Is it time for fixed-price housing?

Yesterday in parliament, over 100 MPs demanded a form of price stabilisation mechanism for petrol after an online petition gathered more than 110,000 signatures.

It left me thinking about he real price pressure on the average household: that of housing. Between mortgages and rent, the British people are in virtual slavery, working hideous hours or being forced into stigmatising benefits in order to meet their living costs. If there is a case for price stasis it is in housing and I have given some thought to how this might be achieved.

Councils are impeded from building council homes, where rents are controlled, for various reasons. One of these is the limit on capital available for this purpose but a more fundamental reason is that as they are built, a proportion are sold through the right to buy. This isn’t a problem in itself, but the second time such a property is sold, it leaves the “affordable” housing supply, joining the general housing market and no longer providing for the affordable housing need in the area.

Even worse, a proportion of the council houses sold go on to be let on the private market at rents a multiple of that paid by council tenants, to people who can’t access council housing due to that shortage of supply.

The trouble with regulating this unfair situation, where poor people pay exorbitant rents to pay off the multiple mortgages of property owners, is that MPs care more about the property owners in electoral terms than the private rental tenants who are less likely to be swing voters in marginal seats.

Capping house price escalation would trigger the anger of people who own houses and who want the value of their asset to inflate. Capping rents at a fair level would drive a large number of over-leveraged private landlords into foreclosure, pushing up a statistic that the homeowners fear. At the very least, it would limit the ability of landlords to make even this high cost housing available. Short term measures like this are just undeliverable by Britain’s politicians.

The answer has to be a longer term arrangement, and this is what I propose: fixed price housing.

Councils, or indeed other willing providers, should be allowed to build homes for sale on their land, retaining the land freehold. The leases should be sold at cost price with a maximum regulated “profit” or surplus and a reasonable ground rent charged to account for the freehold ownership. However, these properties should be sold, not on the open market but through a restricted market.

If, for example, a council built ten, £100,000 homes in London, on land it owns, it should offer them for sale by a lottery of all the people who register a wish to buy them. However, the purchasers of these homes should only be able to sell them through the same mechanism and at a fixed price. Annually, the government should announce the percentage increase allowed for the price of such regulated housing, and this should be something along the lines of the return available through a decent savings account.

It should be expected that mortgage providers should see these homes as secure and affordable and be relaxed about providing lending for them.

You might ask why anyone should want to buy a fixed price home if they won’t make a profit on its sale. That’s kind of the point. An individual or a family could live in the home their whole lives, getting a boost to their standard of living once the mortgage is paid. Or alternatively, they could use the equity in the property as a deposit on another home if they wished to join the real housing market – but if they did so, the property they sold would not be lost as an affordable home.

Such properties would have to be regulated in terms of rents as well as sale prices. You couldn’t have the situation where a private landlord snapped up the property and then profiteered from the low cost – but this too would be easy to police.

Crucially, the costs of managing this system would have to be covered by the revenues generated from it. These costs would include:

  1. The cost of building the property
  2. The costs to the authority of the use of land – eg. capital charges.
  3. The national means for buying and selling such properties through a ballot
  4. Policing rents
  5. The normal freeholder costs, eg maintenance and the management of repairs and improvements etc.
  6. A means for owners to apply for a variance in the sale price of a property according to improvements made or harm done to the property.

A number of these costs are reduced as the programme reaches a certain scale, though it would almost certainly require legislation to prevent property owners challenging the restrictions on who can buy their home.

The revenues on the other hand include:

  1. Initial sale prices
  2. A sale fee
  3. A fee to “bid” for a property
  4. Ground rents
  5. Maintenance charges

This isn’t a formula for the mass construction of council homes for rent. It could however be a basis for large scale housebuilding by councils, allowing them to quickly recoup the housebuilding costs so that it can be reinvested in further housebuilding. Furthermore, it can provide a model of home ownership that doesn’t result in one generation outpricing the next as well as a haven for some of the seven million people currently being exploited by private landlords.

  • swatantra

    Makes sense.
    Better still is it time for Prefab Housing, ie units with the basic amenties, constructed cheaply on community trust land with their own little garden plot or allotment.
    We had them right after the War and some are still going strong 60 years later.
    People need cheap affordable housing without the trimings without the plasma tv, without the massive dog to eat them out of their earnings and benefits. And we simply are not providing these basic starter homes.

    • Anonymous

      For god sake Swat prefabs that’s not the answer, the answer is social housing to rent not to buy, not to sell but to rent.

