Want more houses? Leave it to the market

Chancellor Philip Hammond wants to borrow £2bn to build 15,000 houses. Labour leader Jeremy Corbyn wants to borrow £15bn to build one million houses. If we had just a couple of streets of new family homes, complete with garden and parking, for every time a politician announced a new drive to build more houses, then we probably wouldn't have some of the most expensive homes in the world.

Someone on average earnings should be able to afford a decent family home without borrowing from their families or mortgaging themselves to the hilt. Across most of the country, that is not true which means something is wrong.

But borrowing loads of money and getting the state to build houses is surely crazy. There is not an industry in the world that has been improved by massive state intervention and housing is no different. There is no evidence to suggest that the private capital market is unwilling to finance house building, so long as investors are convinced there is a demand for the houses that are being built.

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And there is no reason to think the government can do a better job of deciding what types of houses need to be built. The real problem is that there is layer upon layer of regulation and state intervention and the usual price mechanism has completely fallen apart. We have fiddled and fiddled.

In the immediate post-war years, we had great waves of council-house building, as if a five-year plan could simply fix the problem. We used to subsidise mortgage debt by offering tax relief on it, then we got rid of it. In the last three decades we have maintained rigid planning restrictions that protect the greenbelt even as a combination of smaller families, great labour mobility, and rapidly rising immigration meant the overall demand for housing soared.

More recently, we have had help-to-buy and home-owner Isas a George Osborne wheeze that now seems to be forgotten and a clampdown on landlords. At this rate, we'll soon have a ministry setting the size of every house, and telling us where we can live.

After all these gimmicks, the market in what should be one of the most basic of products a house is as vital as food and health care has just about ceased to exist. But there is one policy we have not tried, even though it would be very simple: a free market in housing.

How would that work? To begin with, every restriction on what you could build and where could be dumped, apart from a few national parks.If that leads to too much destruction of the environment, we can stop it but let's try it first. In truth, it would probably be far less damaging than people imagine. Much of the protected greenbelt is taken up with mechanised farming that is neither protecting natural beauty nor the environment.

The thousands of empty high streets could be converted to residential areas and so, increasingly, could out-of-town shopping centres where the likes of B&Q are closing stores. Let developers and their customers decide where to put houses.

At the same time, strip away all the tax subsidies, both for building and owning a house. The state doesn't need to guarantee mortgages for anyone. At some point, end the exemption from capital-gains tax on your main home to deter people from keeping houses that are bigger than they need. And tell the Bank of England that near-zero interest rates are simply stoking a housing bubble, and that they will have to go up sooner or later.

All that will cause howls of outrage. But so what? We have been meddling in housing for decades, trying to patch up a broken system. A genuinely free market could hardly be any worse and might be a whole lot better.