How To Solve The Housing Crisis

We believe that an enormous impact can be made on the terrible housing situation that we have in this country, but first we need to understand where we are with supply and demand. So whilst we have put a 6 stage plan together that appears towards the end of this document, we’d first like to explore factors that influence it.

In 2001 the population of the UK was estimated to be 59.1 million with 4.9 million (8.3%) foreign born. By 2011 the population of the UK had increased by 4.1 million to 63.2 million with the foreign born population at 8 million (12.6%). In 2015, the population of the UK was estimated to be around 65 million.

These are staggering statistics. It’s taken thousands of years for the country’s numbers to hit 59.1 million and then in less than 15 years it’s shot up by another 10%. It is estimated that net migration plus births to foreign-born parents has accounted for 85% of population growth since 2000!

Now, 1 person out of every 8 in this country is due to immigration and right now, just under 13% of our population is made up of people born outside the UK.

In a recent article the Times quoted Nigel Terrington the Chief Executive of Paragon Mortgages, a specialist Buy To Let lender. He said “Britain accepted 600,000 people into the UK in the year to June (2015). After five years, almost 80 per cent of immigrants are still in the private rental sector.” You can add to that students, divorced people or those moving for work, as well as those who simply cannot afford a deposit who need to rent.

A graph showing net migration since the 70s can be found here:

He also commented on the social housing sector, “In 1979, 35 per cent of people were in council houses. Now that is 8 per cent. The government has, in effect, privatised social housing to the private rental sector over several decades”.



The Daily Mirror has an excellent graph of house-building since the 1920s to 2013 and shows that ignoring the war, the output is the lowest since the beginning of the period.

Another graph on the page shows how much the public sector building has declined.

So coupling this with the explosion in population, it is clear that successive Governments have failed to meet demand and we need to get back to the great building waves that took place in the post-war period from the 1950s to the 1970s. This will hardly be a surprise to most people, but the point is that the country has done it before and can do it again. Or at least it could if the Government was truly committed to tackling the problem and not just use it as an excuse to raise tax revenue.


How Has the Private Rented Sector Helped:

Due to lack of credit history immigrants cannot usually get mortgages and rely on renting, usually from the PRS. This is the predominant reason that home-ownership is in decline and why the BTL market has grown as it has. Landlords have provided a service to house the immigrants that Government has attracted but have not made housing provision for. We then have to add in those people that choose to rent and have to rent because they are just not in a position to buy their home.

It can be seen then that not only is the demand for housing enormous, but specifically the demand for rented accommodation is a very significant part of it.

Landlords have NOT created demand but are just part of the supply chain. If you tax any part of the supply chain then you increase the end cost to the consumer and this is what will happen here too. Rents will rise, and indeed have to rise as they did in Ireland when a much milder version of this punitive tax measure was tried there.

As an example, if Government was to increase the already heavy tax on motor fuel, the pump price will go up and motorists will continue to buy because they have to in order to get around. This tax on mortgage interest means that some landlords will have to increase rents, others that don’t have mortgages may choose not to. It has been argued that those with mortgages will be uncompetitive but housing differs from petrol. If half of garages had the tax imposed and the other half didn’t, then motorists could choose to buy at the ones that could offer lower pump prices, i.e the ones without the extra tax burden. However tenants looking for homes cannot double up in the houses where the landlord is not suffering extra tax. There is no shortage of tenants in most parts of the country, and whilst there will be regional differences, most will see their rent costs rise significantly. Landlords will simply be rent collectors for the Treasury and will not be to blame for higher rents.

In addition to this we are actually helping to suppress house prices and here are 5 reasons this is the case:

  1. Landlords frequently buy disused housing stock and bring it back into use. We’ve done lots of this ourselves and the longest term empty property had not been lived in for 14 years!
  2. Landlords are often known for putting down deposits on new-build houses, sometimes way in advance of getting the keys (this is called buying off-plan). This gives builders much needed working capital to continue with the development as without those deposits things would grind to a halt. Therefore we are responsible for more houses being built. Anyone, owner-occupier or first time buyer could do the same but generally they don’t.
  3. We often convert larger houses to HMOs (Houses of Multiple Occupation), so where before one or two people lived in them, there would be several more afterwards. We personally have 5 HMOs. Before we bought them these houses there were a total of 8 people living in them. Now there are 26! They are all good or very high quality rooms and many are en-suite. Just imagine what the demand of starter homes would be all over the country if landlords had not done these conversions and made more efficient use of housing stock.
  4. We also convert old office buildings, disused pubs and hotels into residential accommodation which further enhances supply.
  5. A smaller part of the market, but nevertheless very important, consists of those landlords that build to rent and thus add to the available housing stock. In most cases, even if they build using their own money, they would look to finance the properties through mortgages afterwards in order to free up cash to build again.

