The silver bullet to fix the housing market

How many people do you know with an after-tax salary of £230,000?

Not many, I expect.

Yet, in 2014, the average asking price for a London property – now just shy of £600,000 – has been rising at £4,405 per week, according to the latest Rightmove figures. That’s an annualised rate of £230,000.

I know that’s only current asking prices and the market does seem to have slowed in London, but the shortage of supply and the surfeit of buyers mean that many of those asking prices are not only being met, but exceeded.

I bet as many as 80% of people you know who own in London couldn’t now afford to buy the house in which they live. It has become almost impossible to work your way on to the ladder.

A quick search online shows two-bed, timber-framed houses for sale for under £20,000; and five-bed, two-storey, 3,500 square-foot timber-framed houses for less than £70,000. Heck, 3D printers can build a home for £3,000.

Houses need not cost a lot of money to build – yet house prices are destroying the prospects of an entire generation. 50% of young people, according to the Evening Standard, now believe they will never own a home.

A house, like a car, should be a depreciating asset. It costs money to maintain, it deteriorates with time. Yet the opposite happens.

The issue is land prices.

The survey you never heard about

The 2011 UK National Ecosystem Assessment made some startling findings about land in England. Unfortunately, in the deluge of data, they got ignored.

The key finding is this: domestic buildings cover just 1.1% of land.

Non-domestic buildings cover another 0.65% and roads make up 2.2%. Just 4% of English land is actually built on.

96% is not.

That 96% is made up of gardens (about 5%), water (about 3%). The rest is ‘green space’.

If England’s 20 million homes cover just 1.1% of its land, you could increase the housing stock by 20% – 4 million homes – and only build on another 0.2% of land. Surely, we can find the space to do this.

Even if you give each home a large garden, you’re still talking less than 1% of English land to increase the housing stock by 20%.

Fly over the UK and you see acre upon acre of barely used land. Some of it ecologically sensitive; some of it is beautiful, of course. But a great deal of it isn’t. And ecological and aesthetic concerns can be addressed – as well they should be.


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The act that made the rich richer

The villain in the piece is the Town and Country Planning Act of 1947. Introduced by the post-war Labour government, the act meant that if you wanted to develop land, owning it was not enough – you had to get planning permission.

It took away the responsibility for decision-making from the individual and, instead, conferred it on regulators. The then Minister of Town and Country Planning, Baron Silkin of Dulwich, said his purpose was “that all the land of the country is used in the best interests of the whole people”.

But we now have a situation where over 70% of UK land is owned by just 6,000 or so landowners (the Crown, large institutions and a few aristocrats, mainly), while the average density of people on one residential acre of British land is 13. We pay an average of £600 in council tax, while each landowner receives about £12,000 in subsidy and a similar amount again from the EU.

This is not “in the best interests of the whole people”.

When you then introduce credit into this tiny pocket of land that we can actually live on, build entire industries around lending money, as well as loose monetary policy, suppressed interest rates, help-to-buy, the aggressive marketing of property to buyers overseas and all the rest of it, it is in evitable that prices are going to be pumped up beyond earnings.

Silkin was also trying to stop private landowners gaining from land value appreciation at the expense of the public purse. But, such is the law of unintended consequences, his act has had the opposite effect.

It has led to huge concentrations of capital and people in areas that are already built-up – especially London – bringing vast unearned wealth to those that own at the expense of those that don’t. It has actually caused the wealth gap to grow.

It’s all very well saying we need to build more homes. What happens then is that politicians and planners turn to large building companies, deals get done, and you get the huge and (in my view) ugly glass-fronted tower blocks that are turning London into Dubai-on-Thames ­­– or you get builders knocking up cramped estates to get the biggest bang per buck of brownfield site. People don’t want these on their doorstep – and so Nimbyism rises.

The hypocrisy of planning is such that there are now government schemes to allow fracking under our must-not-be-touched land – but we can’t build a house on it.

The answer lies with people, not planners

Our most beautiful domestic architecture was predominantly built in the 18th and 19th century, before planning laws, when there was a much more laissez-faire approach. But at present, building is the domain of government and a few large corporations. The more planning there is, the uglier our buildings seem to get.

The answer to expensive housing does not lie in more credit, in more social housing or more large-scale building projects – nor any other kind of government intervention. It lies in cheaper land.

