Building more ain’t enough!
Lessons from around the world to help solve Britain’s housing crisis.
Recently a tweet by a DW Journalist picked up quite a bit of attention. And it was on the (quite frankly) dull topic of housing. It included two infographics comparing rent as a proportion of monthly earnings in London Boroughs and German cities. It showed that in every London borough but one (Bromley), people spend well over 50% of their income on rent. Which is a stark contrast with Germany, wherein only 2 cities (Bonn and Neuss) do people spend more than 30%.
Long conversations can be had about the possible reasons for such difference or even the extent to which these statistics are comparable. Sceptics could rightly point out the difference in population density between the UK and Germany (281 people per square kilometre compared to 240). But again, you still have to bear in mind that according to OECD, 6.62% of Germany’s total land area is built on compared to 5.75% in the UK. In other words, despite being more densely populated, less of Britain’s landmass is actually built on. Which explains something, if not a lot.
Yet the obvious causal difference is that unlike Britons, the Germans have a much less Capital City-centric economy and a more relaxed culture around renting. They didn’t suffer from Britain’s decades-old obsession with property ownership, helped by Thatcher’s dismantling of social housing. She aspired to build a ‘property-owning democracy’ which in practice looks more like the dictatorship of landlords and the subjugation of renters who only recently realised how fragile the arrangement is and how close we all can be to eviction.
The Germans don’t view housing (a necessity) as a status symbol or a measure of life success. Whereas in the country Mrs Thatcher built, even owning a car is proof of ‘not failing’. After all, she did apparently once say that “If you are a man of over 30 and you still find yourself catching the bus, you should count yourself a failure”. The Germans, however, find comfort in stable long term tenancy contracts averaging at around 11 years (2.5 in the UK) with rents linked to inflation and increased gradually. Whereas their British counterparts generally live under 6 months to a year-long contract at the end of which they’d have to choose between moving out or accepting sharp increases in rent as the landlords try to maximise their yield. Whilst Germany’s regulated rental sector is praised by even the Financial Times as in the investors’ view it “works for both landlords and tenants”.
On the other hand, the British obsession with ownership which (in my opinion) stemmed from the Thatcher revolution was further cemented by the reckless lending culture which led to the pre-crash housing bubble. One of the most shocking examples would be mortgages by Northern Rock with high ‘loan to value’ ratios, even occasionally granting mortgages worth up to 125% of the property’s value. Just as most would agree that the bankers whose recklessness plunged the world into the recession were not sufficiently held accountable for their actions, our attitudes around housing haven’t shifted much from our wishful pre-crash certainties.
Even since the crash, most of the government’s attempts to ‘make housing more affordable’ from cutting Stamp Duty to Osborne’s Help to Buy initiative have been Demand Side and very little has been done on the supply side to actually increase the stock of affordable housing. In his Build Build Build speech, the Prime Minister announced ‘reforms to the planning system’ which now let developers repurpose empty shops in town centres into housing without the need for a planning application. (Because Daily Telegraph headlines influence Govt policy nowadays!) He also confirmed a “£12bn programme that will support up to 180,000 new affordable homes for ownership and rent over the next 8 years” which sounds promising at face value. But considering that that amounts to 22,500 per year, which is just over 15% of the number of new homes built in 2019 (147,620) the picture looks less rosy. ‘One in six’ doesn’t sound like the seriousness we need to give young people the hope of one day owning their own homes.
Even if we attempt to build our way out of the current corona recession, the issue of affordability remains unresolved if we refuse to address the elephants in the room: the untaxed and underregulated second homes and foreign ownership. Londoners won’t struggle to tell you about how ‘in the homes down the road, the lights are never on’. Areas are turned into ghost towns where luxury tower blocks are fully pre-sold to international oligarchs. According to the Mayor, around 80% of new properties built, can only be afforded by the top 8% of Londoners. The Royal Borough of Kensington and Chelsea was said to be the only borough with a falling population, so many are the empty properties. You could be forgiven for thinking that such buildings are built only to be seen from the outside rather than to actually host their owners on the inside. They almost remind you of the North Korean ‘peace village’. A ghost town just outside the demilitarized zone which was built only to be seen from the south.
To prevent this hollowing out of our capital by foreign oligarchs who never even set foot in their properties, we must follow Vancouver's lead with its tax on empty properties (1% of the value) and even consider New Zealand’s sales ban to non-resident foreigners. That would undoubtedly release more houses into the market and help reduce prices. It’s time to stop kidding ourselves that unproductive investment from abroad which only inflates asset prices and prices out the locals is good for our economy or society in the long term. The marginal effect on the GDP is hardly worth the social dislocation.
If Johnson is serious about reversing the decades-old trends, the Boris the Builder sketch alone won’t do it. We need reforms and a Germanising cultural shift on housing. We need to learn from the Canadians on taxing empty homes, from the Germans on their tenancy contracts and rent controls and from the Kiwis on dealing with foreign buyouts. Only then we can let young Brits find places to call home and enjoy what their parents’ generation perhaps took for granted.
