STILL THROUGH THE ROOF
The Government tries to stop house price rises with one hand, while it drives them
up with the other, argues Richard Ehrman THE Government wants to see house prices stagnate for a while. The Treasury Chief Secretary, Mr John Major, has actually said publicly that this is one of the prime targets of the present high interest rate policy. The Government, though, never seems to have understood properly why the cost of housing in this country has risen so exorbitantly during its term of office. For while one part of the Treasury tries to dampen the fires of inflation by penalising mortgagees, another is handing out tax relief to them; and across Parlia- ment Square the Department of the En- vironment is merrily pursuing policies that help to push house prices up and up.
Housing being a necessity, its price is being constantly determined by its supply and this is severely restrained by planning policies that the Department of Environ- ment says it is determined to uphold. High interest rates may conteract that for now, but their effect will be temporary because they do not address the fundamental imba- lances of supply and demand. The good news for those who already own their homes, and the bad news for Mr Major and for everybody who has still to buy a house, is that those imbalances are likely to get worse over the next decade.
The provision of new housing is decided several years in advance, so it is possible to predict with some confidence. First of all, County Structure plans set five-year targets for housebuilding, and designate broad areas of housing growth. Local plans, drawn up by districts or boroughs, are then meant to provide enough sites to accommodate the structure plan's figures, and many local authorities claim that such a supply exists in their areas. Housebuil- ders, however, point out that local plans aim not so much to provide enough houses to meet demand, as to provide enough to meet the targets set in the structure plan. So claims by local authorities that they allow for a sufficient supply of new homes can, particularly in the areas where de- mand is greatest, be somewhat circular.
In fact it is obvious from the rapid increase in the price of housing land that the system is not meeting demand. Accord- ing to the Financial Times the value of an acre of housing land in Northamptonshire has jumped from £100,000 an acre in 1985 to £500,000 in June 1988. In Rugby it has risen from £50,000 to £350,000 and in Luton from £300,000 to £800,000 — all in the space of three years. When an acre with permission for houses is regularly worth 300 times as much as an otherwise identified acre of field, it cannot plausibly be said that an adequate supply of housing land is being made available.
The connection with house prices is equally obvious and alarming. In 1964, the average new house cost £4,000 and land accounted for ten per cent of its price. In 1984 the average new house price has risen to £38,000, of which land accounted for 40 per cent. Since then the proportion accounted for by land has probably risen still further; and house prices in many areas have doubled or more.
So unpopular is development, however, that few local authorities are responding by planning to increase the rate of housebuild- ing — if anything the reverse. In Novem- ber 1987 there were 25 proposals for structure plan alterations before the Secretary of State for the Environment. In 23 of those it was possible to compare housebuilding provision in the previously approved plans with that in the alterations. In five counties the proposed rate of building was above that already approved; in the remaining 18 counties the alterations proposed to reduce the rate by an average of 16 per cent.
Meanwhile in February 1988 the DoE produced its revised household projec- tions, predicting that there will be an additional two million households in Eng- land alone between 1986-2001 — an 11 per cent increase. Due to new factors such as lower mortality, later marriage and more frequent divorce, that figure was 600,000 more than previously expected.
To no one's great surprise, the counties that are predicted to have the greatest increase in households turned out, broadly speaking, to be those that wanted to rein back housebuilding the most. Of the five counties expecting increases of over 22 per cent, only Wiltshire was planning to in- crease its rate of building to accommodate some of those extra households. Of the others, Cambridgeshire wanted to cut its rate by ten per cent, Buckinghamshire by nearly 20 per cent, Hampshire by 20 per cent arid Northamptonshire by 25 per cent.
Until recently this clash of growth versus environment has been seen as a south- eastern problem, and it is often said that to keep on the planning brakes in the south will force economic growth to the north, where unemployment is worse. Ironically, though, those northern and midlands areas which have been hardest hit by unemploy- ment have, since 1980, begun imposing exactly the same restrictive planning poli- cies previously applied to the south. For instance, the Green Belt around the Liverpool-Manchester conurbation grew from under 4,000 acres in 1979 to 750,000 in 1986, while that in both Tyne and Wear and the west midlands doubled. In the same period Nottingham-Derby, which previously had had no Green Belt, created itself one of over 200,000 acres. When the original Green Belt round London was introduced in the 1950s there was provision to accommodate growth in the new towns, but in the 1980s no comparable allowance has been made. So as economic growth ripples outwards from London, the older industrial areas are likely to run into the same problems that bedevil the south-east.
In the face of such widespread opposi- tion to building, the extra demand for homes is likely to lead to steep price increases between now and the year 2000. If you want to make money on your home, therefore, the way to do it is clear. Avoid those inner-city areas like the Docklands, which the Government is keen to promote and where planning restrictions have been relaxed — a balance between supply and demand is the last thing the would-be speculator wants. Instead, consult the DoE's projections, see which of your preferred locations is doing the least to accommodate the builders, and buy there. The muddles of local and central govern- ment policy should then ensure you a
healthy return. Mr Major coincidentally is the MP for Huntingdon in Cam- bridgeshire, the county expected to have the biggest growth in households, so the ironies are unlikely to be lost on him.
Richard Ehrman is the author of Planning planning, a pamphlet published last week by the Centre for Policy Studies, £4.95.
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