The Guardian has posted an interesting article about a new proposal in the UK aimed at alleviating London’s housing shortage by taxing investors that buy new dwellings and then leave them vacant:
“Buy-to-leave” investors could be fined up to £60,000 in an assault on empty housing being considered by a London council…
Owners would be obliged to ensure properties are occupied “regularly throughout the year” or face a charge as high as £60,000…
The move represents an escalation in efforts to stop those investors content to enjoy house price rises in London in excess of 10% a year without occupying or renting out homes…
“We want to use planning policy to end the scandal of new homes being wasted in this way,” said James Murray, executive member for housing and development…
It’s hard not to view this scheme as treating the symptom of the UK’s housing shortage rather than the root cause: not enough homes being built.
The underlying cause of the UK’s housing malaise is its highly restrictive planning system, which has severely limited land supply and forced-up the cost of housing.
Most importantly, greenbelts have been established around UK cities, which have excluded large swathes of agricultural land from urban development (see below graphic).
Strict rules on development have also precluded high-rise development in brownfield areas, further precluding dwelling construction.
Finally, the centralised fiscal system in the UK has created a major road block to the provision of housing. Local authorities – which are the primary decision makers on development and have statutory obligations to provide services for new houses – receive very little revenue from increased population and housing. As such, they tend to be biased against development, which limits the provision of housing and related infrastructure.
Combined, these regulatory constraints on new housing construction have meant that housing supply in the UK has been incapable of responding to rising demand, with the amount of new homes built in the UK crashing despite rising prices and population growth (see below charts).
In fact, the constant upward pressure on prices expectations of future capital growth have created the incentive to leave properties vacant, with prospective capital gains providing a sufficient return on the investment.
The first best policy response, therefore, is to fix the underlying structural policies that have created the housing shortage in the first place: namely, freeing-up land supply and planning, and building more houses.
It’s not as if the UK is running out of land. According to the BBC, the urban landscape accounts for only 10.6% of England, with only 2.7% of the countryside actually “built-on” (see below graphic).
In short, it is government regulation that is primarily to blame for the UK’s housing shortage. If they allowed more open competition between land holders and developers, land prices would be much lower and homes would be far more affordable. It’s as simple at that.
