A question about Labour's housebuilding pledge

[andrewducker]

I would love to know whether, when Labour say "We will build houses" they actually mean "We will give actual money to actual housebuilders to actually build actual houses" or if they mean "We will muck about with incentives and then be baffled that housebuilders aren't doing what we rather hoped we would, because it turns out that things are more complicated than that."

Because I hope it's the former, but I really worry it's the latter.

Comments

[marymac]

I mean they did say something about actually giving councils the money to build houses ring fenced for housing.

Which would be better than the English Help To Buy scheme that only allowed you to buy new builds and thus slapped exactly the value of Help To Buy on to the house prices...

[andrewducker]

Yes, the help to buy system was terrible.

[bens_dad]

I heard Angela Rayner on Radio 4 talking about building council houses, but I think she agreed to the interviewer's suggestion that there would be a Right To Buy, which AIUI means that councils will have to sell council houses at prices which wont let them buy replacements.

[dewline]

We're having the same discussions about the federal and provincial governments over here in Canada of late.

[danieldwilliam]

If I were a Labour Chancellor of the Exchequer or Housing Minister I think my proposal would be

Regulatory

A significant increase in the regulation of rented houses; higher and ever increasing minimum standards on energy efficiency and other habitability measures, strictly enforced.

I would bring in the same sort of rental rights as were recently brought in in Scotland. Also the community right to buy scheme as enjoyed in Scotland.

Policy Aim - I want to improve the quality and security of rented accommodation whilst also shifting housing stock from the private rented sector to the private owned sector (I like people owning houses for a variety of policy reasons.)

Planning Reform and Tax

A planning permission change in use land value tax - if your planning application results in a significant increase in the underlying value of the land, you pay some tax on that change in use windfall. Probably double digits tax. Unless you are a housing association or a local authority housing department.

Development land bank holding tax - you have to notify HMRC if you are holding land for development purposes. If so, you have 5 years then you start paying a land bank tax. 1% in year 6, 2% in year 7 up to 5%, maybe 10% per annum of the value of the land. If you have not informed HMRC that you are holding the land for development and you attempt to apply for planning permission, then off you go to tax evasion prison and the land is barred from planning changes whilst it is owned by you.

Planning permission sunsets after 5 or 10 years. Use it or lose.

Policy Aim - to encourage the private sector to either build homes or return the land to the market for other people to build homes. NB I am providing funding to local government and the third-sector to create demand for land released in this way. Smart developers will either get on with their developments or sell the land to local authorities.

Unrealised gains on rental properties. If you own a rental property every 5 years you have the current market value assessed. You pay tax on the capital gains then and there, as a payment on account against the future sale. There are generous tax breaks on this if the house is a new build house and it was built with the intention of being rented and the original tenants are still in the home.

Policy Aim - I want to shift housing stock from the private rented sector to the private owned sector by making buy-to-let property a less attractive investment. If you are building new housing to rent out, I'm okay with that.

Funding and State Activism

And in parallel with that I'd provide really very significant funding to local authorities and housing associations to build social housing. I would probably do that by floating a series of government backed bonds secured on the newly built housing stock. Investments in the Housing Stock Bond would be exempt from inheritance tax.

Local authorities would be permitted to make a surplus on the provision of social housing but would be required to re-invest any income above the full economic cost of providing social housing in more social housing until we hit a number of trigger points based on eg social housing waiting lists, average house price changes or similar. Basically, once we have moved from a shortage of housing to an abundance of housing local authorities can use the modest surplus on providing social housing to provide other local services. (This is explicitly a social contract stabiliser. People receiving social housing are getting a fiscal transfer that amounts to a redistribution of wealth. I'm good with that, but one the housing shortage is dealt with I think those people are likely to be, on aggregate, in a slightly better position to chip in towards the commonweal.

