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:
- The cost of building the property
- The costs to the authority of the use of land – eg. capital charges.
- The national means for buying and selling such properties through a ballot
- Policing rents
- The normal freeholder costs, eg maintenance and the management of repairs and improvements etc.
- 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:
- Initial sale prices
- A sale fee
- A fee to “bid” for a property
- Ground rents
- 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.