25 April 2018

May’s new adviser understands the scale of the housing crisis


In her party conference speech last year, Theresa May dedicated her premiership to “renewing the British Dream” by “fixing our broken housing market”.

And so it is reasonable to assume that the ideas of anyone advising the prime minister of housing are likely to be fairly important. That is exactly what Toby Lloyd, formerly head of policy and housing development at Shelter, has been appointed to do. Thankfully for those interested in what he thinks on the subject, he is the co-author of a recent book on the subject, Rethinking the Economics of Land and Housing.

What clues does it contain about the thinking in Downing Street on this important subject? Will he will press for tax reform and land value capture to allow more genuinely affordable housing to be built? Will he press for more sensible land policy, protecting areas of beauty and value, especially within cities, while giving more scope for fields of pesticide-laden monocrops, golf courses and scrubland to be improved where communities want it to be improved?

Rethinking the Economics of Land and Housing was a fascinating book even before Lloyd’s move to Downing Street. The authors explain how growing post-war home ownership increased the relative power of property owners and the priority that Western governments gave them. “In an era of majoritarian democracy, governments have seen fit to slant public policy in favour of these new, domestic landowners, deepening the divide between those that do and do not own landed property.”

The book draws from rich and surprising sources, painting a compelling and vivid picture of the deep unfairness and misery caused by our housing crisis. It also argues that banking is unfairly subsidised through deposit guarantees, at great cost to society, and describes banks’ shift towards long-term mortgage lending and away from their historical role of shorter-term lending to productive industry. That shift is a source of increasing and potentially dangerous maturity mismatches. If the authors wished to strengthen their case further, they could add monopoly access to reserve accounts and lender of last resort facilities. The Bank of England has never thought fit to do a full cost-benefit study of all of those subsidies.

I would love to see the the authors expand their history of UK housing. Since the Second World War, this country has never achieved the percentage net rate of growth in the number of homes achieved in the 1830s, an age before electricity and modern machinery, let alone the much higher growth using still-primitive methods in the 1930s. The firm Global Financial Data tells us the average UK house in 1940 was cheaper than 600 years earlier in 1340, after adjusting for inflation; since then, house prices have increased by eight times in real terms. Something has gone terribly wrong.

It would be even more fascinating to see the authors grapple in detail with the scope for doing better with the land in existing cities such as London and of the role for infrastructure, particularly public transport, in reducing the premium on land in city centres, as cities such as Tokyo have done. Public transport made the London suburbs a practical choice for the working classes who had previously been crammed into slums in the centre. The book’s thesis would be richer and more nuanced with more use of the extensive modern research on the economics of geography – “spatial economics” – and in particular on the benefits of using land more attractively and intensively, as our ancestors used to do.

There are plentiful references to the distinguished spatial economist, Professor Paul Cheshire of the LSE, but the overall slant of the book is decidedly macroeconomic, understandably so given the broad, massive impacts of our crippling housing shortage.

When we look at the fine grain, we see that much of the centre of London and other cities has been put to more and better use over time. The mansion blocks of Kensington and Chelsea replaced much humbler structures, as did those of Bloomsbury and around the Marylebone Road. The elegant façades of Regent Street are a pre-war redevelopment after the original leaseholds expired.

There is still massive scope for improvement. Half of the homes in London are in buildings of just one or two floors. The world-renowned terraces of Bloomsbury have five to ten times the density of most of London. Kensington and Chelsea and Westminster have the third and fourth most residents per acre of any London borough, despite including Hyde Park.

We could easily treble the number of homes in London alone by allowing Georgian or Edwardian densities again – attractive rows of gorgeous terraced houses or maisonettes and mansion blocks. It would require some disruption but it might be the only politically achievable form of radical change, because it would also make existing homeowners in those streets better off, while making individual homes colossally more affordable over time.

Even if that made land more valuable overall – and the econometricians tell us that is not clear at all – it would vastly reduce the cost of land per home and make better housing more affordable for everyone.

To neglect those options is to make the perfect the enemy of the good, and will make us all poorer.

My hope is that Toby and his co-authors will take advantage of his new-found and well-deserved fame to publish a second edition, with an extra chapter on doing more with the land we already use. Such urban improvement was, understandably, not the authors’ main focus.

But solving the politics of housing is easiest if we can reduce inequality in a way that benefits as many people as possible.

Allowing graceful improvement of existing streets, with local support, is a powerful way for that to happen, as we set out in our recent report published by the Adam Smith Institute. That would reduce the cost of Housing Benefit and allow far more money to be spent on building truly affordable housing for those in most need – not to mention the increased tax revenues from the resulting economic boom. It is a pity to eliminate it from the list of options.

John Myers is co-founder of London YIMBY, a grassroots campaign to end the housing crisis with the support of local people.