Home Truths: The UK’s Chronic Housing Shortage – How It Happened, Why It Matters and How to Solve It by Liam Halligan

This is the only book I have ever taken into the Terrace Cafeteria at the Commons – where it is my custom to take a late lunch of jerk chicken and rice each Wednesday after sketching PMQs – in whose contents a member of staff has shown an immediate and passionate interest.

He told me he has no hope of ever buying a place to live in the district, just south of the river and within easy reach of the Houses of Parliament, where he was born.

That district, once quite cheap, is now, like everywhere else in the middle of London, prohibitively expensive for anyone on a modest income. If he is ever to get his own place, he will have to move a long way out, and the injustice of this rankles with him.

Liam Halligan sets out in this book what went wrong with the housing market:

“The average UK home now cost eight times average annual earnings, over twice the historic norm. This crippling affordability multiple rises to twelve times across London and the south-east…

“While the UK needs around 250,000 new homes a year to meet population growth and household formation, housebuilding has failed to reach that level since the mid-1970s. There’s a huge backlog shortage of homes, built up under successive governments over decades, which has seen property prices spiral way ahead of earnings. As a result, millions of young adults are stuck in shared, rented accommodation and have put their lives on hold.”

This is an enormous political opportunity for whoever becomes the next Labour leader. Millions of people are stuck paying extortionate rents for year after year, unable, unless they have rich parents, to get together the deposit needed to buy a house.

And this used not to be the case. Halligan was born in 1969, in the suburban, semi-detached, 1930s house in Kingsbury, London NW9, which his parents, who had both left school at the age of 16 without any professional qualifications and did not go to university, had been able to buy on a mortgage, after 25 years owning this little patch of Metroland outright.

For a long time after Halligan’s parents put down roots, home ownership remained a realistic aspiration:

“When I left home back in the early 1990s, over 45 per cent of 25-29-year-olds owned their own home. Since then, that figure has plunged to less than 25 per cent. Even professional couples with impressive qualifications and relatively high incomes are increasingly ‘locked out’ of the property market as prices keep rising faster than earnings…

“Since the end of the Second World War, one of the basic features of the UK’s free society – the ‘British Dream’ – has been that anyone who works hard and saves for a few years should be able to buy a decent home at a reasonable price. As such, the chronic unaffordability of housing, in many parts of the country, is now the major economic and political scandal of our time. It is disgraceful that over recent decades, a combination of cowardice and neglect on the part of successive governments means that, for countless young adults, the dream of home ownership is being cruelly denied.”

The language is not elegant, but it is hard to deny the truth of what Halligan says. In the mid-1930s, 85 per cent of new houses cost less than £750, equivalent to about £55,000 in 2019.

After the passing in 1947 of of the Town and Country Planning Act, almost all new building required planning permission. That, one could say, was the root of the problem, for it has led to an artificial shortage of building land, which in turn has caused the grotesque inflation of house prices.

But Halligan thinks the 1947 Act worked well, for it provided for “betterment” – the greatly increased value of land once it had planning permission – to be paid to the state. This kept land prices down, and gave local authorities the revenue needed to build the roads and other public services which the occupants of new houses required.

Landowners hated having to sell land at existing-use value, i.e. cheap, and under the Conservative governments of the 1950s, that side of the 1947 system was gradually dismantled, until under the 1961 Land Compensation Act, landowners gained the right to receive full value for all sites, including any prospective “planning gain”.

Land prices almost at once started to rise, and landowners, whether private or public, gained a perverse incentive to hold on to their land for as long as possible, in the confident expectation that it would become more and more valuable.

The market in land is horribly rigged, and favours owners over prospective buyers. As Halligan points out, the UK house-building industry, in which many small firms used to participate, is now dominated by an oligopoly of very large firms, who invest in a scarce resource, building land, which they do all they can to keep scarce, and on which they build an inadequate number of often shoddy rabbit hutches.

What is to be done? Halligan, who writes as an economist, wants the 1961 Land Compensation Act reversed, and has interviewed Sajid Javid, now the Chancellor of the Exchequer, who served as Secretary of State for Housing, Communities and Local Government from 2016-18, and described the reform proposals which were being developed under his leadership:

“When I was Secretary of State, we worked on a fifty-fifty split of the valuation between local authorities and landowners.

