“We should start with housing – the sturdiest of footholds for economic mobility.”

At the core of the UK’s many economic problems the new government must address is the unaffordability of housing for the bulk of UK workers. Yet the government’s new plan to make it easier to build new executive rabbit hutches on greenfield sites does not address the crying need for 2 bedroom flats in inner cities to boost growth and prosperity.

This is shocking – but entirely predictable. It’s taken me just three days to find something to rant about regarding the new UK government’s policies!  

Dear Rachel, Sir Kier, and the Parliamentary Labour Party

I find myself in complete agreement with ex-Bank of England economist Andy Haldane. He was cited in the Torygraph y’day commenting on Chancellor Reeves’ plans to cut through planning rules to build more houses, saying these will not solve the UK’s housing crisis. They will barely scratch the surface of the UK’s Housing problem.

I’d go further – the Chancellor’s plans reek of “conservative financial orthodoxy” when the kind of “striking and radical” solutions Haldane says are required are ignored. More to the point, effective solutions to the UK’s deepening housing crisis could be funded by the private sector to create a public good: better, abundant, affordable housing, which will have massive multiplier effects on the economy!

Before anyone thinks I’ve been infected by some mind-altering brain fungus that turns folk into rabid Tory election deniers (you have to giggle at the Tory’s new-found religion of proportional representation), I desperately want our new Labour government to succeed. But if the limit of our new government’s ambition is to remain slightly less ill-disciplined, marginally better Tories, then we are doomed to seeing our dreams, hopes and expectations dashed.

To succeed our new Labour Government has got to successfully achieve 2 things only:

• Avoid a Lis Truss fiscal omnishambles (easier than you think… demonstrate competency.)
• Be radical and imaginative without scaring the Gilts Market… (again easier than you think – use the markets and bring them onside.)

Housing should be right at the top of the UK’s list of critical problems.

Today, the housing problem seems unsolvable – how to reconcile the chronic shortage of homes that has driven up prices and rents, leaving workers broke and unable to afford to live near jobs? Higher housing costs (rent or mortgage) have left consumers with dramatically less discretionary spending capacity, with clear effects on the economy – contributing to high-street collapse and the rise of broken-window syndrome. (Neglect is infectious: leave one window broken and the rest will shortly follow as social norms break down.)

If Labour can demonstrate Housing can be solved through smart, clever, effective and in control policies, then confidence in repairing Broken Britain will soar. Solve housing and you will trigger significant growth multiplier effects and boost economic recovery. It could enthuse the disenchanted electorate that Labour’s critical thinking can cut through the Gordian Knot that is the NHS, while comprehensively rebuilding decaying national infrastructure! We may even solve the productivity/growth issue.

Chancellor Reeves has said all the right kind of words you would expect from a “Wet” Tory centrist playing safe to an audience of City types who value fiscal stability over a stronger economy – conservative austerity thinking 101. Labour should be better than that.

The Chancellor is targeting 1.5mm new homes (slightly more than the last Tory incumbent in Housing, Michael Gove), opening up the Grey Belt (debatable green field sites) to development, cutting planning red tape and declaring she will work with private industry, Britain’s notorious homebuilders, to get it done – which is why housebuilder stocks have soared in recent days.

But what Britain needs is not more “executive” housing estates on greenfield sites at the cost of a few squished newts and homeless bats. That is a bad idea. Any new housing plan should be prioritising what people and the economy need to thrive. Critically that means homes for young people close to their jobs at the beginning of their economic lives – small flats, not unaffordable family homes (which are important as aspirational targets!) Rising family formation is a sign of a successfull and growing economy.

The Chancellor’s plan will leave homebuilders in control of house prices – allowing them to continue drip feeding new builds into the market at a pace designed to maintain prices and keep profits high. Rolling back planning rules is an essential change, but makes profits even easier for the homebuilders by monetising the immediate value of their land banks, while pushing up housing costs as grey land prices soar!

 Just as the homebuilders arbitraged help-to-buy schemes, they will seek to benefit from the Reeves Plan. To maximise returns to shareholders, the homebuilders primary concern is to build at the most profitable pace – which is probably well short of 300,000 new homes each year. They will build what they want to build (expensive homes) and control supply to push up home prices. Answer me this: what will incentivise/force homebuilders to build more homes, at a faster pace, and at lower prices?

There is a solution:

By all means work with the Homebuilders, but also be radical, take control, and create a fully costed and funded plan to get the nation homed, triggering an economic renaissance. (Blain financial wizardry on its way.)

