Housing – what are the options available for a more sustainable and equitable housing system: an outline

The previous blog identified the main causes of the increase in house prices together with the factors which impact on local areas and the inequitable access to housing and the underlying causes of this. So what policy options are available to resolve or mitigate these problems?

 

As there are a number of contributory factors, which together have created a housing crisis, policy changes would need to be introduced across a number of areas. 

 

Planning

The planning system is in need of reform – no not more house building but to ensure that current and new dwellings are used for housing people and not used as financial assets. 

So do we need?

Changes to the use classes such that to use a property for a second home or holiday let requires permission

Policies to return properties already used for such purposes back into residential use. Could this be done through the tax system, a buyback scheme or what?

 

And what would need to be done to control the building of dwellings which are not for local need – the luxury dwellings and those aimed at the second home/holiday lets market?

 

Earnings and benefits

The reduction in the higher rates of income tax together with significant increases in top incomes has enabled higher earners to compete more effectively in the housing market and accumulate additional housing assets.

So do we need?

Higher rates of income tax

An upper limit on earnings

Changes to other taxes such as capital gains

Would it be better if those inheriting houses paid inheritance tax.

 

A reform of the benefit system to reduce poverty would also help.

So do we need?

A universal basic income system

A better housing support framework.

Labour market

The introduction of a more flexible labour market has introduced uncertainty and fluctuating and uncertain incomes for some in the labour market.

So do we need?

To limit zero hours contracts

Ensure that workers who are currently classed as self-employed but appear to exhibit the characteristics of employees are treated as employees

Provide better pay for those who although performing essential jobs, due to skills levels and perceived status, are not adequately remunerated.

 

Buying property

First time buyers have faced particular problems in the housing market. Mulheirn has suggested some fundamental reforms. Firstly he considers that the issue of credit risk, where lenders require large deposits to offset the costs of defaults, could be remedied by the introduction of mortgage insurance.    “Many countries, including Canada, Australia and the Netherlands, deal with credit risk through widespread mortgage insurance, taking much of the risk off banks’ balance sheets.” [Mulheirn, 2022].  The second problem to resolve is that lenders have a concern that if interest rates go up, borrowers may not be able to afford the increase. “This currently requires banks and regulators to impose strenuous affordability tests before buyers can get their hands on a loan.”  [Mulheirn, 2022]. Here the solution would be to change to a system of long-term, fixed rate mortgage products.

 

The other issue is how to limit buyers from purchasing properties for second homes, holiday lets, buy to let purposes.

 

Renting property

What is the solution to enable people to afford a fair rent?  Changes to benefit rules and earnings have already been referred to.

 

Does there need to be?

a change in the tenancy rules

Rent controls

A move away from the private renting sector

Switching the mix within the current house building levels to a higher proportion of social housing

Creation of locally run mutual renting associations.

 

Asset holdings

Does there need to be?

A change to the tax system so that inheritance tax is paid by those inheriting houses

Limit remortgaging to those changing lender not those doing so to buy additional housing assets.

 

Other ideas and suggestions

Are there other policy options that could be adopted?

What are the pros and cons of each option?

 

References

Mulheirn, I., April 2022, Raising homeownership will require a radical rethink of the mortgage market.