A capitalist argument for a capital's problems

by Gary Whittaker

The challenges of the UK's housing market are well-documented, with London representing a magnified version of them. While the country as a whole suffers from shortages of homes to buy and rent and consequent rising costs, the situation is particularly acute in the capital. 

Many reasons can be given for this, but in the midst of them is the simple reality that demand to live in London has been on the rise. Its population at the 2011 census was 8.6 million. By 2030 the city is expected to have as many as ten million residents. 

The same is also true to a large extent in some other cities. Manchester saw a huge population rise in the decade up to 2011 and is still growing fast, with Oxford and Cambridge also becoming popular places to live, though on a smaller scale. 

Ensuring this growth can be managed without both purchasing and rental prices rising even higher than the plethora of skyscrapers being built in London and Manchester is some challenge. According to the free market thinktank Adam Smith Institute, the only workable solution is a genuinely capitalist one, released from what it sees as a mass of counterproductive regulation and red tape. 

It has published a paper written for the thinktank by leading architect Patrik Schumacher, who has argued against the imposition of populist state-led solutions, such as quotas of 'affordable' housing, rent controls and mandatory long-term tenancies. He argues that steps like these actually make matters worse, not better.

For example, he suggested that restrictive planning laws are responsible for the surge in house prices in London from around four times the average annual income in the early 2000s to around ten times typical pay now. Renters suffer too, with rent to pay ratios raising from 1:5 to 1:3 over the same period.

Among the factors the author blamed for a lack of housebuilding was "politically motivated nimbyism", arguing that there are many examples of objectors carrying too much sway. He listed the refusal of planning permission for a 2,000-home development on an Asda car park on the Isle of Dogs and the blocking of the development of the derelict Bishopsgate Goodsyard in Hackney as cases in point.

Imposing quotas of 'affordable' homes is also counterproductive, Mr Schumacher claimed, arguing that the 50 per cent requirement for new housing developments in the capital instigated by mayor Sadiq Khan deters development and simply pushes prices higher elsewhere.

Similarly, rent controls and long-term rents will, he argued, cut the supply of low-cost housing for those on low incomes, as well as reduce the mobility of labour.

All this, he said, was happening at a time when the development of service industries like tech and finance is promoting people to cluster in cities, causing the population increase as the historic trend for people to move out to the suburbs has gone into reverse.

The author concluded: "We should be experiencing an urban Renaissance as a crucial productivity-boosting component of our knowledge-and network society. Instead planning restrictions and imposed standards block the adequate supply of urban residences, leading to prohibitive prices. Paradoxically, the ‘affordability’ system contributes to, rather than alleviates, the affordability crisis.”

His words were backed up by research associate at the thinktank Sophie Jarvis, who said: "Millennials already know that they are at a massive disadvantage to their parents in terms of getting on the housing ladder. What they don’t know is that rent caps and restrictive planning laws are holding them back, not helping them out."

The arguments expressed in the paper offer an alternative to some widely-advocated ideas. For instance, Scottish Labour is attempting to push a new rent control law through Holyrood, named after 1915 Glasgow rent striker Mary Barbour. Meanwhile, the Resolution Foundation recently published a report calling for a system of long-term tenancies like the one used in Germany to give 'generation rent' millenials more housing security.

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27-April-18General Lettings News