UK Housing Crisis: Government Policy Wrong

Posted: 6/3/2016

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A new paper by the influential Institute of Economic Affairs has said that almost all of the Government’s interventions in the housing market have been “a step in the wrong direction”.

It particularly criticises Help to Buy, changes to Inheritance Tax and higher taxes for buy-to-let landlords.

It picks out Stamp Duty reforms as the one step in the right direction – but still criticises it for impeding downsizing.

The paper, by Dr Kristian Niemietz, also says that green belts are not just outdated but conceptually wrong and should be abolished in their entirety.

It is particularly critical of the impending higher tax burden on buy-to-let landlords, saying: “Letting a property is a business like any other and the cost of servicing the mortgage is a business cost like any other. Thus the tax system should treat it as such.”

The paper says that the UK’s housing stock is not just inadequate in total but also mostly in the wrong place.

It adds that there is no specific shortage of social housing, private rental accommodation or first-time buyer homes, but an overall shortage of inexpensive housing across all tenures.

It says that boosting home ownership should not be a policy aim in its own right. Instead, the Government’s aim should be to improve affordability generally.

The paper says that the housing crisis is because of high costs of buying and renting.

Both house prices and rents are among the highest in the world, both in absolute terms and relative to average incomes.

Since 1970, house prices have gone up four and a half times after inflation.

No other OECD country has experienced price explosion of such magnitude. Indeed, no other OECD country’s experience even comes close, the report claims.

OECD countries consist of the world’s wealthier countries, including the US and Canada.

UK house building has had lower rates of house building than any other similar country for over three decades, the report says.

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