Why building more homes will not solve Britain’s housing crisis

In  recent Guardian opinion piece, Ann Pettifor points out that the problem in the UK is not really a supply one. We actually have enough houses. The problem is that foreign capital, often obtained illegally, is flooding into the UK (£100bn in the last 6 years!) and inflating house prices.

"It’s speculation in the property market that is fuelling stratospheric house price rises, not shortage of supply. When the “fuel” of private capital, mortgage credit and cash from the bank of mum and dad is supplemented by government subsidies and tax breaks, house prices rise. Moreover, wealthy global and non-resident buyers have funnelled more than £100bn into London property over recent years, making the problem even worse."

 Pettifor suggests a twofold approach

1. A property speculation tax (PST), as in Germany. "This could be used to levy punitive rates on speculators, or those who own second homes and empty properties, encouraging them to invest their cash elsewhere."

2. A Tobin tax on global financial transactions. This allows for free movement of capital, but prevents it from disappearing from the tax regime.

The trouble is that deflating the housing bubble creates losers. As with any bubble, the last in end up losing money or with negative equity - debts worth more than assets. A lot of pension funds are invested in property.

The overall strategy must be to move capital away from the speculative and into the real economy. Rather than speculating in property prices, inflating a bubble, we need capital to be invested in business and jobs. This will not be simple or easy, but if it doesn't happen, we will continue to have a housing crisis driven by inflated prices rather than lack of supply.

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See also: The more the State has withdrawn from housebuilding, the more it has found itself propping up the private market. LSE Blog.

There is a paradox in modern housing policy, writes Daniel Bentley. The aim of rolling back the state from housebuilding has turned its role from one of subsidising supply into that of facilitating ever greater amounts of spending power, making housing unaffordable for so many.