An acre of farmland worth £10,000 becomes an acre of land worth £1m once you get planning permission. It is not “in the best interests of the whole people” to pay that absurd cost of planning regulation; it is in the best interests of the landowner. Get rid of this needless expense and housing becomes affordable again.

With price no longer such a barrier, and small builders and self-builders now able to compete, the result will be more diverse, characterful, affordable and, yes, beautiful.

• Dominic Frisby is the author of Life After The State and Bitcoin – the Future of Money?

  • Longtermyieldman

    I have some sympathy for your position, but think it needs to be balanced by the observations that, first, we all want to live in a country that has plenty of open space, and a reasonable degree of agricultural self-sufficiency. Plus, of course, the argument that if the supply of housing increased, more EU citizens could afford to move here, and eventually a new equilibrium would be reached in which houses were still excessively expensive – but we would be living in one giant conurbation, wholly dependent on food imports.

    There’s another way of curbing the excesses of the property market, and that’s to change the guidelines within which the Bank of England requires banks to operate. Currently, the capital that lenders are obliged to hold against mortgages is driven by loan-to-income and loan-to-valuation. The first is a poor predictor of failure, since individuals’ incomes can change. The second is worse: a property may be fairly valued against other properties that changed hands in the same bubble-like conditions, but it will look grossly over-priced if repossessed in a recession and sold at auction by a distressed borrower or, more likely, the lender.

    Rental values are much less volatile than purchase prices, since they are a more direct product of incomes. If lenders had to hold risk capital against all borrowing in excess of the amount that could be covered, assuming a return to long-run average interest rates, by rental income, purchasers would be unable to borrow anything like the full price of properties offered at frothy prices. They could still proceed, if they wished, but it is likely that they would have to put in a lot of their own equity (risk) money.

    Such an approach would have many benefits, such as:

    1. It would rebalance the UK property market, as it would slow the market in London and the South East and boost it in the regions where prices are still well below their 2008 levels, because in these areas, rental yields are typically still well above the long-run cost of capital;

    2. This would have a redistributive effect, in that the opportunity to borrow long-term secured money from banks enables citizens to build up equity in their homes and hence personal net worth. I’d rather see a bank lend to half a dozen first-time buyers in Lancashire than one banker in Fulham;

    3. If a borrower’s circumstances changed and he or she could no longer pay his or her mortgage, the bank would not need to sell the property in distress – it could instead rent it out, possibly even to its former owner, until the market recovered. I remember the self-feeding nature of the recession in the early 1990s, in which the large number of repossessions was a major factor in driving down property prices, leading to further repossessions and killing the new-build market

    4. In the this could even lead to the creation of something that the UK lacks, but housing analysts have said it desperately needs: a sizeable pool of institutionally-owned, long-term private-sector homes for rent.

    • robin

      I think your counter argument needs to be balanced by the observation that:

      1. much of the land purchases in London especially are made by speculative foreigners looking to hoard wealth. When house prices are more reasonably, this speculation will go.
      2. a moderate change in how we build our cities does not imply this conurbation you speak of. That is an extreme scenario.
      3. Anyone living here, is not living somewhere else, so the amount of green on the planet remains the same. If you are making arguments about green views from your patio, you should put up the money and buy the view.
      4. Your conclusion is suspect as well; a new equilibrium will be reached, but just how expensive homes will be is another question entirely.

      Wherever that equilibrium lies, I feel certain that house prices will be affordable since the current market is driven by artificial restrictions on supply and speculators who aren’t really a part of the normal economy here. When this is not so, then the larger economy will drive the equilibrium which means local people are buying those houses.

  • Critic Al Rick

    The housing market will get fixed when reality can no longer be concealed; the reality is that the UK is way over-populated with loads of Parasites (rich, poor and intermediate) who seem to believe the World and the UK Non-Parasites owe them their livings.

    The answer does not lie in building more houses, it lies in life in the UK becoming so untenable that immigation dries-up and hoards emigrate or prematurely die…

    The UK is as it is not to be “in the best interests of the whole people” but to serve the best interests of those voracious and despicable Powers-That-Be.

    • robin

      Take a look at hong kong, monaco or the netherlands. We are not near over populated yet. There is more land devoted to golf clubs in Kent than to housing.

      This isn’t about over-population or global warming or climate change. This is about rich land owners protecting their interests.

      Why is it that the working classes in this country seem more interested in persecuting the working class of other countries rather than focusing on the massive transfer of wealth to the super rich and multi nationals over the last few decades.