      Prefabs with a garden and a plot, and fairies and and flowers and little men with funny hats fishing.

      If you can build a Prefab then you can build a bungalow.

      • swatantra

        The picture shows a bungalow with a loft conversion. But it could easily be a prefab which could be built in half the time at half the cost. With modern materials and new building techniques we could have half a million up in no time. And that is the point; people need a roof over their heads, now not in 20 years time, whether its for rent or buying on some equity scheme. We are talking about starter homes, from which people can move on and up to more pernmanent ones once they get settled into a career or job.

        • Anonymous

          Swat you can build a house in seven days, it’s not the building which is the problem mate it’s the money and the interest in building houses to rent.

          You can build a million houses in a year if you wanted, if you have the money, the skills and the man power are here, but not prefabs for god sake we want to go forward not backwards.

  • http://profiles.google.com/davideeinkl David Awallace

    I’d rather just see a huge increase in new council houses being built and an end to the right to buy, although this idea also has some merit.

    The author is right to say: “The trouble with regulating this unfair situation, where poor people pay exorbitant rents to pay off the multiple mortgages of property owners, is that MPs care more about the property owners in electoral terms than the private rental tenants who are less likely to be swing voters in marginal seats” – all true but I believe there is a little more to it than that.

    MPs also have far more empathy with property owners, buy-to-let landlords and property speculators than they do with those who have no other option but to rent as MPs themselves are property owners, buy-to-let landlords and property speculators (although admittedly they do have an advantage over other property speculators in that they can speculate at tax payers expense and avoid any capital gains tax on the profits).

    I doubt that very many MPs even have any friends or close family members who’s only option is renting. Once you fall below a certain social economic status no UK government will give a damn about you, and it’s been that way for over 30 years now.

    And they wonder why people are camping outside of Saint Paul’s and society is falling apart…

  • http://profiles.google.com/davideeinkl David Awallace

    Sorry for the double post but there is one other point I’d like to make. I wrote on the previous thread that the solution for progressives might be to simply refuse to vote at all.

    The authors statement “The trouble with regulating this unfair situation, where poor people pay exorbitant rents to pay off the multiple mortgages of property owners, is that MPs care more about the property owners in electoral terms than the private rental tenants who are less likely to be swing voters in marginal seats” is a perfect example why I believe this might be the right strategy in the long-term.

    Labour take their ‘core supporters’ for granted because they believe that they can. If Labour’s core voters could only be persuaded to leave them in droves then Labour would have to work to win them back and couldn’t only seek to appeal to the ‘swing voters’ from then on.

    This strategy would make things better in the long-term and no worse in the short-term.

    • swatantra

      Andy, wehave aken our core voters for granted its already happened, and we’re trying to win them back.
      But abstaining from voting is a cop out.

      • Anonymous

        Works for me, in fact it will be working for me at the next election, I mean whom do we vote for the Tory party, or the Liberal Tory party, or Miliband who’s not decided if he a big c or little C Tory party

        • swatantra

          ‘An act of ommision;’ can in fact be interpreted as ‘an act of consent’. Lawyers will argue till the cows come home about the ‘right to remain silent … etc etc etc’, but IMHO , by abstaining from voting means that you accept the result, whatever it happens to be, a Lab or Tor or Facist Govt.
          Things would be a lot easier if the put a ‘none of the above ‘ box. and made voting compulsory with a £1000 fine, or £5000 fine for thee really well off.
          We also need PR to encourage more participation and more Parties if need be, so that voters have a choice.
          And Labour should not be afraid of ‘Coalition Govt’, as it is scarec stiff. Coalitions are formed from Parties that have formed a common understanding on key policies. Voters will have to get used to the fact that not one Party has the answers to all the problems.

          • Anonymous

            Hell of a choice three Tory parties vote for the one which meets your requirements as being the least Tory no thanks

      • http://profiles.google.com/davideeinkl David Awallace

        Why is it a cop out? Why MUST we choose if we’re not happy with any of the choices?

        To answer that we must choose between a kick in the teeth or a kick in the balls so we at least have some control over where we are kicked is,I believe, a valid argument. But it is not an argument that I can accept because I’d rather not give credence to my assault by voting for it and ‘choosing it’. If it happens it happens, but I’m not giving it the OK with a tick in the box for it.

        But to answer: ‘vote for us because the other lot will kick you even harder’ sounds like downright blackmail to me. I refuse to be bullied and scared into voting for party run by people in favour of unfettered capitalism, something I don’t believe in, under the threat that if I don’t then the other lot will treat people even worse.

