for inflation value.

nef: incredibly dim or actively malevolent: your choice.

27. Luis Enrique

or?

nef: incredibly dim or actively malevolent: your choice.

Sufficiently advanced incompetence is indistinguishable from malice.

It would be helpful to economics-illiterate and housing policy & economics naive people like me if it could be made clear what is meant by ‘affordable housing’. Because most of what is called ‘affordable’ housing is way beyond the purchasing power of people living on low incomes. We do need affordable housing, but we also need social rent housing.

The more immediate issue is how to build the homes therefore we should not linger on the how things came to be any second longer. We should build first and then take care of the deficit.


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  7. nef

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  8. Adam Bell

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  10. Wendy Maddox

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