“This would be an efficient and morally justifiable tax. The state is expected to create the infrastructure around new housing, and that needs to be paid for – so fifty-fifty makes sense.”

Javid was “frustrated” when Theresa May removed this measure from the 2017 Housing White Paper. He told Halligan:

“She just didn’t get the the impact of this housing crisis on ordinary families, ordinary working men and women – so the White Paper was gutted, all the strong ideas removed. It is vital we now take radical steps – once Brexit is done, housing is easily the most important domestic policy issue we face.”

Boris Johnson has not yet said very much about housing as Prime Minister, but one hopes he agrees with the Chancellor. For what they do about housing will give a good indication of where their sympathies lie.

Halligan says “there has not been nearly enough resolve to tackle the entrenched supply-side vested interests benefiting from the status quo”.

He means house-building companies such as Persimmon, whose iniquitous behaviour he describes at considerable length, also quoting the memorable condemnation of them in the Commons by Robert Halfon (Con, Harlow):

“On Saturday, I met a group of Harlow residents, many of them on Government Help to Buy schemes, who moved into homes built by Persimmon Homes that are shoddily built with severe damp and crumbling walls. In the eyes of my residents, Persimmon are crooks, cowboys and con artists.”

This was in July 2019, at Theresa May’s penultimate PMQs, and she said in her reply to Halfon:

“We have already announced our intention for a new homes ombudsman to protect the rights of homebuyers and to hold developers to account.”

A new ombudsman is an empty gesture. This distorted market, which enables house-builders to make vast profits from shoddy work carried out at the expense of people in desperate need, requires root and branch reform.

But Halligan underestimates the vested interests which stand in the way of reform. Many an owner, or part-owner with the building society, of a small, shoddily built house (I write as someone in that position myself) enjoys thinking, with a certain ineffable complacency, of its enormously inflated value, supposedly several times what it cost to buy.

These prohibitive prices have to come down, and that is a message Johnson and Javid will be reluctant to convey, especially as according to Halligan, senior Treasury officials believe that tackling the housing shortage “will spark another banking collapse”.

One of the happy side effects of the last banking collapse should have been a collapse in property prices, so that people of modest means could once again afford somewhere to live.

But instead, the property market froze, owners stopped moving house, and there was no proper correction to prices, which remain grotesquely high.

My inclination, as a conservative, is to believe that property rights are one of the most sacred guarantees of liberty itself. But since 1947, the state has removed the right of the owner of a piece of land to build on it.

It was beyond Halligan’s scope to describe how some of the tawdry speculative building of the 1930s created a demand for planning controls. In any case, he loves those 1930s houses, grew up in one of them and reminds us that their praises were sung by John Betjeman.

If the nation is going to control what can be built, the nation should also take some of the profits which are reaped by landowners and developers who gain permission to build.

Some years ago, I examined for ConHome how Harold Macmillan managed, as Housing Minister in the early 1950s, to fulfil the Conservative pledge to build 300,000 dwellings a year, which Labour thought was impossible.

He did it by employing every lever, public and private, which was to hand, by sanctioning every single application to build council houses, and often by giving orders in the wartime manner. His achievement paved the way for the Conservative election victory in 1955, for him to become Prime Minister in 1957, and for the Conservatives to win again in 1959.

He had demonstrated that the Tories were better than Labour at providing for the welfare of the people. Not that everything he did was admirable, for as I remarked in that piece:

“Some of the housing built at this time was so repulsive that to this day it makes people deeply suspicious of all new building.”

Will Johnson evince Macmillan’s ruthlessness and flair, or will he fob people off with an ombudsman?

On Tuesday of this week, I attended a reception held at the Commons by ConservativeHome for new Tory MPs, and spoke to a number who feel a burning desire to repay the trust which has been reposed in them by former Labour voters.

But as I entered the Palace of Westminster from the Underground station, I passed a number of rough sleepers already settling down for the night in the white-tiled tunnel.

What a shameful sight. Something here is terribly amiss. Those rough sleepers, so visible in most of our towns, have something to do with the intolerable cost of getting a roof over one’s head, which in turn has something to do with the intolerable cost of property, which in turn proceeds from the artificial scarcity of building land created by the state.

The buck stops with the Prime Minister. Does he have the guts to act?