Has she still got it?

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Even Thatcher Couldn't Fix U.K.'s Housing Woes

Marc Champion writes editorials on international affairs. He was previously Istanbul bureau chief for the Wall Street Journal. He was also an editor at the Financial Times, the editor-in-chief of the Moscow Times and a correspondent for the Independent in Washington, the Balkans and Moscow. He is based in London.
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With just weeks to go before elections in the U.K., the two main political parties have delivered their manifestos, and both offer to tackle that greatest of British obsessions: unaffordable housing.

This is a genuine problem, especially in London. Sure, the city is a global financial capital and it's expensive to buy in New York City, too. But in New York the average property price is six times the average salary; in London the multiple is 8.5. Nationwide, the situation doesn't look much better:

The immediate cause of this problem is uncontroversial -- the U.K. doesn't build enough new homes. It needs anywhere from 220,000 to 250,000 new residential builds a year just to keep up with a growing population, but produces only about half that many:

Prime Minister David Cameron -- whose campaign has come up with a series of giveaways meant to show that his party doesn't just coddle the rich -- proposes to dig into Margaret Thatcher's  playbook for a policy that let tenants in government-owned council housing buy their properties at discounted prices.

In the 1980s, Thatcher's Right to Buy program was a runaway political success. It led to the sale of about 2 million apartments and houses and helped add 15 percentage points to the proportion of Brits who were homeowners (and therefore, the thinking goes, more likely to vote Tory).

On Tuesday, Cameron promised (if re-elected) to extend the Right to Buy and its discounts to tenants of publicly subsidized Housing Associations, which account for about 1.3 million homes rented at subsidized rates. Thatcher's policy was popular, so this may be, too. But it would probably do little or nothing to solve the U.K.'s housing shortage. In its 25-year history, Right to Buy has never made a dent in that problem.

Theoretically, under the Tory plan, the Housing Associations would replace the homes they sell by building new ones from the proceeds. The portfolio of publicly funded housing would be replenished and the overall housing stock, increased.

Experience says this convoluted plan won't work, however. Yes, many tenants will buy their existing properties at discounts of up to 102,700 pounds ($152,000), but the new ones won't necessarily get built. At best, the replacement rate has been half, often much lower, because Housing Associations don't get all the money from the sales and, in any case, they can't find new buildable land. So this would further reduce the supply of affordable public housing and lengthen waiting lists already long due to rising house prices and rents (the sharp drop in demand for subsidized housing in 2013 and 2014 in this chart appears to have been due to a change in policy, whereby people unlikely to qualify were encouraged to withdraw their applications):

The policy is also philosophically questionable. Why should tenants already enjoying low rents get a further huge subsidy to buy a home -- plus a likely profit, should they resell at market prices -- while those in low-paying jobs who struggle to pay high private rents and can't afford to buy, don't?

Labour has a different plan, which it says would increase housing construction to 200,000 units per year by 2020. Perhaps unsurprisingly, this does not involve selling off more public housing to create Tory voters. Instead, it relies heavily on increasing the amount of public housing built:

Source: The Lyons Housing Review

The proposal is based on a report that Labour leader Ed Miliband commissioned, and its 39 policy recommendations include building "garden cities" around the country. Past experience suggests this plan also might not work; such grand plans for government-imposed construction usually fester. No doubt Labour would build more public housing -- but not enough.

The most effective response to the U.K.'s housing crisis is well known: Fix the country's byzantine and tightly restrictive planning system, which makes it nearly impossible to build housing on virgin land. This would remove the primary cause of the shortage and so rebalance house prices to make both buying and renting more affordable, reducing the need for public housing. It would also, however, require a revolution.

The prevailing obstacle is nimbyism -- property-owners who, rationally but selfishly, don't want more homes built around them. In addition, effective planning reform would have to overcome the false, yet near-universal, conviction in the U.K. is that the country is just too small and overbuilt to accept more construction. In reality, only 7 percent of Britain's landmass is urban, and not all the rest of its green and pleasant land is of such natural beauty that it must be kept for cows and sheep.

Candidates won't propose to fix this root problem, though, because it would cost votes, not win them. 

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Marc Champion at mchampion7@bloomberg.net

To contact the editor on this story:
Mary Duenwald at mduenwald@bloomberg.net