Sharp words on the housing market – from Oxford Civic Society newsletter

Significant review of the book HOME TRUTHS on UK’s chronic housing shortage

[Book:] *Home Truths: The UK’s chronic housing shortage – how it happened, why it matters and the way to solve it, by Liam Halligan. Biteback Publishing, 2019 

By Peter Thompson in July 2020 newsletter of #OxfordCivicSociety

An economist by training, Liam Halligan was prompted to write this book by the chronic shortage of house-building and a crisis in affordability.

He sets out the history of housing supply during the 20th century, concludes that too few homes have been built to meet population growth and household formation, and goes on to examine many of the causes of this situation.

In making proposals for how it can be remedied he argues that: “We must radically reform the supply side of UK house-building … particularly the opaque and deeply dysfunctional market for land.”

The big villains of his analysis are, first, the politicians who, in several steps, emasculated the ground-breaking Town & Country Planning Act of 1947. Apart from beginning to regulate urban planning, this Act set the value of developable land as that of its existing use (agriculture mainly).

The elimination of this principle was finally achieved by the passing of the 1961 Land Compensation Act, allowing owners to benefit from the hugely enhanced value of land with development consent.
The other big villains are presented as the four or five largest house-builders, who completely dominate and manipulate the market, indulging in an array of mal-practices in order to generate massive profits and rewards for directors.
Halligan rightly points out that the biggest component of house prices is the land value and it is this that makes housing unaffordable.

However, he also explains that land values are determined by ‘residual valuation’, i.e. by assessing the gross returns from the completed development and deducting the building costs so that the selling price of the completed houses determines the land value, not the other way round.
As in any market, house prices are set by what buyers are prepared to pay, not by the costs of production.

The fact is that, even in expensive Oxford, some buyers can pay exorbitant prices for homes, but they exclude most of the key workers on whom we all depend.

‘Unaffordability’ thus raises issues of wealth discrepancy and how we value jobs, perhaps more than the price of developable land.

Halligan recognises house ownership and high prices as contributors to wealth inequality, but not as a consequence of it, possibly because it is a subject beyond the remit of this book.
He quotes a wealth of statistics, including figures showing the rapid decline in home ownership in the last 20
years and increase in private renting.

One failing, perhaps, is that although he alludes to insecurity, he does not fully explain why private sector tenants are at such a disadvantage in this country. Perhaps a reference to the introduction of the Assured Shorthold Tenancy by the Housing Act of 1988 deserved a mention.
Halligan does expound on the perceived desirability of ‘a home of one’s own’ and the manner in which the market is
broken (as conceded in the government White Paper of 2017).

He devotes a chapter to the merits of local authority involvement and is deeply critical of the implementation of measures such as the Right to Buy.
His ‘Manifesto for Change’ lists 10 issues to be addressed, including:

1. land value capture (Halligan suggests 50% of the value should go to provide infrastructure);
2. new towns;
3. more good quality social housing;
4. better planning and design;
5. reconsideration of Green Belt policies;
6. rescinding the ‘Right to Buy’ and giving greater protection to buyers of new homes;
7. the selling-off of government-owned land for housing;
8. the removal of secrecy as to just who owns land in the UK;
9. removing the automatic right of a development to remain, without it having been granted planning consent, if no action is taken within four years; and
10. opening up opportunities for smaller businesses to break down the oligopoly of the big house-building companies.

The book does not consider where we should build housing, or how it should relate to the nature and location of economic activity.

It does not suggest what 21st century development should look like, nor the transport and connectivity  issues surrounding it.

Perhaps most importantly, it mentions climate change only once in the introduction, and not at all in the context of what needs to be done in regard to housing.
The ‘radical reform’ required, Halligan suggests, is necessary to address social disengagement and wealth inequality.

For all its flaws and omissions, this book is a worthwhile read and makes some pretty convincing arguments for political action, by any government.