Policy Exchange

A new vision for housing policy

A new report from think tank Policy Exchange published today calls for a radical overhaul of housing policy, saving taxpayers around £20 billion a year.

The report finds that Britain is suffering from a housing crisis affecting both social tenants and those struggling to afford to buy their own home.

It calls for a big increase in the number of new homes being built for sale or rent in areas of high demand, with social housing tenants given new ways to get onto the first rung of the housing ladder.

Local people will get a veto on how much, if any, development is allowed near them through ballots of those directly impacted.  Cash incentives will be available to those affected to help persuade them to vote yes.

Policy Exchange Deputy Director and editor of the report, Natalie Evans, said: “Not only does current housing policy not work, it is also extremely expensive. At a time when public finances are under such strain this is not sustainable.  The reforms outlined in this report to social housing and the planning system would save up to £20 billion a year.”

“At the same time, rising house prices are making it harder and harder for those who want to buy to do so. We need to get away from the idea that house prices can rise faster than inflation every year without that affecting the ability of people to actually buy.

”Having stable house prices will save everyone money. But for that to happen, we need to make it easier to build houses. So there needs to be major reform of the planning system, such as allowing developers to offer local residents a say and financial incentives to approve development near them.”

The report’s author, Alex Morton, added: “There are many hidden costs for taxpayers behind the recent surge in house prices. It has caused big increases in Housing Benefit plus soaring waiting lists for social housing and ever more demand for heavily subsidised ‘affordable homes’. Falling home ownership has also meant a more unequal society and tension between generations.”

“It should be up to local people how much development is allowed near them, through ballots of those affected by proposed developments.  The cash incentives will be bigger in areas where housing is more expensive, meaning it is likely that more homes will be built in areas like London and the south-east.”

House prices more than doubled between 1995 and 2009, taking the price of an average home in Britain in real terms from £72,659 to £160,000. Yet fewer and fewer new homes of any sort are being built and many of those for sale are poor quality “rabbit hutch”-style properties. The proportion of Britons owning their own homes is now falling for the first time since 1918. Rising prices mean rising rents – costing taxpayers an extra £8 billion a year in Housing Benefit since 1997. Social housing waiting lists have also doubled since 1997.

Britain is stuck with an expensive social housing sector which traps residents by providing disincentives to work, holding down aspirations while at the same time costing taxpayers around £32 billion a year.

Even adjusting for disadvantages like ill-health, the report finds social tenants have a rate of employment between 20-25 percentage points lower than owner-occupiers or private renters, costing an extra £7 billion a year in welfare dependence because of the disincentives to work that social housing creates.

The report makes a powerful case for freeing up Britain’s housing market with a series of radical and innovative recommendations. Firstly, the Government should have an explicit policy of achieving stable house prices by substantially increasing the number of new homes being built.

To do so, the planning system should be reformed to give local residents the right to vote on new developments nearby – potentially earning direct financial rewards for themselves if plans are approved but subject to continuing restrictions in areas like National Parks.

New tenants in social housing should by default be placed on a “Path to Ownership”, which would see their rent instead become mortgage payments.  To allow more social housing to built, low-interest government bonds would be issued, with rent/mortgage payments being used to service the debt. This would be cheaper than the current system of subsidies.

Building on previous Policy Exchange research, the report also backs a “Right to Move” for social tenants – which would see their landlords obliged to offer similar properties to allow people to move for work or other reasons. The report also backs a renewed “Right to Buy” for social tenants wishing to buy their own homes – with bigger discounts and guarantees that mortgage repayments would be pegged to social housing rents.

Along with savings of up to £20 billion the key policy goal is that by 2030, the Government should aim that all working households be able to afford to buy a decent home – giving all who deserve it the security and other advantages of owner-occupation and a stake in their communities.