Illustration: Edward Emery
The Prime Minister summed it up well in her closing speech to the Conservative Party Conference:
“For 30 or 40 years we simply have not built enough homes. As a result, prices have risen so much that the average home now costs almost eight times average earnings. That’s been a disaster for young people in particular. We have begun to put this right… but the election result showed us this is not nearly enough.”
Despite a larger population, the number of new homes built in the last thirty years is less than half what it was in the 1950s and 60s. Home prices, as May pointed out in her speech, have skyrocketed, especially in and around London.
In conjunction with stagnating wage growth and rising levels of student debt, the increasing cost of housing is a contributing factor to why many economists believe that millennials and those belonging to Generation Z will be the first in living memory to be worse off than their parents. Tackling the housing problem has, for the first time, become a priority for both major parties in Parliament, as both Labour and the Conservatives put forward proposals for tackling the crisis.
Labour’s proposal is twofold. It consists of implementing a system of rent controls as well as a major building program. Both concepts were part of the 2015 Manifesto, but have come to the forefront of Labour policy discussion this year, first during the General Election and against at the recent Labour conference in Brighton.
Rent controls are an extremely contentious policy, especially when academic opinion is taken into account.
There are three main types of rent control, none of which were ruled out at the Labour Conference. The first is a temporary freeze on rent increases, the second is a cap on the rise of rent year-by-year, and the third is a cap on the amount of rent that can be charged. The potential benefits of rent controls are obvious: they prevent rent prices from spiraling out of control and give renters certainty in their budgeting. Such a policy is especially appealing to young people because younger people are statistically more likely to be renting than their elders.
However, most mainstream economists, believe that rent controls are ultimately ineffective at lowing housing costs outside of exceptional situations. By reducing the incentive for potential landlords to let, housing costs can actually increase with rent controls. Additionally, it also lowers the incentive for landlords to improve their properties, leading to shabbier, less modern housing.
What isn’t controversial, however, is the idea that increasing the supply of housing will bring down prices, or at least limit rises in prices.
As such, Labour’s other major goal of financing new council housing is far less contentious. Labour’s 2017 manifesto promised to build “at least 100,000 council and housing association homes a year for genuinely affordable rent or sale,” a promise re-stated at Brighton. Such a proposal would be a dramatic reversal of government policy for the past thirty years, in which very few council houses were built and in which the government often encouraged renters to buy their council flats. However, such a change is seen as necessary by most voters, including many in the governing Conservative Party, which has introduced its own plans to increase the housing supply. Criticism of Labour’s proposal is mainly centered around cost, specifically whether such a housing program can be funded in light of Labour’s other manifesto commitments of renationalization and increasing funding to the NHS.
Such concerns about funding are, for now, speculation, as Labour is not in government. However, the governing Conservative party has its own agenda regarding housing.
Their proposal is also two-fold, aimed at both increasing the amount of council housing as well as increasing the amount of private house construction through increasing funding to the Help to Buy program.
The Help to Buy program consists of government-provided, interest free loans to prospective homeowners. In an echo of Labour’s rent controls, Help to Buy is also very controversial. The program is accused of increasing demand without a corresponding increase in supply of new homes, thereby indirectly increasing prices. Regardless of the accuracy of that accusation, Help to Buy is not an option for those with low incomes, as the program requires a five per cent deposit to enter, and after five years starts incurring interest.
Theresa May also announced that the government would provide £2 billion in grant money to councils and housing associations to build new affordable housing. While this represents a sea change in Conservative approaches towards homebuilding, the actual number of residences the money would build is between 5,000 and 25,000, depending on the source. While any new homebuilding is welcome, this number is generally considered to be a drop in the ocean and nowhere near enough to make a dent in home prices.
A policy that has not been included in most of the debate around housing, but could potentially help increase supply is a proposal in Labour 2017 manifesto to introduce a Land Value Tax, or LVT for short. The name is descriptive; it’s a tax on the value of land rather than income or council tax. The idea of an LVT has been bounced around Britain for over a century; in 1909 a then-Liberal Winston Churchill gave a speech in favour of it in the House of Commons. It is a tax that has a great deal of support from both left- and right-wing economists.
Those on the left, such as its first and most famous proponent, Henry George, like it as it raises taxes disproportionately on the wealthy while not being avoidable like corporation tax. Conversely, those on the right prefer it to most other taxes because it promotes rather than de-incentivizes economic activity, unlike most other taxes. It is for this reason it has the potential to help alleviate the housing crisis, as landowners would be incentivized to develop their land or sell it to someone who would. Its proponents claim that currently empty lots would be transformed into thriving businesses and crucially, new homes.
However, the tax faced resistance during the election campaign from homeowners worried that the “garden tax,” as it then came to be called, would drastically increase taxes for middle-income homeowners. Despite these objections, Jeremy Corbyn confirmed at the Brighton conference that Labour would continue to support such a tax.
Ultimately, while neither party’s proposals are perfect, students should be relieved that the housing crisis is now a bi-partisan issue, with the dividing line being how to solve it rather than whether it exists in the first place. With any luck, the government, regardless of who leads it, will be able to make progress in lowering housing costs for graduating students and the public at large.