Economy: Fix the Housing Market & Save 96% of the Green belt — Win/Win, Right?

Myleene Klass hit a nerve with her televised attack on Ed Miliband. The singer and broadcaster was upset at Labour for planning to impose a mansion tax of £3,000 a year on properties worth more than £2 million. “Have you seen what that amount of money can get you? It’s like a garage.” Poor Myleene.

Labour supporters pointed out that, actually, £2 million can buy a pretty decent sized house even in parts of London such as Dartmouth Park, where Miliband lives. (As if that’s the sort of spare change most of us have when buying a house.)

It’s been clear for years that Britain’s housing market - and London’s in particular - needs fixing, and conversations about housing have become so distorted that we are left with Klass griping at having to pay a 0.15 per cent tax on a multimillion pound property and Labour sounding nonchalant over homes that no one could conceivably buy without inherited wealth, a fat City bonus, or ownership of a Russian oil company.

With wages growing by just 1.2 per cent a year, and house prices rising at around 12 per cent a year - and at almost 20 per cent in London - buying is getting harder every year. The government is expecting household debt to reach new highs by 2020, more than the peak before the financial crisis and approaching twice as much as the average over the last decades.

There aren’t enough homes and we are building too few homes, in part because land use is restricted. The problem is particularly acute with properties aimed at first time buyers or those eligible for social housing. New land needs to be released to allow for the construction of homes people can afford: it’s time we used the green belts, the vast rings of empty land the encircle our biggest cities.

Britain is not a heavily built-up island. Only around 2.3 per cent of England is actually built on. Between 2000 and 2010, new housing accounted for just 0.13 per cent of England’s land area. The last time that the UK built the 221,000 homes needed to meet annual demand was in 1978. In 2013, just over 108,000 were built.

Home ownership has been falling since 2005 and construction of social housing - what used to be called council homes - has also fallen, leaving private landlords to fill the gap. It’s easy to see who’s doing well out of this: those who already own property, half of whom don’t even have a mortgage.

High prices risk creating a generation of people unable to buy a home, renting in a market where tenants have few rights, where property is costly and often of poor quality.ONLY AROUND 2.3 per cent OF ENGLAND IS ACTUALLY BUILT ONIn a free market, the surge in demand that pushed up prices would be met with a rise in supply. But this market is anything but free, and housing supply has fallen over the last three decades instead of increasing to meet demand.

One reason is that land space for development has been rationed for six decades. The rules governing land use have remained largely unchanged since the 1947 Town and Country Planning Act, which was reinforced by the introduction of green belts in 1955.

Green belts seem to have acquired a similar status to the National Health Service - something that politicians challenge at their peril. Their original purpose to protect from sprawling cities is acting as a girdle, choking urban areas and preventing them from growing at a rate that their economies demand.

People who are priced out of the cities where they work are leapfrogging the green belts. They commute longer distances, making cities such as Oxford and Norwich suburbs of London.

Before the Campaign to Protect Rural England, the Countryside Alliance and local residents throw up their hands in horror, it is worth remembering that the green belts are vast.

They cover 1.6 million hectares, nearly half again as much land as all urban areas. London’s green belt alone is more than three times the size of the city.

Analysis by the consultancy Quod identified areas of green belt land around London that had no amenity value but which were within 800 metres of a train station. Even at current densities of 50 homes per hectare, using 20,000 hectares out of 515,000 hectares of green belt land would create 1 million homes. We’re talking about building on just under 4 per cent of London’s green belt here, not turning Surrey into Croydon.

The conservationists say building on brownfield land - sites that have been built on but are now derelict - is the answer. But in reality, the prime sites have mostly been redeveloped and many available sites would require so much investment in reclamation to make them economically unviable. The biggest drawback is that many are in places where housing is not needed, such as declining post-industrial towns.

There will be problems building on  greenfield sites. For one, it will require investment in infrastructure at a time when budgets are squeezed, but some imaginative solutions have begun to emerge.We’re talking about building on just under 4 per cent of London’s green belt here, not turning Surrey into CroydonOne idea is to use auctions to capture some of the value planning permission brings and return it the local community. Another, which won the 2014 Wolfson Economics Prize, was to build a snowflake pattern of well connected extensions to existing historic cities. Lastly, insurers and pension funds could be encouraged to become long-term investors.

Politicians need to go beyond managing demand and urgently find ways of delivering new supply.

The rural conservation lobby has been successful in protecting Britain from sprawling cities, but things need move on because the current situation is unsustainable.

It is not a choice between the status quo and covering our green and pleasant lands with tarmac. The choice is between building on a tiny proportion of the greenbelt or living in a country where £2 million can’t even buy you a garage.

Phil is an economics journalist and author of  Brilliant Economics and Great Economists

More about the author

About the author

Phil has run Clarity Economics, a London-based consultancy, since 2007 and, before that, was Economics Correspondent at The Independent.

Phil won feature writer of the year Work Foundation Work World media awards in 2009, and was commended by the Royal Statistical Society in 2007.

He is the author of Brilliant Economics and The Great Economists.

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