First-time buyersAdobe Stock
Many people in the U.K. can’t afford to buy a house. And avocado toast usually isn’t to blame.
The number of young people owning a home in England has decreased to 38%, down from 55% in 2009, and up to a third of millennials (the so-called ‘Generation Rent’) face a lifetime of renting. This situation is hardly surprising when a house in modern Britain costs roughly 121 times as much as it did in the early 1950s.
This issue has been fermenting for decades; and left unnoticed, most industry experts agree that the problem is likely to get worse. Britain has a rising population and a penchant for households with fewer people, both of which means demand for housing will keep on rising.
So, what can the government possibly do to correct things?
Green belt
One answer that often arises in discussions like these is that the country should be opening green belt land to housing development. There’s a reasonable argument to be made for this.
First introduced for London in 1938 and rolled out to England in 1955, green belt-designated land has remained relatively untouched while real incomes have tripled and demand for housing has grown dramatically.
Since supply has been rationed, land prices have increased, and this, in turn, has had a knock-on effect on house prices. 70% of the cost of building new houses is the purchase of the land (up from 25% in the late 1950s).
As proponents of opening the green belt for development argue, correcting this undersupply of land wouldn’t require widespread destruction of natural environments; you would only need a small fraction of it to satisfy housing supply.
But as critics argue, there’s always a risk of going too far. The government certainly shouldn’t permit building everywhere, and planning will be needed to preserve environmentally valuable land and lots of space for recreation. Just as importantly, local authorities need to be incentivized to make this all happen.
Housing density
One approach to bolster supply without sacrificing green space involves changing population densities – but again, incentivizing for high-density construction is a tricky challenge.
More-frequent use of density bonuses is one possible solution, which would allow developers to build more densely than under normal circumstances in exchange for providing some kind of public good, such as affordable housing. This would enable developers to build additional units and increase profit, while also increasing density.
Making wider use of inclusionary zoning policies – which require new units to include a certain number of affordable homes, as part of the development approval process – would complement this. Inclusionary zoning ensures that first-time buyers, who are often pushed outside of well-serviced dense urban areas, can afford to live inside popular U.K. cities.
Higher densities don’t necessarily mean unsightly high-rises. Medium-rise, higher-density buildings (in the region of 3–4 storeys) are said to provide the maximized density while negating a feeling of overcrowding and can be designed to be attractive and energy efficient.
A different kind of tax
Much like the green belt, council tax hasn’t changed since its introduction in 1993. As the Resolution Foundation thinktank explains, the tax is poorly correlated with the value of property and has not responded to changes in house prices. The original council tax bands – using 1991 valuations – have never been changed.
Land value tax, a policy of both Labour and the Liberal Democrats, may be one way forward. It’s a tax, not on the value of property, but on the land on which it would be built.
Not only does this have the potential to raise significant revenue, but it also serves a stimulus for positive behaviours in the market. As opposed to property tax, it doesn’t discourage people from improving their home. It disadvantages those with idle properties as well as speculators, and in and of itself, goes some way towards encouraging higher-density construction.
Changing the construction strategy
To accommodate for the current crop of young buyers priced out of the market, new houses not only need to be built with density in mind; they also need to be built quickly, and at scale . It’s difficult to see how this could happen with the way we build currently.
Offsite and modular construction must increasingly be part of the picture, with designs that respect the local architecture. Projects need not be exclusively focused on London; extending commuter towns and other big cities like Birmingham, Leeds and Manchester would be a sensible way forward.
Although most construction activity could come from the private sector, public-sector construction shouldn’t be dismissed outright. When the U.K. last built more than a million homes, Clement Atlee’s post-war Labour government was in power, and there was a massive council housing programme underway. Social housebuilding may need to play a part if we are going to achieve this output again.
Conclusion
Incentivizing first-time buyers through discounts for first-time property purchases is a short-term fix to a long-term problem. Rather than subsidising buyers, we need ways to encourage supply. To help first-time buyers, we need to address the root cause – supply – and not just the surface level problem – price.
Disparate parties will need to work together to make this a reality: homeowners want to protect their house prices; builders want to work to a budget and for a profit. Other public bodies will have their own agendas and budgets. But to really benefit first-time buyers, everyone needs to be singing from the same hymn book.
One thing is certain: initiatives currently in place aren’t having the impact they should, and for the benefit of the wider economy, we need action now. There’s no one magic bullet, but there are steps we can be taking right now to alleviate the situation.