Was this housing crisis a choice we made in Britain?

Our housing costs have spiralled in England, but in Germany, by comparison, housing cost compared to average disposable income actually fell between 1970 and 2010. Why the difference?

More on Germany vs Britain below, but first, we wanted to report on some recent progress in our challenging the government’s ‘build baby build’ narrative.

At CPRE London we have worked incredibly hard to expose the ‘smoke and mirrors’ used by Government and others to claim housebuilding will solve the housing crisis. We have shown evidence that dwelling stock has grown more than population; that the planning system is not ‘blocking’ development (quite the opposite, planning permission is in place for 300,000 new homes in London, they are just not being built); and most importantly that, even if we build 1.5 million new homes, it will not bring prices down (the Office for Budget Responsibility says). [Read Green Belt is not the answer to the housing crisis]

As might be expected, it has been incredibly hard to battle the government ‘narrative’ which is deeply embedded. However, finally this month the London Evening Standard reported following our webinar on the threat to Green Belt in Enfield, saying CPRE London claimed the narrative from Sir Sadiq and Housing Secretary Steve Read about the need to build on the Green Belt “doesn’t stand up to scrutiny”. It is an important win to get the mainstream press to even report a different perspective, let alone actually challenge the government.  

• But government policy continues to be focussed on housebuilding saying this is the only way to solve the housing crisis. This is at best smoke and mirrors. At worst it is misinformation. It is putting nature, the British countryside and our Green Belt at the highest level of risk we have seen for decades.
• So we are now working to educate and explain the root causes of Britain’s housing crisis – and challenge the claim that it is simply about ‘not building enough homes’.
• So it’s time to ask: What did Germany do different? And why did decisions taken consciously in the 1980s lead inevitably to a housing crisis and ultimately to a major new threat to our Green Belt and countryside?

Germany v Britain Why did housing costs fall in Germany, when they were spiralling in Britain?

1. In Britain, we have allowed land values to spiral, by failing to capture the increased value of land when planning permission is granted: the landowner takes virtually all the ‘planning gain’. (Land value capture was abolished in the UK in 1985). In Germany, local authorities capped land values at the price at the time permission was granted.
2. Mortgage finance was liberalised in the 1980s: this put much more money in the hands of buyers, pushing prices up and up and up to the logical end point where mortgage costs are as high as they can be without people defaulting. In Germany, there was no equivalent mortgage market liberalisation in the 1980s: lending remained conservative. [We also gave vast public subsidies via Right to Buy discounts, putting more money into private housing, while also depleting social housing stock, and forcing many into an unregulated private rented sector.]
3. In Britain, rent controls were largely repealed in 1988 (having been more rigid and tightened in 1965 and 1974). In Germany, the landlord was able to fix the rent in a new contract and then further increases were restricted. Contracts were long – an average of around 11 years (compared to an average of around 2.5 years). Life-long renting remained an attractive alternative.

How and why has this become a major new threat to the English countryside?

Where land values are extremely high, that combines with higher build costs to make the new homes too expensive for most people to buy, so builders don’t build them.

If builders can’t make a profit out of land in London anymore (despite there being lots available), as a housebuilder or speculator (or a politician saying they want 1.5 million homes to be built), you are going to say that you need cheaper, greenfield land to be released if you wanted houses to be built.

If developers or speculators bought green or protected land 5 or 10 year ago in the hope that land protections would be abandoned, they can now realise a huge profit. If someone can get planning permission for green fields, the price of land can increase by a staggering 200 times. That kind of return promotes speculative purchase and organised pressure for land release.

We have enabled developers/landowners to game the system. It was entirely predictable that eventually they would say green fields must be released.

Some commentators like to claim that land protections like Green Belt are the cause of high land costs. But protections do not constrain how much building happens – it controls where it happens. It is the failure to control land value, fuelled by demand pressure relating to cheap finance, which has caused the disastrous land value spiral, not Green Belt. So – you cannot solve the affordability problem by releasing more and more land – you simply promote speculation which increases land values further, simply adding to the problem.

This housing crisis was a choice we made. It was not inevitable.

What can be done about the housing crisis? At CPRE London we advocate for a return to effective land value capture; rent controls and regulation in the private rented sector to stabilise prices and ensure people can live with security; funding for social housing and an end to Right to Buy to avoid further loss of social housing stock; bringing empty homes back into use and regulating use of homes for short term lets (like AirB&B) where that is an issue; and of course very strong protection for Green Belt and other protected land like Metropolitan Open Land to ensure we build in urban areas in need of regeneration.