Britain is facing a housing affordability crisis. Housing costs have risen significantly as a proportion of income over time, especially for low to middle income households. This has negative impacts on living standards and inequality. To address the crisis, reforms are needed to both boost housing supply and make housing more affordable. Key reforms proposed include establishing a national land bank to free up more land for development, reforming property taxes to reduce inefficiencies, boosting social housebuilding, incentivizing local authorities to support development, and revising planning rules to streamline the development process.

1. Can we fix it? Solving Britain’s housing
crisis
DavidWilletts,ExecutiveChairattheResolutionFoundation
LindsayJudge,SeniorPolicyAnalystattheResolutionFoundation
JohnMuellbauer,ProfessorofEconomicsatNuffieldCollege,Oxford
TerrieAlafat,ChiefExecutiveoftheCharteredInstituteofHousing
@resfoundation // #housingcrisis
Wifi: 2QAG_guest p:W3lc0m3!!
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2. Housing affordability in the
UK
Can we fix it? Solving Britain’s housing crisis
Lindsay Judge
April 2016
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3. • Housing is the subject of much political and media
attention – but commentary focuses primarily on
rising house prices and declining home ownership
• Our research looks at housing costs as a proportion
of income over time
– What constitutes a housing cost?
– Treatment of housing benefit
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Housing is about more than homeownership – it’s a
key driver of living standards

4. 4
The average ratio of housing cost to income has risen
over time

5. 5
Driven by a significant number of households
spending more on housing

6. 6
Driven by a significant number of households
spending more on housing

7. 7
With the increase most marked for low to middle
households

8. 8
There was a clear North-South divide in 1994-95

9. 9
London is now the stand-out region (but gaps have
narrowed between other areas too)

10. 10
Private renters experience highest ratios (but social
renters have also seen an increase in recent years)

11. • If a couple household with 1 child was paying the
same proportion of their income in housing costs
today as they did in the early 1990s, they would be
£1500 p.a. better off
• Equivalent to a 10% rise in the basic rate of tax
• London and Scotland equivalent to 13% rise in basic
rate of tax
• The wedge that has opened up between incomes
and housing costs does not look set to shrink
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Housing and the living standards squeeze

12. Can we fix it? Solving Britain’s housing
crisis
DavidWilletts,ExecutiveChairattheResolutionFoundation
LindsayJudge,SeniorPolicyAnalystattheResolutionFoundation
JohnMuellbauer,ProfessorofEconomicsatNuffieldCollege,Oxford
TerrieAlafat,ChiefExecutiveoftheCharteredInstituteofHousing
@resfoundation // #housingcrisis
Wifi: 2QAG_guest P: W3lc0m3!!
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13. Britain’s Housing Affordability
Crisis: what can be done?
John Muellbauer, INET@Oxford.
Resolution Foundation talk
April 26, 2016

14. Housing affordability in UK, US, Sweden and Germany
house price/income ratio (log scale)
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15. I. The UK housing market: unstable and over-priced
• Rise in house price/average income ratio in the UK from 1970
to 2014 holds the G7 record.
• UK ratio using median income rises even more – since
income inequality rose.
• US ratio declines, flat for house prices/median income.
• Since 1985, Swedish experience remarkably close to the UK.
Many similar problems.
• Population densities: UK 660, Germany 593, US 85, Sweden
54 (pop/sq. mile)
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16. Some consequences
• Huge inter-generational redistribution in the UK: the ‘lost
generation’ born after Mrs Thatcher came to power in 1979.
• Home ownership for the young in radical decline.
• House prices reflect access to good schools, transport, clean
environment: privileged opportunities for children of wealthy.
• Macro consequences include: greater risk of financial
instability: what if interest rates rise?
• lower growth rate because of weaker international
competitiveness, lower productivity growth, diversion of
finance from more productive uses, less flexible economy and
missing source of low-import-dependent growth from
residential investment.
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17. 17
Bi-partisan UK housing policy ‘achievements’ since 1997 –
avoiding supply side and tax reforms
• Redistribution of wealth to the older ‘haves’.
• Financial crisis worse than it need have been and
vulnerability continues.
• Possessions and arrears crisis only averted by the most
dramatic monetary and fiscal interventions in history.
• Falling owner occupation, lowest fraction of FTBs under
30 since records began in 1968.
• Lowest 2010-2013 house-building levels since 1920s.
• Large rise in housing benefit bill, increasing poverty trap.
• Rising rent levels, very tight rental market (e.g. compared
to US rental slackness measures), esp’y since 2009.
• Highest housing rents in Europe.