      Instead of obtaining a proper equitable system where multinationals pay their tax, the ignoratii would rather complain about the poles.

      It seems to me that as a country we are prepared to have fruitless arguments about other poor people while our politicians whore our country to big business.

      • Critic Al Rick

        Robin, I wouls say over-population (and dense population) itself is about rich land owners (amonst others) protecting (and furthering) their insatiable and despicable greed for power and wealth.

        On the basis of the UK’s cumulative Balance of Payments Deficit (3 decades worth) and of its being a significant net importer of food over the same period is surely enough justification for the declaration that the UK is significantly over-populated.

        You hit the nail on the head when you say our (treacherous self-serving) politicians whore our country to big business. A blogger on here once said “the UK is a Corporatocracy”…

        • robin

          I’d be careful drawing such conclusions based on the balance of payments deficit.

          In any economy there is supposed to be a cycle of money flows from industrialists who hire labour to produce goods and then sell those goods to the same labour force in their role as consumers. This has broken down over the last two decades by multi nationals importing goods from the likes of china and china artificially setting their currency against the dollar.

          China therefore maintains a balance of payments surplus so someone has to have a deficit and that’s the West in general. In the meantime the western world’s labourers have been earning steadily less all the time, and as a result cannot consume. Then the West introduced cheap credit and that kept the consumption up.

          Arguably house price appreciation is a stealthy method of pumping money into consumers hands via mortgage equity withdrawal while maintaining the facade that our economy hasn’t fundamentally changed. The reason we do so (as in the politicians) is because we want consumers to keep spending so that big multinationals can keep recording profits. That means we have a positive GDP etc.

          We import food not because we can’t produce crops here, but because its cheaper to import from elsewhere. Which is a a flaky statement in itself since we have loads of labour capacity (think people on benefits) so planting crops arguably doesn’t cost anything. We can put land to use to grow crops, is really my point. So the real reason we don’t grow crops is maybe because of economies of scale. If we did produce food here, it would take more effort than to import it.

          • Critic Al Rick

            Robin, if you’re trying to convince me that the UK in its present over-populated, Parasite (rich, poor and intermediate) ridden and natural resource depleted form is a viable economic entity within the World then you’re as good as flogging a dead horse.

            Nevermind Academic Economics, apply Commonsense Economics. The UK can be considered to be a single business, UKplc; it may have a relatively high GDP (c/f Turnover) but it has a consistent B of P Deficit (c/f a business consistently making a Loss).

            It has thus far staved-off Bankruptcy via Asset Stripping (selling off subsidiaries to foreigners, etc), maxing-out its Credit Cards (up to its eye-balls in Debt), robbing wealth off of those of its Employees having moderate wealth (via low Savings’ IRs, Inflation, etc), and by counterfeiting money (QE).

            For how much longer UKplc can fake economic viability remains to be seen; but I know one thing, I hope I’m not around to see the dawn of reality when it should be seen fit, amongst other things, to plough up most, if not all, of those golf courses so cavalierly constructed whilst UKplc has been run with reckless abandon.

    • Oliver Thornton

      I disagree with the description ‘over-population’ but that is a semantic. I believe you are suggesting there is no population balance nor even any policy to try to improve this. That I believe is evident.

  • CKP

    The solution to the housing shortage is not as simple as repealing the Planning Act 1947 and allowing green belt to be developed. Firstly this would be electoral suicide as there is now too much vested interest in valuable property close to the green belt. Swathes of middle class nimbys (myself included) would be horrified at our pleasant leafy neighbourhoods being turned into overpopulated concrete plazas with the resulting crash in property values that comprises most of our net wealth and retirement aspirations. Whilst it would make housing plentiful and cheap, the government that implements it would be unelectable for a generation. Simple granting planning permission to undesirable locations doesn’t work either. Thurrock, which has excellent links to London has had planning on large brownfield sites for years. The developers won’t go there cos people want to live near established areas which have amenities such as good schools, shops, restaurants, bars, hospitals etc. Simply giving an acre of farmland planning permission doesn’t make it worth a million unless it has the infrastructure and amenites nearby. The answer may lie in new satellite garden cities but again this is not easy to implement as it requires large upfront government investment and compulsory purchase orders at todays inflated prices as well as dealing with nimbys and eco-activists.

    • robin

      I think you have hit the nail on the head there.

