London needs to look to South Korea, to find a solution to spiralling housing costs. That’s the conclusion of John Muellbauer, professor of economics at Oxford.
Muellbauer says four major reforms are needed, to transform the landscape and encourage realistically large levels of home building. And, post-Brexit, he has called on the government to make the brave changes that could really help.
Writing in the Sunday Times, he has suggested a national land bank, a rethink of the government view about debt and assets, an expansion of affordable housing and an exploitation of the potential that is hidden in the New Towns Act.
“Without a serious rethink of our approach to land use and housing, the imbalances that have divided much of the country are likely to continue,” he warns. “Successive governments have recognised the problem, but initiatives such as “help-to buy” and the new Isa to encourage people into owner-occupation benefit the few but worsen the demand/supply imbalance and so drive up house prices for the many.”
While there has been plenty of discussion about how to capture value uplift when planning permission is granted. Muellbauer says a successful model already exists, in South Korea. There, a national bank buys land for development, allowing the country to retain the benefit of a growth in value once planning permission is granted. He notes: “This solves housing supply problems and provides funds to build schools, roads and hospitals. The UK could follow suit by expanding the capabilities of the Homes and Communities Agency, the Greater London Authority, and newly devolved regional authorities.”
One hobbling factor currently is that the UK Treasury needs to reconsider how it calculates value. Investing in land that grows in value ultimately creates a payback, not simply adding to debt.
Muellbauer also proposes rekindling the social housing programme. For two decades from 1960, this delivered between 30-50% of new homes, he notes, against a recent figure of less than 15% a year. “This collapse explains most of the decline in British house building. With much lower land costs, the prospects for a large affordable housing programme would be much improved. Giving local authorities a share of planning gains would further encourage effective land auctions and fund community projects.”
And the New Towns Act has more to give, he asserts. From compulsory purchase to easing rules on building heights, its tools could help bring forward more, and more dense, development in the right places.
LPA Perspective: Thinking the previously unthinkable is now, for a short while, absolutely on the agenda. A new prime minister, with a largely new cabinet, is already overturning previous concepts of fiscal responsibility.
Theresa May could also rethink the policies of a government that really had no idea about the cost of housing, or how to deliver homes that real people can afford. Help to Buy helped very few, while institutional involvement in the private rented sector continues to be on the cusp of becoming significant. Dipping into some new policy ideas, such as those proposed by Muellbauer, could yield some big wins.