The key point is that big cities like London and elsewhere are on the verge of the Caffeine Event-Horizon. This occurs when rental prices are so high coffee-shop baristas can’t afford to live in town, meaning modern finance, commerce and society dies because no-one can make a decent flat-white. The same kind of effect can be seen in  every other catering, retail or service industry – pushing up wages to unsustainable levels.

What Britain desperately and actually needs is millions of more affordable dwellings across the rental sector and affordable accommodation that eaveragely paid workers can buy into. Flats and lots of them. These should built swiftly on inner City brownfield sites, on disused railway and industrial land, or on the sites of obsolete tower blocks. They should be close to work-places, ESG compliant and sustainable, encouraging workers to use public transport, walk or cycle.

Essentially we are talking about 1, 2 and 3 bedroom flats: built well, built cheap and built quickly. Let’s target 2-3 million new flats to speed up family formation and solve social housing issues before the next election. Is it doable? Yes… remember the number of cranes in the City of London in the naughties?

We should be utilising modular construction construction to build them cheap, sustainably and well – but unfortunately most of the UK’s highly innovative modular construction businesses are bust, killed by the Tories failure to promote any meaningful mulit-family home-building. No worry – we can kick-start new modular businesses. Some forms of Modular will allow building up to 17 stories with built in easy lift maintenance.

The second issue is to create a long-term hybrid sustainable housing market. Build millions of these flats and rent them at fair rents. Give tenants the right to buy after 5 years at a market price based on a very simple rule than any social housing sold is replaced with a new rental unit.

At present London’s housing market is fooling itself.  It thinks high flat prices are a sign of economic strength. Not so, they are a sign of an unbalanced market: average wages are less than £50k, but the average 2 bed flat costs £650,000. Vast swathes of new build luxury flats in places like Nine-Elms were bought by foreign investors and priced well above where British workers can dare contemplate renting. They are largely empty.

To be affordable, the price of a 2 bedroom flat needs to fall to £200,000 (!) so the average London worker can save £50k and borrow three-times their income to buy it. That spells a massive potential repricing risk ahead for folk that bought studio flats for hundreds of thousands, or 2 beds in docklands for the best part of a million. Ouch. Long-term I expect young workers who start their careers in rented social flats will aspire to move up the ladder to more luxury flats, then that Barrett executive rabbit hutch in the ‘burbs. In effect new starter flats would re-start the aspirational housing ladder where success in one’s career allows progression up the ladder – hardly Marxist!

The third issue is how to pay for it. Herein lies another opportunity for Labour to undo the long-term damage to the economy done by the last 14 years of Conservative Government – the cut off in central funding to local authorities. Local authorities have no money to build much needed local social, “council”, housing. One of the reasons the UK’s planning system is so broken is that cuts in central government financing to local authorities resulted in a 58% reduction in local authority planning budgets – effectively stalling activity across the country, creating the gridlock Labour intends to unblock.

Let us create a National Housing Fund.

Its role will be to finance and own new-build flats to be managed by Local Authorities and Housing Associations as large scale social renters. The fund will be financed on the private markets, sold to global bond buyers. They will be secured on the underlying assets, the flats. The bonds will carry a “Keepwell” agreement from the UK government – which any bond-dog knows is optional meaning it doesn’t go on the national balance sheet, like a guarantee would, and that it will be made clear that a strong and stable UK housing market is a key objective of government, therefore it’s in the govt interest to keep the National Housing Fund solvent.

(We could even mandate the fund to buy private homes owned by private investors into the portfolio – but that does raise issues of moral hazard.)

The concept of a National Housing Fund, and planned housing programme will pay multiple dividends and have massive multiplier and positive consequences for the economy:

• Generate confidence across the UK – if the new government shows the cost and housing shortage can be addressed, then that confidence will pervade the whole economy re fixing the NHS and Infrastructure.
• This will remain a public initiative, funded by private capital, but taking pricing power and control away from housebuilders – who are bound to exploit any govt building to line their profits.
• Create a multiplier effect and boost new industry – like modular construction – across the UK.
• Minimise NIMBY risk and planning objections by focusing on Brownfield sites and obsolete office space.
• It may create a problem for folk who bought London Flats at £650K – but not necessarily immediately as Social Flats won’t come on the right to buy market for years and their homes become aspirational…

I look forwards to any thoughts and comments on the above National Housing Fund idea.