    • Greg

      The Govt. and/or councils should be compulsory purchasing all land they decide to allocate for housing on local plans at agricultural prices (plus compensation) and then auction it off to developers and self builders using the money raised to pay for new council homes and to pay off National Debt.

      Back in 2010 the Government changed planning rules on back garden development but surely using land more efficiently is better than urban sprawl?

  • robin

    Excellent article Dominic.

    I would like to add that the current system of house builders purchasing land with planning permission is broken.

    Since building a house is a fixed cost that bears little relation to house values, when owning land, its the land that attributes most of the change in value as the housing market changes.

    Owning land is a leveraged play on the housing market. Now house builders are in a position that they own lots of land, but the minute they build houses they increase supply dropping house values. The land they own suffers even greater drops in value.

    So I’m not at all surprised that we never hit our home building targets.

    • Greg

      The developers are partly the cause of both the lack of supply and high house prices due to land banking – they will only build more houses once they have sold some others in order to keep local supply lower than demand – that’s why we need a Land Value Tax.

      Dominic’s idea would simply lead to more urban sprawl like that which happened in the 1930s – the main reason for the 1947 Planning Act – plus we cannot rely on builders to design and build aesthetically as they did in the 18th and 19th Centuries – we only have to look at some of the hideous house extensions which have been built since permitted development rules were relaxed.

  • 5teadyeddie

    Dominic – a good article and responses, but please explain:

    “….while each landowner receives about £12,000 in subsidy and a similar amount again from the EU”

    In what circumstances? I own a few acres and it’s certainly not my experience!

    • 4caster

      The European Union spends around €55 billion a year on farm subsidies. This site tells you who receives the money:
      Perhaps you haven’t applied for it. I can’t find 5teadyeddie on the list!

  • Chasbmw

    Have you ever visited a country where there is very little planning control?
    I have and it’s not good, houses built everywhere and a really poor environment and once it’s done it’s done and there is no going back.

    The building companies will only build enough houses to ensure that values won’t drop…….maybe the answer lies in taxation?

    • Changing Man

      I’m afraid you won’t get much traction with the idea of further green belt destruction with headlines like yesterday’s Guardian “Tesco hoarding land that could build 15,000 homes”. Once we have built on all the discarded brownfield sites and all the hoarded land then maybe we can look at building elsewhere but not before.

  • GFL

    As others have pointed out it’s not quite as simple as reversing planning laws, but broadly speaking I agree with the article.

    No one wants an urban sprawl all over the beautiful British countryside, but at the same time it is deeply immoral restricting the supply and thus hiking up the cost. In my opinion nothing is more important than people having a decent standard of living, bringing down the cost of living/housing plays a huge part in this.

    I also agree we need more houses built by individuals; tiny generic houses, where you can hear the next door neighbour are only appealing to BTL landlords or people that are ‘forced’ into the purchase because there is some kind of crazy government scheme that makes it appear more affordable. If land was more affordable, people could build large houses that are suitable for a growing family, probably to a high standard too since they will be living there for some time.

  • robin

    Hmm… If you are worried about urban sprawl and uncontrolled building all over the place, it is better to loosen up the current system. Better to have some control than none.

    If it carries on the way it currently is, an entire generation will remember and Dominic’s idea will come to pass.

  • Rambler

    I agree that some loosening / rewriting of legislation is required. However, having lived abroad I have many reservations about the laissez-faire approach.
    1. In California they build up huge malls, these grow old and dated, so instead of renovating the site, they just up sticks and build new malls. There are hundreds of sites that have pretty much been left to rot.
    2. In Japan, they love concrete, it is everywhere, even in what remains of the beautiful countryside you can bet you’ll see concrete monstrosities in the shape of either controlling the countryside or some building. The cities are a concrete jungle of differing shapes with absolutely no harmony. Kyoto saved from the Nuclear Bomb in WWII due to its beauty has been destroyed by the Japanese let loose to build how they each see fit.
    The UK at least has some sort of harmony on the whole and the countryside has been protected when it could have been destroyed. Can you imagine what the UK would have looked like if the 60s and 70s had been given full reign to build where they like and the new trend to show your ‘individuality’ was let loose – some would have been great, some horrific and absolutely no harmony.

  • Salient Point

    There are no restrictions on planning; the correct term is development controls, not planning controls. The problem with ‘planning’ is that there really is none. The system, such as it is, is almost entirely reactive, not proactive.