18. II. Supply and demand
• Drivers of the 1971-3 boom: huge rise (8%pa) in per
capita real income, modest financial deregulation,
foreign investors in London, low real interest rates & fear
of inflation, speculative fever.
• Most of 1980-2005 appreciation in UK real house price
index due to rise in real income relative to housing stock.
• The other key factors: shifts in access to mortgage credit
for owner occupiers and buy-to-let investors, interest
rates – both ‘user cost’ incl. expectations of further
appreciation, and nominal interest rate, foreign demand
for trophy properties in London and the SE, rising
inequality- incl. spatial, demography, taxation,
speculative fever. 18

19. +
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Mortgage credit
liberalisation, poll
tax switch,
lower interest
rates
Mortgage credit liberalisation and
lower interest rates, foreign and
financial sector demand, rising
inequality&mis-match
credit
crunch
credit crunch,
higher int. rates

20. III. Demand: Council tax is regressive and inefficient
• Council Tax retained some of the highly regressive features of
the poll tax: the highest tax rates for the poorest housing,
marginal tax rates of zero for the most expensive housing –
UNIQUE IN THE OECD, discounts for second homes.
• Zero marginal rate encourages inefficiency of use of space in
the most desirable locations; encourages conversion of multi-
family dwellings into single luxury mansions –reducing supply.
• Also tendency for poorest local authorities to set highest tax
rates – central gov’t support is being phased out and
business rate redistribution will shrink.
• Supplemented by Council Tax Relief – but with major
poverty trap problems for low income families.
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21. Council tax is regressive and inefficient
• “Council Tax has overtaken credit cards as the most common
debt problem in Britain”…say Citizens Advice.
• From April 1 2013 hundreds of thousands of people became
liable for council tax for the first time, after the government
decided to cut by 10 per cent the amount available for relief
and localised eligibility criteria.
• Within the same LA, family just on top band pays only 30% of
the rate of family just on bottom band. At around £5m, rate is
just 7.5% of the bottom band rate.
• 25% single person discount discourages down-sizing.
• Ch. 16 of the Mirrlees Review sets out reforms for efficiency and
neutrality (http://www.ifs.org.uk/mirrleesreview). Close to
www.nuffield.ox.ac.uk/users/Muellbauer/PROPTAX-MAR06.pdf
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22. Is reform politically feasible? cash-poor widows in expensive
homes and elite power.
• Adding bands at the top & (phased) revaluation- RICS and
BPF proposals) are absolute minimum – though wd. preserve
regressive structure below.
• Solve problem of cash-poor/asset-rich by offering everyone a
tax deferral in return for an equity stake in their property.
Those paying cash would be offered a small discount since
managing deferral incurs costs: FT 6 April 2015
• The discount and the prospect of having to share capital gains
would ensure many chose the cash option.
• Option to buy off the politically powerful domestic elite by
making CT deductible expense for income tax.
• Property tax is key for taxing foreign ‘buy-to-leave’ investors.
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23. Joint property-tax/carbon-tax reform?
• Reform property taxes as part of a wide-ranging tax reform to
address climate change issues.
• The globe needs to reach zero net emissions of greenhouse
gases to stabilise global temperatures or risk mass species
extinctions.
• Carbon taxes (and building regulations) part of the solution.
• Taxing domestic fuel use is one way.
• But emission bands of annual road tax could be copied for
housing, if every house had an energy efficiency certificate.
• Site value tax plus energy efficiency discount would favour
wealthy owners with large gardens –could play well politically.
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24. SDLT
• ‘Slab’ structure of Stamp Duty Land Tax was, at last, reformed
in 2014, and made into a tapered and progressive tax (12%
on excess of value over £1.5).
• SDLT taxes mobility -reduces flexibility of the economy.
• 15% SDLT rate for properties worth more than £0.5m bought
through corporate vehicles. But can be by-passed by buying
shares in an existing company.
• While property taxes on value improve resource allocation,
transactions taxes worsen it- reduce property release.
• Rise in SDLT for BTL and second home investors and lower
BTL tax relief should somewhat curtail demand, previously
increased by pension reforms. 24

