Running the sliderule over 'Land for the many'

Given that Labour now looks fairly likely to be in power in the near future, it’s important to look at some of the Party’s policy pronouncements – such as the recent report on land policy written for Labour by environmentalist and campaigner George Monbiot. You can read the whole thing here if you want (opens in PDF). Constraints of time and space mean that today we’ll look really at the impact on the housing market, though the whole thing is worth a read.

Some of the recommendations are strong ones, and no-one should be in any doubt that the land and housing market is clearly malfunctioning: at a time when housing capital costs in many cities are many multiples even of joint incomes, and when rents have been increasing far more quickly than earnings. There should be little controversy, for instance, about the proposals in Land for the Many which would improve disclosure and transparency. Chapter Two of the Report contains welcome ideas for reducing Britain’s reputation as a haven for dirty money.  

Overall, there is also a very strong case for moving our taxation structure relatively away from income and towards wealth – often inherited wealth such as land. In general, the proposals here would indeed mean more tax on the intergenerational movement of that money, more progressive taxes on property, and more of the profits of land ownership and landlordism being returned to the community that has mandated the planning system in the first place (and therefore produced a lot of that wealth in the first place). So far, so interesting.

Many elements here, however, do give us something more than pause. Too many are based on a misreading of recent developments and policy, some seem unrealistic on the timeframe suggested, and quite a lot of them do not fit together at all well - together, a doleful list of what can go wrong with today's (and yesterday's) simplistic policymaking. Let us take these three elements in turn.

There are to begin with some disputable minor to mid-range points about how we got here, which would not detain us too much were they not instructive about the Report’s wider problems. Land for the Many for instance says at one and the same time (in chapter four) that ‘the balance of demand and supply in the land and housing markets is not determined only by the ratio between the number of houses and the number of households seeking somewhere to live’, but also on the very same page that wider trends ‘have pushed demand for houses, and therefore residential land values, to unprecedented heights’. The extent of the role played by supply-and-demand factors as against ‘financialization’ (land property attracting value as a speculative asset) should surely be quantified somewhere, and at the moment the whole picture is left very vague indeed.

In the same chapter there’s a frankly mystifying reference to ‘the lowering of the Bank of England base rate’ in ‘the 1980s and 1990s’, a reference which is later pared back so that it refers only to the period after 1992. This will come as a surprise to all those who were hit by sky-high interest rates not once by twice during the 1980s, and who faced rates that were pretty high by historic standards for many years thereafter. Interest rates have been ultra-low since the crash of 2007-2008, but that has definitively not been the period when landlords piled into the market – for obvious reasons. 

This might be thought of as nit-picking, but arguments that slide around like this are instructive of an intellectual case that is not particularly sure of itself. Is supply and demand - and especially Britain's very restrictive planning system - an important part of price rises, or not? Is the level of real interest rates and the shape of the credit market – which has ebbed and flowed, rather than simply surging, in the recent past – a key determinant in creating an asset price bubble in land? If the picture is mixed, to what extent is it mixed? The more important that first set of causes is, the more we just build more houses; the more emphasis we place on the second, the more there is at least a case for increased regulation.

This slippery focus on the recent past is a feature in some of the other areas under discussion. We are told there has been a ‘frenzy’ of buy-to-let landlordism preventing first-time buyers entering the market – which is undoubtedly true over the longer term, but is hardly the case since the crash, and under successive governments which have actually made landlordism less and less financially attractive. The increase in Buy-to-Let mortgaging is revealingly given via figures from the period 2000-2007, at the height of that boom: but the stock owned by private landlords overall on a rather different timescale, from 2002 to 2015. It is deeply open to doubt whether Buy-to-Let has played the role in inflating house prices that this Report says it has.

We could go on. The Report perfectly reasonably notes just how much more of their income renters are paying for their housing than are mortgaged owner-occupiers, without breaking out the extent to which this is due to owner-occupiers being rather older and better paid than the renters (and the difference being not so much due to the housing market). It quite rightly demonstrates that there has been a rise in empty bedrooms even while house prices have continued to rise, without mentioning that one reason for that is older Britons not wanting to move once their children have left home (opens as PDF). Speaking blandly about the tax structure encouraging turnover is all very well, but what it means from this angle is encouraging voters to sell their houses – people who have chosen not to do so as things stand. Our major concern is that Land for the Many is more interested in getting to its recommendations than in accepting that the situation is complex and multi-dimensional.

It’s when we get to the recommendations that the concerns deepen. The Report recommends a big increase in social housing provision, which is right and welcome. But there are over a million people on the waiting list right now, and annual housing starts in England that number only about 160,000. Lifting the numbers to anything like what we need to meet demand even now, let alone get ahead of ourselves, will be a long haul indeed. The building industry is over-stretched as it is, especially on the employment side, and productivity increases are hard to come by and slow to emerge – as Labour discovered when it tried big reforms and a huge building drive in the second half of the 1960s.

