Monthly Archives: November 2010

The New Economics of Affordable Homes

The New Economics Foundation released a new publication today about housing – how to build 1m new affordable homes.  Here’s highlights from the nef website:

1.  Measures to reduce the cost of land.

  • 80% capital gains tax on all land sales over £80,000 per acre.
  • Planning permission for large residential developments would only be given to social housing developers.

I agree that the high cost of land is a major contributing factor to the unaffordability of housing.  I suggested taking land cost out of the equation in an earlier post about house prices.  The economics around land in the UK is broken.  There is little volatility in land values – the belief is that they generally only go in one direction – up.  One could argue that the demand exceeds supply thereby pushing values upwards, but where is the demand coming from?  The boom had been fuelled by foreign investors – either directly or in the form of investment in UK property companies and funds.  The demand comes from a few, increasingly segregating those who own from those who rent.  nef is very astute at public policy that can change behaviours and attitudes and this gets to the heart of it.  Make investment in property for gains from capital appreciation inefficient and costly thereby stemming this constant expectation and driving of property price increases.  Make investment in property about providing housing, meeting basic needs rather than returns-driven.

2.  Measures to reduce the cost of capital.

  • Introduce a new bond scheme, linked to the retail price index. Housing associations pay 6% p.a. on bank loans: a bond scheme could lower this to 3.5% creating massive savings for social housing landlords.

I’m cautious about cheap credit.  These needs to be paired with good advice and education about managing debt.  So long as people remember that bank loans should be repaid over time (no more interest-only mortgages which were prompted by an idea that house prices could only go up).

3.  Measures to increase the revenue generated by social landlords.

  • Higher rents in new developments.
  • Drive down operating costs, for example by increasing tenant self-management.

Transparent business and revenue models and ensuring that the cost of housing does not include unreasonable profits to the few would be helpful.  Trust models which require the reinvestment of profits from housing into new developments would also help build more.

I also think shrinking the gap between average incomes and average house prices requires not only a focus on the cost of housing, but also on education, skills development, training, and employment opportunities.   The healthy participation of people in the economy helps keep a sustainable cycle of livelihood and lifestyle going.