    There is zero probability of development controls being removed, and indeed no need for it. What is needed is a strategic national plan for deciding where and when new houses and flats (a higher proportion of those are needed, particularly in London) are built. The priority (as many others have stated) should be on brownfield sites, initially. They will not last for ever, and the next (they take a long time to plan) should be new towns and cities.

    In setting this plan, it is not possible to simply allow for houses to be built where people want to live. Most immigrants, and their descendants, want to live in London. The south-east is already too crowded, and there must be no increase in the concentration of population in the south.

    There are substantial numbers of people on long-term benefits of one sort or another. They could be moved to new towns created in places where no-one else wanted to live (someone above mentioned Thurrock, for example). There would be no compulsion, of course, but benefits would be conditional on compliance.

    The planning/development issue is one of the most difficult facing government, and yet the one of which perhaps the least serious study has been undertaken. A few years ago, Kate Barker (of the MPC) suggested that the gains from development permissions should be used partly to compensate the losers from development. A sensible proposal, but no-one took it seriously.

  • Angela

    Can I put a word in for brownfield sites? They often support more wildlife and biological diversity than fields of rapeseed. We need to stop building in gardens and start building new villages.
    Near me a developer has obtained permission to cover 250 acres of good farmland with a solar power station, filling the earth with concrete, spraying it with toxic chemicals. It went through on the nod and everyone agrees that we need alternative energy, but… If someone had applied for permission to build a two bedroom cottage on that 250 acre patch the planning department would have risen up in outrage.
    The planning laws are too restrictive. They need to be relaxed.

    • 4caster

      I thoroughly agree, Angela. There are enough brownfield sites for building to convert to housing without the free-for-all urban sprawl and ribbon development along rural roadsides that Dominic seems to want. We need our agricultural land more than ever, with more mouths to feed both here and worldwide. We also need National Parks, Areas of Outstanding Natural Beauty and other open spaces for recreation and biodiversity.

  • 4caster

    One answer to encourage developers to use brownfield sites is by exempting such houses from stamp duty for, say, 15 years. Also, where land is toxic and the soil has to be cleaned, that cost should not fall upon the developer. The polluter should be chased for the money, If it’s historic pollution, such as an old gasworks, then the likes of British Gas should pay!

  • mr clyde

    Another way to encourage brownfield sites would be to charge VAT on all new-builds (currently VAT free) which, contrary to the obvious, wouldn’t actually put up house prices, merely reduce the price of building land with PP by a complementary amount. VAT exemptions could then be issued to build on particularly difficult eg. contaminated sites.

  • Boris MacDonut

    What an excellent article Dom’. I know I have moaned at you in the past and we tend to diverge on Gold issues but get you off Gold and you are a reasoned and erudite journalist.
    I am a picky so and so and find little to gripe about here. You could have put a bit more emphasis on the subsidies going to 6,500 the rich landowners. What Prof Dorling calls the 0.01%. The bit of the 1% that is really really rich.
    I once pitched an idea to the old Carlton TV for a show called The Secret Billionaire. Where and actual uber rich oligarch joins a Surrey golf club driving a new Jag’ and pretending to be an ordinary old millionaire ,offering to join the rotary club and donnong a pastel lemon pringle sweater……until the end of the week when he reveals “i am considerably richer than you….”.

  • Rajah Brookes

    Excellent article Dominic. Nice to hear someone tackle the ugliness issue. There is a perverse logic currently spreading horrible buildings across the land that goes something like this. We are a nation full of talented designers, engineers and architects and could easily build attractive, desirable, highly efficient 3-4 bedroom houses for £100K if we wanted to. The problem? That would instantly render all the old inefficient 3-4 bedroom houses less desirable and prices would tumble. So when affordable housing is built it is necessarily made tiny, ugly and undesirable. The main losers if the housing market did crash would be the banks so it appears that to prop them up we are deliberately spreading ugly undesirable housing across the nation. Dominic’s right. Unless we give up this obsession with propping up the market we are going to end up creating the ugliest nation in Europe.

  • long view from the long room

    Id say the problem is to a large extent with the planning departments. They should let more development take place above existing buildings. They are a pain to deal with

  • Oliver Thornton

    I think you are over egging the point with the ‘£20,000 house’ – that will be the kit. By the time you have laid foundations, built it and equipped it, it will be rather more. But the point stands and is well made.