There’s a giant lie at the heart of British politics, which everyone politely ignores.
This is the lie: Britain’s big problems can be solved without lowering property prices.
Ignoring the giant lie is in the interest of almost everybody. It’s certainly in the interest of the two thirds of the country that owns some property. It’s in the interest of older people, richer people, politically organised people. The insiders.
But whether they realise it or not, property owners are holding Britain back.
The sooner everyone accepts it, the better!
Most people treat property prices like a force of nature. They’re not. High property prices are a political choice. They’re a direct consequence of Britain’s tight planning laws.
Tight planning laws are at the root of a lot of Britain’s biggest problems. They kill jobs, lower people’s incomes, and drag the economy down.
And they raise property prices.
For example, the green belt prevents London from growing. (60% of it is used for intensive farming, by the way). If London were allowed to grow by just three miles into the green belt it would grow by 50%. But we don’t allow that.
We don’t allow it because, as I said, it’s not in the interest of property owners.
Instead Osborne ties himself in knots trying to fix various problems which are caused by tight planning laws, without actually changing the laws.
The Lifetime Isa, which was announced in the budget yesterday (read more here), is a good example. With the Lifetime Isa, the government basically gives young people money so they can afford the cost of a house.
Last year it was the Help to Buy Isa. And a couple of years ago it was the Help to Buy scheme, in which the government helps pay for part of the deposit. The government is pouring good money after bad into the property market, as if it’ll achieve anything other than buy a few votes in the next election.
Now I’m not saying that planning laws are totally cynical. People like to live in charming old neighbourhoods, in spacious villages, and they worry about overloaded schools and trains. I get that.
But the effects of planning laws are more serious than you might think. A paper by Paul Chesire and Christian Hilber at the LSE took a look at how much planning laws add to the cost of office space in London, relative to other global cities. They found that in London the planning laws add a shadow tax rate of about 800% in the West End, and 400% in the City. That’s not normal! The comparable rate is about 50% in New York, 70% in Brussels and 300% in Paris.
In other words the government could loosen the planning laws, impose a property tax of 300%, and still come out way ahead. It could use all the money it raises to build new trains and schools, and make the city better for everyone.
The problem is that in order to get that far, it would have to poke the hornet’s nest. It’d have to convince property owners that it’s in their long-term interests to allow property prices to fall.
Bigger denser cities would mean more and better jobs, a lower cost of living and more choice. Brits richer in every way except one. The price of their home.