The Housing Crisis – how we must re-balance the economy

This is an updated version of the speech I gave at Streatley

I am standing because I don’t think the big problems of the day are being addressed by either politicians or the media in this election.

The biggest issue of course is climate change, a topic I have covered elsewhere and you can find it on-line at peternorman.org.uk. Tonight I want to discuss what I think is the second biggest problem we face which is the state of the UK economy.

Last year we had a record trade deficit of £94bn. It is the result of our economy being hopelessly imbalanced but not in the way you might think. By far the largest part of the economy representing 60% of UK plc net worth is housing. The latest estimates values it at some £4.2 trillion and rising and that is net of debt.

It is by far our favourite way of investing money and it is not surprising. If you invested £1,000 as a buy to let landlord in 1996 you’d have made a staggering 1,390% return, this compares with 233% investing in government debt, 212% on equities and just 96% on cash savings over a similar period of time. Is it any surprise then that if you have any spare cash you want to put it into property? I’m guilty of doing it on a small scale, Richard Benyon is guilty of doing it on a much larger scale.

As a nation we are besotted with home ownership. It was prevalent before Margaret Thatcher but without doubt she gave it a boost. Of course the returns speak for themselves but successive governments have wanted us to invest in property in a way they have not encouraged with other forms of investment. On residential homes you pay no capital gains tax when you sell, on all other forms of investment you do. If you borrow to invest in a buy to let, you can offset the cost of that borrowing against your income. You cannot do so if you borrow to invest in a company. Indeed the Lib Dems are proposing further taxes on share ownership and taking away some of the tax breaks for entrepreneurs – the very people we should be encouraging if our economy is to prosper.

And if having exposure to the property market as individuals is not enough, the coalition government is now using our taxes to help first time buyers with their deposits, yet all the while that first rung of the ladder is getting further and further away (see http://www.huffingtonpost.co.uk/2015/04/29/affordable-homes-london-43_n_7169488.html?1430311245), the cost of first time buyer homes went up on average by 7.4% last year. The Conservatives solution? to put even more taxpayers money into property.  They now want to encourage property ownership as a way of avoiding inheritance tax.

The consequence of this is that we are not investing money where it could be used far more productively to strengthen our economy. When we should be investing in new schools and the education of our young, in young entrepreneurs who may be the future Bill Gates or Steve Jobs, we instead pour it into property and then wonder why our industry is in the doldrums.

If we are to tackle the current imbalance of the economy then we have to address our obsession with owning property and all the debt which goes with it. The argument will always be that you have security in owning your home but I would point out this. My family farmed the same farm for over 500 years, they were tenants and only gave up the lease when there was no-one to take it over. How secure do you need to be?

Mansion taxes, inheritance tax giveaways, help to buy schemes, stamp duty relief do nothing to solve the dysfunctioning housing market or rebalance the economy. Yet that is what the parties are offering because they want to buy your votes with your money.

Moreover all these incentives to get into property are doing nothing to address the growing housing crisis.  The private sector has been remarkably consistent since the 1950s in the number of houses delivered which have average around 150,000 per annum.  Councils stopped building homes in the 1980s with Thatcher’s right to buy scheme, the private sector has never picked up the shortfall.

The conclusion is obvious, if we want genuinely affordable housing for our young families and key workers then local authorities need to given the powers to start building again.  The houses they build need to be to top environmental standards, highly energy efficient and built on brownfield, old industrial, sites that are close to a towns’ amenities and transport links.  Alongside this we should tax second homes that are only used for a few weeks a year that inflate the property market in our rural communities making them unobtainable to locals who have to look out at the houses with no lights on from their parents homes which they cannot afford to leave.  We need to ensure that overseas investors do not see UK property as a core part of their investment portfolios turfing out residents in London to re-develop blocks of residential streets and then leave them empty.  All these are steps that must be taken if we are to solve the housing crisis as part of a programme to re-balance the economy.

So I ask just one thing when you go to the ballot box and that is to think. Do not regard a vote for me as a wasted vote. Things won’t change unless you vote for something different.

© Peter Norman 19/4/2015