25. Taxing/restricting foreigners
• Capital gains tax exemption for principle residence. CGT
applies to investment properties and to post April 2015 gains
for foreign owners (Why not on earlier gains?).
• Was easy to ‘envelope’ property into a foreign company and
escape tax-net by selling shares in the company.
• ATED (Annual Tax on Enveloped Dwellings) was 2013
attempt to capture residential property related revenue.
• Has raised 4 times as much revenue as HMRC expected.
• ‘Empty-property’ tax on buy-to-leave investors?
• Restrict foreign ownership? e.g. 1 new build per owner
http://www.bowgroup.org/policy/restore-sanity-residential-
housing-market-argues-bow-group-discussion-paper
How to prevent company structures by-passing restrictions?
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26. Development taxes, IHT
Taxes on development:
• CGT (28%) applies to planning gain but if a farmer sells the
whole farm, Entrepreneur’s Relief implies 10% tax rate on the
first £10m.
• Section 106 agreements (extracting social housing, land or
cash from developers) widely used as a form of development
tax. But can take years to negotiate and slows the process of
bringing land into use. 2015 relaxation for sites under 1000m2
• Community Infrastructure Levy takes less time to negotiate.
Inheritance tax: as is well-known, the wealthy have many ways
round –including tax breaks on agricultural land - and tax take is
remarkably low. Favouring housing for IHT raises prices.
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27. Other demand-side policies
• ‘Help-to-buy’ mortgage guarantee and new ISA fuel demand.
• Push to home ownership is likely to raise demand and add to
household sector vulnerability– better to improve rental
contracts and professionalise rental sector.
• Shared-equity schemes may marginally reduce household
sector vulnerability but do nothing for demand/supply balance.
• Past experience is that shared equity is vulnerable to major
unexpected relative price changes: ‘mis-selling’ law-suits.
• Previous governments’ subsidies for key workers worsened
demand/supply balance.
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28. IV. Reforming the supply side: 5 key elements
• Housing supply reforms need to include (1) national (or
regional) land bank(s), (2) better fiscal rules, (3) building
programme for social housing, (4) better incentives for LAs,
(5) relaxation of planning rules.
• South Korea is a fine example of effective supply (and
demand) management: the Korean Land Corporation’s
national land bank allows most of planning gain to accrue to
the nation, solving both supply and funding problems.
http://www.voxeu.org/article/six-fiscal-reforms-uk-s-lost-
generation : Expand role of UK’s Housing and Communities
Agency (GLA
• In Germany, income relative to the housing stock has
trended down since 1980 as far more housing land has
been released –so stable real house prices. 28

29. UK vs. S Korea and Germany
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30. (2) Reform fiscal rules
• Shift measure of debt relative to GDP from gross debt to net
debt, where net debt subtracts easily valued components of
the government’s balance sheet from gross debt.
• Then government land bank (HCA, GLA and regional
equivalents) could buy land without residential or commercial
planning permission for its potential for future development.
This could be a source of land rele0ase for housing and other
development, capturing most of | the ‘planning gain’ for the
taxpayer.
• Future revaluation gains would bring down net debt
relative to GDP, while the cash-flow from land sales
would lower future government deficits.
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31. (3) Social house-building programme
• Between 1960 and 1979 the social sector contributed
between 30 and 50% of annual completions; since 1997,
between 8 and 15%. Explains most of the decline in house
building.
• With much lower land costs, the affordability of a large
‘affordable housing’ programme would be much improved.
• Missed opportunity in 2009-2013 to support building industry
supply chain – lost skills, lost capacity are now constraint on
recovery of house building.
• Increasing RTB and extension to social housing – funded by
council house sales- risk loss of affordable housing: note H of
Lords resistance.
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32. (4) Shift incentives for LAs: give LAs share of
planning gain
• link directly to the operation of a national land bank (or
regional/local land banks): LAs organise the local land
auctions in which the national (HCA) or regional land banks
(e.g. GLA) would purchase land for future development.
• Measure eventual planning gain as sale price for development
minus the price at auction. Paid only after development.
• Not to discourage building of affordable homes, adjust land
provided at below market prices to market equivalents.
• No Section 106 delays.
• Incentivises effective land auctions, funds LA-provided
infrastructure, funds local expenditure on community projects
to compensate losers from development.
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33. (5) Revise planning rules to fit land bank proposal
• Land acquisition on the open market of land (without consent)
has to be on a large scale to make subsequent switch of
planning consent viable-otherwise nearby land owners will
demand (via Judicial Review) equal grant of consent.
• Use the New Towns Act (including compulsory purchase for
hold-out land parcels) on a far larger scale. Town and
Country Planning Association (2015) suggest some updates.
• Expand current brownfield focus of, e.g. the Old Oak
Common and Park Royal Mayoral Development Corporation
(MDC), Ebbsfleet Urban Development Corporation (UDC) and
Regional Housing Zones, to greenfield development.
• Selectively relax height restrictions in central cities.
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34. (5) Revise planning rules to fit land bank proposal
• Land acquisition on the open market of land (without consent)
has to be on a large scale to make subsequent switch of
planning consent viable-otherwise nearby land owners will
demand (via Judicial Review) equal grant of consent.
• Use the New Towns Act (including compulsory purchase for
hold-out land parcels) on a far larger scale. Town and
Country Planning Association (2015) suggest some updates.
• Expand current brownfield focus of, e.g. the Old Oak
Common and Park Royal Mayoral Development Corporation
(MDC), Ebbsfleet Urban Development Corporation (UDC) and
Regional Housing Zones, to greenfield development.
• Selectively relax height restrictions in central cities.
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35. Opposition to house-building has softened in recent
years
3
5
Source: British Social Attitudes Survey 2014

36. Can we fix it? Solving Britain’s housing
crisis
DavidWilletts,ExecutiveChairattheResolutionFoundation
LindsayJudge,SeniorPolicyAnalystattheResolutionFoundation
JohnMuellbauer,ProfessorofEconomicsatNuffieldCollege,Oxford
TerrieAlafat,ChiefExecutiveoftheCharteredInstituteofHousing
@resfoundation // #housingcrisis
Wifi: 2QAG_guest p: W3lc0m3!!
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