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Looking forward: housing should be more than a financial asset

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Housing is more than a financial asset, says @jryancollins #ukhousing #socialhousingfinance

There are reasons for optimism when it comes to affordable housing in the UK, despite the state of crisis that currently engulfs the sector. For the first time in decades, both major political parties seem to have realised that the housing market is fundamentally broken and that it is a domestic political priority.


The Conservative Party has finally accepted that not everyone can own a home, and that the provision of decent-quality rental and public housing is a necessity. The decision to finally lift the cap on local authorities’ ability to borrow to invest in new development is perhaps the biggest sign of this change, of course, although much more investment from central government is likely to be needed.


Equally promising are signs that the land problem is being better understood, with Labour investigating a serious property wealth tax, and Sir Oliver Letwin’s review of land value capture pulling no punches. Moreover, as the level of homeownership falls, it is likely there will soon be an electoral majority in favour of reducing house prices.


Hopefully, there will be a return to 1960s levels of public housebuilding and provision, for it’s clear that the private sector alone will not be in a position to achieve this. To make such a level of non-market housing financially sustainable, however, we will need to treat land differently.


Future governments may ensure that the increases in land value that come from public (and private) investment in transport, schools, utilities and commerce are captured for the public purse and reinvested in the maintenance and development of further affordable housing. This could either be through a fully fledged land value tax or some form of land socialisation, whereby the state gradually builds up a portfolio of land via equity purchase from households unable to afford a property tax or that wish to downsize their mortgage but keep hold of their homes.

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To achieve a managed deflation of house prices and an expansion of affordable homes, we also need to reduce the speculative demand for housing as a financial asset, rather than a place to live. Key to this will be a different kind of financial sector. Currently the UK banking sector is dominated by five big banks all focused on mortgage lending at the expense of the rest of the economy – pumping up house prices as part of a feedback cycle that produces ever bigger booms and busts.


In the future, we’ll need to rediscover relationship banking, whereby banks are able to de-risk their loans by getting to know the firms they lend to rather than always requiring collateral in the form of property. By breaking up one of the nationalised banks, such as RBS, or turning our large post-bank network into a regional public bank focused on the needs of small and medium-size firms, this may be achievable.


A big state investment bank could also support local authorities with the infrastructure development needed for new projects on an ambitious scale.


Foreign investment in existing property should be made prohibitive via much larger capital gains taxes, and buy-to-let gradually phased out. Instead, we might see a much larger role for institutional investors in the provision of decent-quality affordable rental housing, along with much stronger tenant rights and controls on rent increases.


Finally, it would be great to see a much larger role for mutual and co-operative housing institutions, such as community land trusts. These play a hugely important role in countries such as Switzerland, Germany, Austria and even the US. Britain has a strong tradition of mutual housing which hopefully could be restored.


A world in which secure, decent and affordable housing is taken for granted – whatever the tenure – should be the goal for policymakers and communities across the country.


Dr Josh Ryan-Collins, head of research, Institute for Innovation and Public Purpose, UCL

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