And here we come to the crux of the matter. Land for the Many also recommends rent controls at background inflation levels within the period of any contract, while no-fault evictions should be outlawed for the first three years of any tenancy. That’s better than ideas Labour has previously toyed with, such as lifetime tenancies which would not allow the owner out of any contract even if getting into financial trouble and which would have extended the same rent control over twenty or thirty years. The proposals floated here might move us towards a workable compromise between giving tenants more security and landlords some incentive to stay in the game.

Other features do not, however, fit with this search for a new balance. The Report also proposes a new property tax to replace Council Tax, which would be paid by landlords and not tenants. Extra bands and therefore more progressivity are projected, which is all to the good, but Land for the Many is unattractively opaque about whether this will come in during or after the new three-year tenancies are established. If after, landlords are likely to be exposed to a big new tax at a time when they cannot pass on any of that cost. That’s great for the tenants. But is there really going to be even any capital profit left after that, let alone current incentive? Especially as Labour is here also urged to increase the Capital Gains Tax charged on these dwellings - potentially doubling its rate for Higher Rate income tax payers.

This might sound like the smallest violin time beloved of special pleaders, but it’s not our intention at all to stick up for landlords, rather for the health of a dense, sensitive, interrelated and above all mixed economy of housing – especially during any transition period. As the new tenancy, rent control and tax laws approach, landlords are simply going to dump the lot – especially if they are expected to swallow whole the new Property Tax during the rent control and secured tenancy periods, and if CGT really is pushed up at the same time. Such a landlords’ strike would be analogous, by the way, to the housebuilders’ strike that scuppered Labour’s last attempt, in the late 1960s, to reform the way in which housing land was priced.

Where will all those (ex-) tenants go? Well, some of them will buy. Land for the Many also proposes abolishing Stamp Duty for owner occupiers, which will make that easier, and no doubt house prices will be ‘stabilised’ (for which read: shoved downwards) if these ideas are handled badly. All well and good for them. But lower income tenants, who still cannot buy, will hardly be housed by councils or Housing Associations which are in no position right now (or soon) to suddenly ramp up their output. More than likely, lower income tenants will be pushed to the margins of a private rented sector that British policymakers of all parties tried to revive for fifty years, and which these proposals could (if handled clumsily) eviscerate.

The Common Ground Trust that forms the basis of the Report’s fourth chapter fails to convince as a real way to underpin house prices if landlords did exit the market very rapidly. The idea here is a separation between the value of housing land and bricks and mortar, for those who wished to allow for such a split. The former would be owned by a government-funded Trust that would allow new buyers to simply purchase the physical dwelling. This seems of doubtful utility, especially in the short run. Rather tellingly, no really precise mechanism is proposed as to who would qualify, beyond the extremely bland ‘membership of the Trust would be most obviously attractive for people who want to enjoy a form of home ownership’. Nor are we told how the initial land purchase from the for-profit or private sector seller would work, or how much the plan would cost overall.

In terms of any immediate downwards house price adjustment, this completely underestimates the tendency of our ‘animal spirits’ to overshoot and undershoot imagined values very quickly – so much so that seeking to manage a rapid change in prices with a structural reform will likely end in failure. And it sounds rather too much for comfort like the Labour Land Commission that failed to get off the ground in the 1960s – though the latter, it is true, focused on lowering land costs for builders, not directly for owner-occupiers.

This also doesn’t really get round the distributional problem. House price increases will slow. Absolute values may fall. Given these proposals, owner-occupation will get cheaper because a non-profit, subsidised by the Government, might own the land. That will be great for lower middle-income Britons. But that will still all be beyond the range of the poorest renters, who will live in a shrinking and poorly-resourced sector.  What Labour will have done, as across whole areas of its programme, will have been to redistribute upwards: to finance middle income Britons as the expense of less wealthy ones. More rail subsidies, abolishing tuition fees, free NHS parking for those with cars while the poorest Britons take buses, and so on.

Yes, the very wealthiest will pay more, via more increased taxes on gifts throughout their lifetimes (effectively increasing inheritance taxes), a new and more progressive, Property Tax levied on landlords, higher CGT and the like. But much of that squeeze would take a long time (in contrast to the sharp shock it might administer to the private rented sector). It would also be cold comfort to people who, for whatever reason, want to rent and not to buy.

We can do better than this, quantifying if possible much more closely the extent to which rising land prices are about shortage of supply rather than an influx of capital. Proceeding much more sensitively into reform of the private rented market, providing support to tenants via reversing many of the Housing Benefit cuts of recent years and giving us all breathing space before more social housing can come on stream – because Land for the Many looks more like a plan for a world in which we’ve built half a million new council houses, not one where local authorities are on their knees. And we do still need planning reform as part of the package. Building more houses, and therefore releasing more housing land, exactly where we need them. Since critics of the supply model have a point when they say that ‘build more’ is a hazy nostrum rather than a plan, that means many more dwellings at high density, in the South East, near train stations and bus routes.

At the moment, these proposals are a mixed bag, the hallmark of which are good intentions and strong ideas about transparency, but which have been blended together with a high level of historical, temporal, analytical and geographical confusion, and a naivete about delivery. Looking at these ideas in the round, it’s impossible not to feel deep, deep foreboding about their real effect. Which is a shame – not least for those Britons crying out for better housing.