Government’s timid reform will not solve chronic housing affordability problems

New IEA research released

Not enough is being done to reduce the extraordinarily high cost of housing in Britain. This is the finding of a new report released today by the Institute of Economic Affairs Abundance of land, shortage of housing.

In the research Kristian Niemietz looks at how housing costs in the UK have exploded in recent decades. Real-terms house prices in 2011 were more than two-and-a-half-times higher than in 1975, with rent levels following suit. Nothing about this was inevitable. Many other countries have experienced rising housing costs as well, but in most other cases, the increase has been much lower and/or largely transitory. In the USA, Germany and Switzerland, real-terms house prices are still close to their 1975 levels.

Other main findings include:

·         Housing affordability measures show housing to be unaffordable in every single one of the 33 regions in the UK.

·         There is still plenty of room for development in the UK: 

·         Only 1/10th of England’s surface land is developed and even in developed areas, the single biggest item is gardens.

·         Literally ‘concreted-over’ land makes up only 1/20th of England’s surface area.

·         Housing benefit is a flawed approach to dealing with the problem of low-cost housing – it favours those living in expensive areas rather than those on low incomes.

·         The main difference between the UK and its north-western European neighbours is not in demographics, but in completion rates of new dwellings.

·         Empirical evidence from around the world shows that planning restrictions are the key determinant of housing costs.

 

Recommendations

·         Only a thorough liberalisation of the planning system can address the affordability crisis.

·         The government must resist vested interests lobbying against planning reform to help those struggling to afford to buy a home.

·         The government’s National Planning Policy Framework does not address the fundamental flaw in the current planning framework – that the current incentives encourage NIMBYism.

·         The combination of a restrictive planning system and an over-centralised tax system should be addressed so that local residents obtain the advantages of development.

·         It must enable rational trade-offs between preserving valuable pieces of countryside and other considerations:

·        One way to achieve this is to extend the coalition’s ‘localism’ agenda to local finances and planning. If local authorities had to cover most of their expenditure through local taxes, they would have an interest in enlarging their tax base, and granting planning permission would be one way of doing so. People would be free to vote for NIMBY policies, but they would be aware of the cost. Blocking development would mean foregoing tax cuts or better local public services.

Commenting on the report, Prof. Philip Booth, Editorial Director at the Institute of Economic Affairs, said:

“Housing in the UK has become unaffordable for most young people. The tragedy is that this house price crisis is entirely avoidable. If the government wants cheaper housing, it needs to have the courage to change the system so that development benefits local people, who currently only face the costs. For too long, vested interests and NIMBYism have dominated our planning system, tweaking it won’t change this. It’s time for fundamental reform.”

 

Notes to editors

To arrange an interview about the report please contact Ruth Porter, Communications Director, rporter@iea.org.uk or 077 5171 7781.

The full report “Abundance of land, shortage of housing”, by Kristian Niemietz, is attached and can be downloaded from www.iea.org.uk.

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.

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