Four ways to fix the housing market

Robert Powell looks at four ways to fix our broken property sector...

"Man is the only animal that makes its nest in an investment opportunity"; the words of the comedian, Stewart Lee.

And he's right.

But this treatment of the basic human requirement of shelter as a profit-making asset is not held by everyone. Most of us just want a place to live. And this is where the problem lies, as for a sector that is so important for so many - and so profitable for so few - it is startlingly under-regulated and over-manipulated.

As a result, the majority of the population are subjected to a stagnant property market of overpriced, undersized homes and a housing ladder riddled with bottle necks. Yet for the rich few who hold the keys to expensive and numerous postcodes, property remains a solid and attractive investment.

But here are four ways the government can start to turn the tables...

Land Value Tax

The Lib Dems floated the idea of a levy on properties valued above £1m – the so-called mansions tax – in their 2010 manifesto. Yet like so many promises made in that doomed document, it didn’t materialise!

This is certainly unfortunate as a move towards a tax system centred less on labour, earnings and purchases and more on unearned assets such as land and property ownership does seem like a sensible shift in the current fragile financial climate. However I don’t believe a sole tax on expensive properties goes far enough.

A Land Value Tax charged on the current market rental value of every piece of land in the country would broaden the remit of the levy and increase its takings without hindering development. Dispersal of land ownership would be fuelled by implementing personal land value allowances and charging levies for any ownership over these limits. This would stamp out speculative land ownership and encourage the wealthy, offshore owners of plush but derelict ‘investment properties’ to sell them off or rent them out.  

After all, land cannot runaway, disappear or be moved offshore!

An increase in efficiency of property use and a subsequent reduction in urban sprawl would follow in towns and cities, while in the countryside, the shadowy owners of hereditary estates and farmland would be identified, logged and taxed. For this reason, a Land Value Tax would sit hand in hand with...

A new and complete Land Registry

Just as the myth concerning the scarcity of oil pushes up barrel prices for those in control of the supply, the myth surrounding the lack of space in this country is geared to benefit landowners. Land is perceived to be in scarce supply and hence prices are high. Good for the owners of land, but bad for the rest of us.

In reality, the UK is 60 million acres in size, while the population currently stands at just under 62 million. Even when you allow for uninhabitable mountains, forests and marshland areas – land can hardly be called a scarce commodity.

Yet the core reason why this myth has grown is more to do with a lack of knowledge about landowners, than a lack of knowledge about land. Large amounts of land in this country are owned by wealthy families and agricultural dynasties. But because registering land is a voluntary exercise, it is extremely unclear who owns what and how much land is available for development.

Large plots of land are smoothly passed down generations, transferred between households and discreetly intermarried off with barely an eyelid batted by the Land Registry or taxman. Indeed, if we have no idea who owns what land, how can we have a meaningful debate about the housing built on it?

A new and complete Land Registry along with a Land Value Tax would encourage large plots of dormant land to be sold off or – at the very least – shine a light on the true abundance of land in the UK. This would – along with the government’s Budget commitment to relax planning regulation – pull down the extraordinary price of development land and make property cheaper.

Cracking down on agricultural subsidies

The lack of a concise Land Registry also has a more direct, financial effect on the taxpaying public. Every year the owners of agricultural land are paid billions in subsidies from the public purse.

This money was initially intended to support farmers and the agricultural sector in general but increasingly, as agricultural activity severely wanes in profitability and investment in land booms, the subsidies are ending up in the hands of savvy landowners. This allows them to get paid for keeping the land undeveloped and dormant, adding to the myth of land scarcity and pushing prices up.

Personally, I see no reason why an agricultural subsidy should be paid to anyone – even if they are a legitimate farmer.

But at the very least the payment of these subsidies should be vetted in a far more thorough and rigorous way. Landowners should not be paid to keep land undeveloped until prices have swelled to such an extent that development becomes a profitable option.

And it is not enough to play the ‘quality of life’ card and attempt to justify agricultural subsidies by claiming that they keep Britain as a ‘green and pleasant land’.

Agricultural land makes up around 70% of the UK, while urban land accounts for just 10%. A journey between any two cities in the UK confirms the extent to which we live in a green and rural country. Factor in the modest rate that urban development and sprawl is currently progressing at, and it becomes clear that the UK is nowhere near the concrete jungle that many rural apologists fear.

Shared-equity schemes

The current housing ladder is riddled with bottle-necks. Homeowners who bought at the peak of the market are now more than likely to be trapped in negative or low equity and unable to step up to a second home. This blocks up affordable properties – a triple blow for first-time buyers already hit by a picky mortgage sector and rising prices.

I am in no doubt that a return to the days of ample mortgage credit would be bad for everyone. But with the mortgage market still in a state of comatose after the crash, something must be done to shock it back into life. The use of public money to assist with deposits, allowing buyers to get hold of lower interest rates and safer home investments would do just this.

£250m was put aside in this year’s Budget for such a shared-equity scheme, but further measures are needed to really get the property market moving again. The government should be leaning on lenders who offered out high LTV mortgages in the boom years to stick with their customers and help them progress up to the next step. Back in February I reported on a scheme from Lloyds TSB which aimed to do just that by using a form of mortgage port to help low or negative equity buyers trade up to a new home.

It is progressive schemes like these that will push the blockages in the housing market out from below, while a new creative approach to land reform will act from above by putting a leash on falsely straying prices, creating the conditions for a sustainable property sector.

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