Uncertain about the extent to which I would build in a social housing tenants right to buy. I am inclined to build that in from the very beginning in a very slow and measured way with strict rules on the buyer actually living in the house in order to make it harder for a future right of centre government to sell off all the housing stock again. So probably something like, if you live in newly provided social housing you can pay up to 1% of the cost to build that housing unit extra per year in order to buy part ownership of the housing unit, once you reach a 15% stake in the property you can buy the rest of it for somewhere in between the replacement cost and the current market value.

Or something like that.

[andrewducker]

I'd want to make sure that there were trigger points that prevented right-to-buy if there wasn't sufficient available rental stock. But it's possible your other changes would ensure that there were.

I'm not sure what the optimum own/rent mix is. 80:20? 70:30? We're always going to have a proportion of the population that cannot afford to manage repairs, etc. or are relatively mobile, and we need to support that. But I don't know what share of the population that is.

"if your planning application results in a significant increase in the underlying value of the land, you pay some tax on that change in use windfall." - Is this supposed to put individuals off from change of use planning applications? Because I can see it working well for large businesses, but individuals won't have that money lying around. On the other hand, do individuals tend to need to do that?

[danieldwilliam]

I'd want to make sure that there were trigger points that prevented right-to-buy if there wasn't sufficient available rental stock

That's the sort of effect I'm aiming for.

I'm not sure what the optimum own/rent mix is. 80:20? 70:30?

I think it varies a lot. Germany has a large proportion of people in long-term rental accomodation, but they also have very good pensions. In the UK our pension model is partly built around the assumption that people in work will borrow capital to buy a house and pay it off so they don't have housing costs to pay in retirement.

There is definately some benefit in having homes available at short notice or on a short-term basis - it facilitates labour mobility and a liquid labour market which is helpful.

It's perhaps worth thinking of the two or more things as several separate but perhaps overlapping markets served by seperate but overlapping industries. People who want a long-term family home could be served by owner-occupation, private rental with strong rights or by long-term social housing provision. Students who need a small bed-sit-study are in a different market.

And probably an element of a market solution rather than detail central planning is the most efficient way of getting the information about what people want and need and value at the margins, once we've got sufficient housing units in the country for everyone to have at least one.

[andrewducker]

Turns out the UK is currently 18% social housing and 12% private rental. Which is lower private rental than I expected, given the loudness of the shouting. Although that's from 2019 and I wouldn't be surprised if it's worsened since then I wouldn't expect to have gotten *that* much worse.

And yes, once there's enough housing that landlords are competing for people to live in their homes, rather than the other way around, I'd be happy to leave things to (mostly) be market driven too.

[bugshaw]

With a Capital Gains tweak so over 10 years they don't go HA HA HA I covered £140k capital gains using 10 years of annual allowance no tax for me (or whatever the annual allowance is)

[bens_dad]

I have a vague idea of using your "unused" income tax allowances over the years of the capital gain* as the CGT allowance. So if you weren't (earning enough to be) paying income tax some of the gain will be tax free and some taxed at basic rate, but if you were paying top-rate income tax the gain is all taxed at the top rate.

But this government are trying to phase out lower rate income tax allowances (as they are completely failing to track inflation) so this is probably not very helpful.

* or probably earlier years too. You shouldn't lose the allowance if you didn't have the money to invest at that time.

[danieldwilliam]

It's a payment on account, not a payment of the actual tax due. My thinking is that I want to alter the cashflows. Two reasons to do so. I'd want to incentivise people who want to invest in the passive income rental market to put their cash in to the social housing bond. Particularly smaller investors. Secondly, I want to pull a bit of the froth out of the housing market.

[bens_dad]

If you own a rental property every 5 years you have the current market value assessed. You pay tax on the capital gains then and there, as a payment on account against the future sale.

That would help close the hole where you move into the property for a while before you sell it and avoid CGT as it it your 'main home' ! (I assume this loophole still exists; I had a neighbour who used it 30 or 40 years ago.)

[danieldwilliam]

For me it's more about adjusting the cashflows. I'd want people who want to invest in rental houses to do so by putting money in to social housing bond.

I don't see how you can meaningful close that particular loophole without the tax system beginging to have an overbearing impact on how people live their life.