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.
6. Regulation
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.
All Along the Watchtower 
Maybe, but it is at least as likely they are natural competitors. People can spend so much on housing, and if they are paying it in principal, they cannot pay it in interest. Other things also compete, cost of heating (cooling not so much in the UK, as here), accessibility, which would even come down to petrol prices, amount of (if any) renovation required, neighborhood, and many other things.
I, and other US types, also likely require a glossary on terms as used in the UK, I strongly suspect terms like ‘trust’ mean something different in the UK than the US, not least because your basic thrust doesn’t really make much sense in US terms, although it does with my very limited understanding of UK usage.
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What Americans commonly call “anti-trust law” we tend to call “competition law” – i.e. laws connected with businesses abusing the market; for example, by creating cartels or imposing unfair terms in contracts, etc. I studied this in EU law last term, looking at cases involving specific businesses (United Brands is the most famous example, involving bananas). We use the American term if we are talking about specific stuff going on in America, e.g. statutes passed by your Congress.
“Trusts” refer in British English to “trust funds”, although the term is broader than the popular imagining of wealthy heirs. In trust law, the trustee holds the legal title of the property, and is responsible for overseeing its investment and its allocation to trustees in accordance with the terms of the trust and statute, where applicable. Where a trust document does not include provisions for a particular aspect, statutory provisions prevail. The beneficiary has an equitable interest in the trust property (there being a distinction between the common law and equity).A successive interest trust is where the income from the trust capital (e.g. dividends, rent from property owned by the trust) is given to the life tenant, but the life tenant has no interest in the capital (the assets owned by the trust) – except in so far as changes to capital will have an effect on the income the trust produces for the life tenant. The “remainderman” gets the trust capital when the life tenant dies. These sorts of trusts are often created in wills rather than as lifetime trusts, used when wealthy husbands die and they want provision to be made for the wife and the children.
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NEO is right. The UK terms that are used, make no sense to Americans; so I find it difficult to comment.
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“Overreaching” is done when a party intends to buy a contract and wishes to obtain it free of the beneficial interest of another party.
Here’s an example. Mr Smith buys his house together with money provided by Mrs Smith. However, for whatever reason, the house is registered in Mr Smith’s name alone, so he is the sole legal proprietor. Nevertheless, Mrs Smith has an interest in the house under, in this case, a resulting trust, because she contributed to the purchase price. So Mr Smith has the sole legal title, but holds it on trust for both himself and Mrs Smith, who share a beneficial interest in the house as beneficiaries under the resulting trust.
Under English law, if Mr X buys the house without “overreaching” Mrs Smith’s beneficial interest, provided she is in “actual occupation”, and an inspection of the house prior to purchase would have revealed that fact, Mr Smith cannot get rid of her (Sch 3 para 2 LRA 2002).
To avoid this situation, careful inspections are usually carried out, and where an interest under a trust is discovered, the buyer gets the trustee, here Mr Smith, to appoint a second trustee, and they pay the purchase price to the two of them. This is called “overreaching”. Mrs Smith’s interest is then transferred from the house to the proceeds of sale, and she can bring a claim against the trustees (Mr Smith and the newly appointed other person) if they refuse to give her her share of the proceeds of sale.
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Land law is complicated: it’s a combination of statutory provisions, old common law, and equitable principles. Equity is discretionary, not available as of right, but it tends to be more willing to intervene in land cases because of the severity of outcomes – e.g. leaving a person without a remedy for a broken promise.
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Reale Estate laws are complicated here in the US but my gut is telling me that the UK Land Laws are far more complicated and/or convoluted. Most of our laws concerning land make rather good sense and are straight forward. Problems arise when a lien is placed upon a property and if you buy property the onus is on the buyer to discover any such right to equity on the property. Same goes with the residence’s problems (gas leaks, rotting wood, plumbing problems etc.). The old saying is “buyer beware”. So we hire inspectors and a lawyer to sort through any such things before we buy so that the new contract (mortgage) is clear and free of any surprises. But that is about all I can add to the conversation.
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Yes, I’ve come across liens in a variety of contexts. In criminal law, for example, if you leave a car with a professional mechanic – as opposed to a friend – he has a lien over it to secure your payment of his bill; so it is possible to steal your own car from a mechanic because of his lien. In trusts, liens are used when trust property is misappropriated by a trustee or fiduciary (e.g. a company director), and converted into something else. A lien is placed over the new thing so that it can be sold and the proceeds returned to the trust fund (or company’s account).
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My gut says the same thing, and adds overcomplicated by trying to be fair to idiots. Maybe so, maybe no. But that is a tendency of UK law these days, not helped by a near monopoly of huge connected builders.
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I know. The Brits have such a long history that law on top of laws etc. have made much of what goes on politically and legally totally unintelligible to me. Our is bad enough and sure hope that we have a slew of Presidents and like minded politicians in the future who will start stripping away all the useless regulations and perhaps simplify much that is in the law. But the UK has such a long history I doubt they have the will or ability to do the same.
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Yes, so do I.
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As for the other terms…
Lawyers are split into two types in England and Wales: solicitors and barristers. Barristers are called upon principally to advocate in court: they have rights of audience in all courts in England and Wales. Apart from those who work for the government, barristers are self-employed, hiring our rooms in “chambers”. Solicitors generally do transactional and advisory work. They have rights of audience in lower courts and can apply for rights of audience in the higher courts after a set number of years in practice. If granted, a solicitor is known as a “solicitor advocate”. So all solicitors are lawyers, but not all lawyers are solicitors in England and Wales. I say England and Wales, because that is a single jurisdiction. Scotland has a separate legal system that is essentially civil law based. Solicitors used to be known as attorneys, but that died out in the Victorian period or a little earlier. An attorney is something completely different in current English legal language – a person in whom certain powers are vested, as in “power of attorney”.
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So, no one addressed the “The Housing Crisis,” so I will take a stab. Abolish all Barristers, Solicitors, Attorneys, and English Land Law. Return to the sword! 🙂
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Admittedly, it was difficult given the American audience here these days. It would have been nice to have had Chalcedon’s and Jess’ input, but both seem unlikely to reappear. A lesson in knowing your audience. My understanding of the American market is that it is generally cheaper than ours, and that your land law is simpler than ours. I maintain, however, that no Western nation is protected, and it is worth looking at the concept of “global cities”: Vancouver, Toronto, New York, London, Sidney – as major cities, these all have major problems with unaffordable housing. But these bubbles could burst. The danger in the UK is that too much of our economy is based on property and financial services – we need to diversify or we could be in real trouble when the next crash comes.
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Not sure that our market is cheaper really, but in real terms, our houses (and lots) are quite a lot larger, and almost entirely( outside the cities themselves) fully detached. I do think your list of world cities, while it has merit is flawed. The only ones that really count are London, New York, and Singapore.
As near as I can tell many of the UK’s problems are that the whole thing is much too London-centric.
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OT, but Professor Charmley failed to win the debate. https://twitter.com/OxfordUnion/status/997232135194009600
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He did indeed. But the proposition made that almost inevitable, and from the results, I’d say he, and his team, made a very credible effort.
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