        The problem Labour have though is that when they make promises to win back their core voters the voters are able to judge the party on it’s recent record of 13 years in government with massive majorities, and what they actually did with those majorities. And that is likely to carry more weight than anything the Labour party says for a long-time.

      • Anonymous

        It’s what I did I put my X in everyone of the boxes, I could not make up my mind which one to vote for, and I nearly voted for the BNP, so after a few seconds I voted for the lot.

  • http://thepeoplesflag.blogspot.com/ Andy Williams

    One of my daughter’s lives in Germany as do several of my friends. Houses there are far cheaper than here to both buy and rent. It is extremly unusual for people to buy a property before they are 40- not because they can’t afford to but because it just isn’t the done thing – they regard it as being far more important that you can relocate quickly as work moves.

    The typical mortgage is fixed for 20 years at the interest rate the day you take it out and it doesn’t alter irrespective of how the interest rate may move. You need a traceable credit history and a 10% deposit upfront as well as a 3% handling fee (as does the seller). You can’t roll the mortgage over, there is no ‘interest only’ and you cannot borrow against the equity nor can you use it as security against any other loan until it’s paid for.

    The impact of this is that average housing (and it’s far higher quality than ours) tends to stay at around 3 times average income for the area it is in and property speculation is virtually unheard of as a result – house prices remaining largely in step with incomes.

    Two examples. Two years ago my daughter bought a brand new 2 double bedroom apartment, fully fitted, underground secure parking, in Trier in the Moselle Valley. €85,000 and €120 a month service fee that also includes basic phone line, basic cable tv and basic internet (fibre optic, 50Mb). Last year one of my mates bought a 3 bed detached house, double garage, front and rear garden, small pool in a little village midway between Hannover and Hamburg (40 minutes from the centre of each). €105,000.

    Then you have the dogs breakfast we have over here and morons bragging about how much their house prices have risen.

    As for rents, €350 a month will get you a pretty tidy 2 bed house. You have far more rights than a tenant over here. Each property has to have a licence. The Landkries (like local council) inspects it before you move in and will not allow you to move in until any outstanding repairs and/or routine maintenance have been carried out. Likewise they will inspect it (along with the owner) when you move out and will decide whether any damage is fair wear and tear or neglect and if the latter how much the tenant should pay.

    Whereas we have that plague of locusts known as buy-to-let.

    • swatantra

      The European experience is more towards the rented sector and I go along with that.
      Also the fact that your starter home is unlikely to be your permanant home because people do move on depending on career etc. Here if given a council property its almost like winning the lottery and you have it for life, which strikes me as odd. We have many elderly peole living on their own, in 3 bed properties now that their spouse has died or children moved on. We also have issues with succession, about inheriting a councilproperty just because your parents had it.
      The RTB scheme was morally wrong and took much needed council properties out of circulation.
      It as also added to the BTL properties as owners ave gone into the property market.
      Here there is very litle difference beween he rent you pay and the morgage monthly payments. We do not really have low rents not even in council properties.But the main problem is that we simply do not have enough homes being built, vecause building stalled under both govts.

      • http://thepeoplesflag.blogspot.com/ Andy Williams

        They don’t do ‘starter homes’ in Germany. There is no such notion.

        • Anonymous

          They do not need to do they because houses to rent are available Flats in the old Northern part of Germany are as cheap as chips, although a little bit plain people are snapping them up for first homes.

  • http://thepeoplesflag.blogspot.com/ Andy Williams

    I see that the tories are considering bringing back the Right-To-Buy with a discount of upto 50%. But with the caveat that the money is ring-fenced for replacement nad councils must replace the house on a one-for-one, like-for-like basis and that the tenant cannot sell it for a set period and if/when they do the price is controlled by the council so that it remains as an ‘affordable’ house as opposed to a speculator’s cash cow.

    To be frank, what a bloody good idea and one that I have seen on here and in other places over the years.

    Something else Labour should have done, could have done, but didn’t.

  • http://profiles.google.com/davideeinkl David Awallace

    Some good comments on http://www.housepricecrash.com about this if anyone is interested, a few posters say it’s all Labour’s fault but mostly people are saying the Tories would have done little different http://www.housepricecrash.co.uk/forum/index.php?showtopic=172083&st=0

  • Anonymous

    What if I extend or otherwise improve the capped house. Do I get any value from that or does it go to the LA?