The housing crisis in the UK is of great psychological, logistic, economic, and political significance. It is a crisis and it has the power to ruin the nation if it is not addressed. Connected as it is to other parts of the economic and financial system, any understanding of the problem and any proposed solution to it must, of necessity, be multi-facetted. I do not pretend to have an understanding of the problem or to have a solution to it, but I would appreciate input from the readers and contributors of this blog as an aid to my own reflection and as guidance in further research. Below are a list of thoughts that have occurred to me concerning this matter.
1. The Complications of English Land Law
While this is not a major contribution to the cost of housing, it is still a part of it. Land law in England and Wales is complicated (as I imagine it is in the USA). We have two systems: registered land and unregistered land. Certain interests in land are capable of being legal and certain interests in land can only be equitable. In registered land, there are interests that may not appear on the register, but are nevertheless overriding (unless, for trust interests, the interest has been overreached prior to sale): these are found in Schedule 3 of the Land Registration Act 2002. All this is to say that any property developer or would-be home-owner should really use a solicitor when acquiring property, in order to avoid problems down the road. Lawyer’s fees, therefore, are, in practice, a part of the cost of acquiring land.
2. British Culture
In the UK, most people aspire to be home-owners, rather than renters. Renting is seen as a precarious and unpleasant situation to be in. Renting is not a simple area of law: there is the distinction between a licence and a lease, and, within leases, between fixed-term tenancies and periodic tenancies. Landlords can be very hit and miss, the internet abounding with horror stories of major problems in flats carrying on for some time until they are fixed. For these reasons, owning one’s own home is seen as very desirable, which affects the value of domestic property.
3. Artificial Money
The banks’ ability to create money allows them to create money for mortgage purposes. Since it is in the banks’ interests to lend large amounts of capital with concomitantly high interest rates, and it is in the sellers’ interests to get high prices for their property, these two parties are natural allies against those trying to acquire homes. On the one side are those who want high house prices, and on the other, those who wish they were lower. If deposit banking and loan/investment banking were separated, and loan banks were barred from creating capital, then house prices would fall accordingly, as the market responded to what people could actually afford based on their savings and salaries.
4. Regional differences
We are currently seeing in the South rising house prices in certain attractive locations as people who have made fortunes in London move away from the Metropolis to settle down in quiet places. There are regional differences in average earnings around the UK, most notably the general distinction between the North and the South. House prices are generally lower in the North. People do not flock to live in the North, however, because they are concerned by the general economic picture there (although it is changing – but more needs to be done). Many would be concerned about getting a job, or of pay limitations or problems for career progression. There is little to incentivise businesses to locate northward, because they value the proximity to other businesses of their kind in London, and because corporation tax would be at the same rate elsewhere. The only way other regions could hypothetically attract investment would be if they had the autonomy to offer lower or not corporation tax and other desirable features.
5. International Investment
In a crisis, property has traditionally been seen as a safe investment. Rented properties are also desirable as providers of steady income, and this is valuable to successive trusts, where interest on the capital is paid to the life tenant, while the remainder man waits for the capital. Much as the migrating Londoners have an effect on regional house prices, so foreign investors have an effect on UK house prices, especially in London. Whether this trend will continue, however, is debatable. As the yields from such investments get smaller, we could see a slow-down in the market. There are general concerns in some quarters that the bubble will burst in the near future.
Government laws relating to land specifically (e.g. planning permission) and to the economy generally (e.g. safety, minimum wage, etc.) will have an impact on the cost of building and renovating homes. People are being creative in finding ways to build homes for less, but these approaches are sporadic and still subject to the law. They are also largely inapplicable to the acquisition of properties that have already been built. The complaint that the government needs to build more homes only addresses part of the picture (and assumes that government is the only solution to the problem): the problem lies in empty houses not being affordable.
7. Supply and Demand
Lastly, for my own list, supply and demand must be a factor in house prices. The advances of medicine, combined with immigration, particularly from cultures that value large families, has seen an expansion of the population over the last century. Where there is a scarcity of houses – for whatever reason – to meet the population’s needs, the price of housing will go up. Land, as a finite resource in an island nation, cannot expand to meet this need indefinitely – not without creative solutions.