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Sunday, 5 January 2014

Why Britain Cannot Build More and Cheaper Houses

Britain has a long-term housing problem. Housing - whether to buy or to rent - is expensive. Paying for it takes a high percentage of people's incomes. And much of the housing stock is of poor quality - but people have to live in sub-standard housing because there is nothing else.

The situation cannot be improved.

Suppose a reforming government simplified the planning system and made more land available; suppose it capped the price at which land could be sold for building; suppose it made life easy for house-building companies; suppose it succeeded in generating a supply of affordable, good quality homes; suppose there were enough homes to give people a real choice.

It would be a disaster.

Existing home owners have, for the most part, bought their homes on mortgages with a high ratio of borrowing to value of their house. Often they have borrowed 90% or 95% of the value of their house.

If house prices fall, then they fall into what is called the Negative Equity Trap - they can't afford to move house because they will not be able to pay off the money they have borrowed.

The Banks are also in trouble. Their loans are secured on houses. If the value of the houses falls, then their loans become more risky. If a borrower stops repaying their mortgage, then though the bank can seize the house and sell it - well, it won't get its money back.

So existing house owners will never vote for a party which says it is going to increase the supply of housing and make it cheaper. Landowners won't vote for such a party either. Bankers won't vote for it.

The same situation applies in the rented housing sector. Most landlords have borrowed against the value of their houses in order to buy them and then rent them out. They cannot afford to see rents fall because then they will not be able to repay their loans. And if house prices fall, then the value of the houses they own also falls. So no way are they going to vote for a reforming government. Nor are the people who lent them money.

Ah, but what about those who need housing badly, who don't already own a house or who are forced to rent sub-standard properties?

Many of these people don't vote. They don't believe politicians. If a party comes along and says it will build more houses, make them cheaper, make them better quality - well,  they just won't believe it.

Do not expect Britain's Housing Problem to go away any time soon. The Haves will always outvote the Have Nots, even though there are quite a lot of Have Nots and even though many of the Haves are living in truly awful cold, damp, cramped, houses.

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