John FitzGerald: Learning from Britain’s housing crisis

Addressing housing in Ireland can be helped by looking at good and bad policies in the UK

A shared shared ownership housing development in north London: the London Housing Commission called for greater control to be given to the mayor  and  boroughs in exchange for a commitment to increase the number of homes being built. Photograph: Yui Mok/PA Wire

A shared shared ownership housing development in north London: the London Housing Commission called for greater control to be given to the mayor and boroughs in exchange for a commitment to increase the number of homes being built. Photograph: Yui Mok/PA Wire

 

A key problem facing the incoming government will be how to get housing construction going again to respond to pressing needs. While in Ireland it has always taken time after a slump to restart the housing industry, this time housing supply has been exceptionally slow to resume.

There are some lessons we can learn from similar problems in the UK.

Anyone who has relatives living in England will know that the cost of accommodation in the greater London area is exceptionally high. That is not just because it is a high demand area due to the success of the London economy. With few additional homes built, this failure has priced many out of the market to buy or to rent.

Research over 20 years has shown that, while jobs exist in the south-east of England, unemployed people cannot afford to live there. In addition to the social cost of this policy failure, the UK economy has grown more slowly than might otherwise have been the case because successful businesses in London have to pay much higher salaries to cover the exorbitant cost of accommodation.

One factor that does complicate the situation is the large number of “buy to leave” properties in London. Many people, including Russian oligarchs and Arab sheiks, buy property in London and neither live there nor rent it out. This is an awful waste of scarce housing.

Fortunately, this is not a problem in Ireland. A key factor in the shortage and high price of accommodation in the south-east of England is local planning policy. As in Ireland, local authorities designate whether land can be built on. However, most local authorities are run in the interests of those who live there, not those who would like to live there. As a result, planning in England tends to follow the banana approach– build absolutely nothing near anybody.

The contrasting experience of Oxford and Cambridge, two successful university towns near London, illustrates this point.

Supply and demand

In Oxford, the surrounding local authorities have prevented new development, so that accommodation costs approach London levels. In Cambridge, while it is still an expensive place to live, housing costs are significantly lower because the local authority permits new building. The result, is that businesses are increasingly favouring Cambridge.

The UK experience shows that over-restrictive planning can be a major obstacle to providing adequate housing. It is not sufficient to zone “just enough” land. If supply is equal to demand sellers know that, by holding out, they can extract very high prices.

What is needed is “excess” land for development, combined with a significant tax on holding such land, so owners know that if they don’t sell, they may miss the boat. Penalising land hoarding through the tax system should incentivise owners to sell.

Zoning land for development also raises its value above purely agricultural land, so it’s important to capture much of that added value for society through taxing such windfall gains.

A second lesson for Ireland comes from UK social housing policy. It has been much more successful recently than Ireland in providing new social housing: which has constituted 20 per cent of new housing output. Housing associations have been the main UK vehicle for delivering this.

Because the UK housing associations were not part of government, their borrowing, up to now, has not been counted as government borrowing or national debt. They could continue to borrow and invest in spite of budgetary constraints on the government. A similar approach underpins Ireland’s own Social Housing Strategy 2020.

However, Britain has just suffered an “Irish Water” moment which has seen its €63 billion housing association debt reclassified as government debt. An enthusiastic sell-off of social housing stock to tenants, with the British government pocketing the proceeds, has cost the UK its ability to keep social housing off the balance sheet.

The consequence is that the UK’s social housing programme must now be funded from the limited “fiscal space”, at a time when the UK was already cutting funding for the NHS and social services.

As in Ireland, where policy blunders mean Irish Water’s investment needs must compete for scarce State funding with health, education and welfare, Britain’s social housing programme is now in a tight competition for scarce government spending.

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