So if it wasn’t for the BTL industry there would be fewer homes but no less demand.

With the Chancellor now attacking landlords with additional taxation there can only be a negative impact on individuals investing in these ways. Builders will find off-plan deposits harder to come by, and many landlords will not convert or renovate buildings. Whilst the numbers may still work well, the haphazard way Government is attacking the sector has led to a huge distrust of Government policy and whether there will be further punitive measures. The Chancellor has said that this move is to discourage investment in BTL, so even cash buyers which make up a significant part of the sector may well be cautious, fearing some new move against them in future budgets.

Therefore the taxation change is not only going to hurt the country’s existing tenants, but will likely have a severe detrimental effect on future generations.


So What’s The Answer? The 6 Point Plan:

We think there is a simple solution that will alleviate an enormous amount of pressure. Of course ‘simple’ doesn’t mean ‘easy’ or ‘quick’, but nevertheless it is simple.

  1. Clause 24:
    Firstly of course, Clause 24 of the Finance Bill needs to be scrapped and the necessary legislation introduced to undo it. Whilst the press and Generation Rent have maligned BTL as preventing people getting on the housing ladder, it is the enormous demand coupled with woefully inadequate house-building that has pushed up prices and made them unaffordable to most aspiring first time home owners.Straight after the budget Paul Johnson from the Institute of Fiscal Studies said that C24 will not help people get on the ladder, and the truth is that it will actually help prevent them.

    Professor Philip Booth is another senior economist (Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham) and has said that GOs position on taxation of landlords is ‘an elementary undergraduate public finance error that should not be made in the Treasury’.

    If C24 is allowed to remain then it can be seen that it strongly encourages people not to invest in housing.

  2. Land Acquisition:
    Next is that land needs to be freed up and we are particularly thinking of all the Government owned, but unused land across the UK. The MOD has numerous sites that have lain disused for years and whilst it would be classified as brownfield, with the RAF bases they could be often considered as greenfield due to the airfield. Government has made several statements about using these sites for housing and whilst progress has been made, it seems incredibly slow. There must be a clear and definite plan set with aggressive timescales for building.In our location there has been a recent announcement of three RAF bases that will be sold off for housing once the American forces have left.

    This we believe is a fundamental error of extraordinary proportions. Selling the land to developers is just another asset sell-off in the same vein as the other asset stripping that this Government is doing. There is a real and enormous opportunity here to tackle the housing crisis that we face. Selling the land to developers will result in two specific issues:

    • It gives more opportunity for the big companies to land bank. The Guardian recently reported that nine of the big house builders own more than 600,000 plots but between them only sold 66,881 houses in their last financial year.

      So how does it make sense to give them more opportunity to hold land indefinitely? By controlling output they control the price they sell at so they will not be in a hurry to develop these significant areas.

    • The Prime Minister has recently redefined ‘affordable housing’ as homes that people can afford to buy or rent. He also defines ‘affordable to buy’ as a home costing less than £250k outside London, or £450k inside the Capital. Unsurprisingly there has been much incredulity in the media as how these figures represent something affordable to the average first time buyer.The problem is that the builders have a right, and indeed a duty to their shareholders, to maximise their profits, so they do not have a priority to get people on the housing ladder. This should be Government’s priority, or at least it should be if we are to believe their stated policies. If the builders are instructed to build a defined number of ‘affordable homes’ then they can immediately aim at the £250k mark if the local market will support it. Imagine the frustration of the aspiring first time buyer on the National average wage of less than £26k.

    Whilst we have focused on MOD land and sites in our area specifically, there has to be a realistic approach to what is available. There is much talk about building on green belt, brownfield and farmland. There will always be planning issues, NIMBYism and sustainability problems but we are in crisis. There must be a hard-nosed approach to tackling the emergency head on. Compulsory purchase orders may need to be used when a real opportunity site is identified.

  3. The Builders:
    Forget the developers! As we have just identified they have their own, quite respectable agendas. As such they are not the ones to deal with this emergency.We need to form Development Corporations like those that existed in the last century, which were hugely successful in their task. They built incredible numbers of houses which were well planned and constructed. The houses, in Peterborough at least, are fundamentally of timber frame construction resulting in very fast build times at low cost. They are warm, comfortable and fairly energy efficient, but modern building techniques and energy efficiency measure can improve this considerably. If need be the housing units can be constructed offsite in modules and fitted together on site, as is becoming increasing popular.

    For anyone that says this can’t be done, it already has been in many London overspill towns across the south of the country. However it seems our current Government wants to repeat what is considered the biggest housing error in selling off Council stock, and is not prepared to repeat the huge successes of these corporations. Why?

