The national housing crisis is rarely off the front pages these days. "Our housing market is broken", says Sajid Javid, the minister overseeing housing policy, while a recent white paper set out the myriad ways the government would tackle this national shame. The problem is that this fight against the crisis is mostly a struggle against a non-existent enemy. Yes, there are some horribly tricky issues relating to our national and regional housing markets, but we have to ask whether the drastic proposed cures for the crisis such as concreting over the green belt are really necessary. We need to be more specific and focused about what problem we're trying to solve.
For example, most of the hot air about housing focuses on the desperate need for more private-sector supply. Most newspapers bandy about the statistic that 240,000 new homes are needed in the UK each year. In 2014, fewer than 120,000 were built. But pop over to website Trading Economics and see the chart for UK housing starts since the early 1980s. The current level is below the long-term average, but not massively so. And the hot air can get as hot as it likes private-sector housebuilders are running at close to capacity already. Almost none of the experts I've talked to who watch the housing sector closely think the private sector could be goosed into building hugely more houses than they already do.
The next great myth is affordability.Between 1997 and 2010 the ratio of average house price to average income more than doubled from 3.5 to 7. But in the north, that ratio has stuck fairly close to a range between three and four times for years. The affordability problem is mostly in London, and is caused by local factors the private market could not fix. If one looks at mortgage costs as a percentage of income, the picture is nowhere near as bad. This was more than 25% in the early 1990s, but is now at record lows. Mortgages have never been more affordable.
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What is absolutely true is that many millennials (and older citizens) simply can't afford private rents. This forces the state to pick up the tab via massively inflated housing benefits. If as a country we're happy for the government to subsidise private-sector landlords via benefits, then I'd suggest that is the real scandal. This brings us to the real housing crisis, the one that does need fixing and doesn't involve concreting over the green belt, tinkering with builders' landbanks, squeezing buy-to-let landlords or imposing rent controls. It's the crisis in affordable social housing.
We need to accept that not everyone can afford to buy, and not everyone can afford private-sector rents. But the supply of affordable social housing is in a funk.Back in 2003, social-rent new-starts amounted to 24,670 homes (a very low figure). Affordable housing for more "intermediate" citizens amounted to 18,430. In 2015/16 that social-rent number was a shockingly low 6,550 and affordable-home ownership 3,430.The good news is that we have housing associations with all the right tools to fix this problem. They work with local authorities and private-sector construction firms to build houses that are let at affordable rates.
What's more, private-sector investors are lining up to help. Recent fund launches such as Civitas Social Housing show there is untapped demand for social-sector assets that produce a solid, inflation-linked income. A well-thought-through issuance programme of long-dated retail bonds could bring in tens of billions and kick-start a social housing building programme. Thirty-year money could probably be had for not far more than a 4.5% yield with no explicit government back-stop, although the Treasury might have to promise to stand behind the associations that issue the bonds. This could even make the exchequer money by cutting back on housing benefits. Crisis solved.
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