  4. The Finance Opportunity:
    So far we know where focus should be in terms of land acquisition and who should develop it, and have actually said nothing that is a new concept. Financing the projects is where we think radical thinking is required.Government is looking to sell off sites local to us for £500 million. We would suggest that the land should be ‘gifted’ to the Development Corporations, thus significantly reducing their cost base per unit. Using timber frame or any other low cost construction the starter units could be produced at ultra-low cost and with lower skill needs. Whilst we haven’t researched this in-depth, we believe that with economies of scale a starter home can be produced for around £60 to £70k, maybe even less. However we’d also be quick to point out that we’re not talking about flats as this form of housing seems to be of declining appeal. We are suggesting this build figure for a one or two bed terraced house (no garage).

    Of course the money needs to be found to undertake these enormous projects and we’d suggest that the modern phenomenon of crowd-funding is utilised.

    There are many people looking for a decent return on their cash. Many have become landlords because of the need, though the returns are far less than most people, particularly tenants, realise. Others have not taken this route because it is seen as a long-term investment with lots of issues and onerous legislation with very significant risks.

    We suggest that Government should offer an investment that guarantees a reasonable rate of return, of say 5% TAX FREE. This is significantly more than someone would get in the bank, an annuity or from pensioner bonds that were only available to the over 65s, and would most likely see enormous investment from the private sector. The interest payable would of course be part of the cost of the house build but due to build times and costs, would not be a significant extra factor.

    The land, builder and finance has therefore been determined and with such a low build cost houses could be sold at a very low figure. The value of the property should however be set at comparable rates in the area, allowing anyone to buy at the normal rate and thus potentially providing enormous profit to the corporation.

    Genuine first time buyers can be afforded significant discounts and make the homes truly affordable to most. Of course there will need to be conditions set to qualify those aspiring buyers.

    Those buyers that do not qualify for the discount, i.e current owner-occupiers, landlords, etc, will pay normal market value and provide a profit to the Corporation. This can then be fed back into local Government to pay for the upgrades of necessary infrastructure.

    We also strongly believe that the crowd-funding opportunity needs to exclude commercial interest! This opportunity not only gives individuals the chance to make a little return on their cash but there is significant evidence that some of the main beneficiaries of the current C24 tax attack are people that have made notable contributions to the Conservative Party. This plan to relieve the housing crisis should be enough compensation to the Government should they choose to implement it.

  5. Buyer Finance:
    We would suggest that the corporations, or Government itself, should hold talks with the Council of Mortgage Lenders with an aim to develop products that give even the lowest paid the chance to buy their homes at the discounted rates. Home ownership carries a great deal of risk though and the products should therefore be flexible. We’d like to see mortgages that are somewhere between interest only and repayment, i.e part repayment. This gives the buyer the opportunity to build up some equity in the property and allow them to buy their home if they wish to.We’d also suggest that particular attention needs to be paid to the immigrants that would like to buy, but due to lack of credit history, cannot get on the housing ladder whatever the price of the home is. There is a real opportunity to offer good, hard-working foreigners the chance to settle, though our final comments below will show another side to this.

    Whilst the Development Corporations exist there should be the chance to sell back to them at true market value, minus a handling charge. Some aspiring first time buyers will realise that home ownership is not what they thought it was and carries a different set of problems to those they’re used to. This effectively provides an escape clause without the expense of solicitors and so forth.

  6. Controlling Future Demand:
    Lastly, whilst this document suggests a plan to tackle the emergency, it does not deal with future population growth, much of which has come through immigration. We now face a new wave of immigrants in the form of refugees, and whilst compassion means we have to accept these people, there has to be some better control for the future. Government of course recognises this already.It is important to say that that the immigrants already here have contributed greatly to our economy. They have also helped to steady the average age of our population which is still rising at an alarming rate. C24 will cause large rent increases and that may encourage immigrants to return home, indeed this may be part of the Government’s plan, but it will be extremely damaging to our long-term economy and welfare.

    The foreign workers pay income tax, VAT and various other taxes and if they return home the tax burden will fall on older UK residents that will have done their spending. Indeed many of us will be living off inadequate pension provisions and the opportunities for a future Chancellor to take tax will be alarmingly low. However the population will be older and need care which will put great pressure on the health services, which are already straining.

    Therefore scrapping C24 and providing better opportunities for foreigners to buy in the UK will be a good thing. However looking at the situation in the USA, it is said that there are now more Mexicans leaving the country than there are entering it, suggesting that as these people get older they wish to return to their countries of birth. They have made their money and now want to enjoy it in their golden years in a country that they call home.

    Indeed there is much anecdotal evidence of Afro-Caribbean immigrants doing similar from the UK.

    We suggest that there should be cash provision made to any foreign born national that wants to return home after a certain age, assuming that they have worked in this country for a certain number of years, etc, etc, etc. The figure is debateable but will help those individuals resettle in their home country and not be a burden on the UK in later life.