Empty homes and dear housing

 

                There were 738,414 empty homes in the UK in 2010 – there will be around the same number today.  Yet I read we are short of houses, and need to build more houses. I wish today to deal with some of the myths in the housing debate.

   Myth One: The south-east is selfish, with Nimby Councils refusing to build the homes we need

             Some argue  that the selfish south and London refuse to grant permissions and build more homes where  they are needed.  If you look at Quarter II 2011 figures you will find that London built the most new homes – 6831, and the South East the second most at 5833. These figures are well up on a year earlier.  The whole of Wales managed only 613, well down. Also falling were  the North East at 806, Yorkshire and Humberside at 1903 and East Midlands at 1941.

                 My own constituency is proof that the south-east has been far from seflish and Nimby like – a combination of willing Councillors and Councils, and pressure from government plans and Inspectors, has seen largescale new development of homes over the last twenty years. In Wokingham Borough there is no evidence that the new accent on localism is going to change this drive for more building. The Council has signed up to four major areas for housing growth, and is planning substantial new settlements in each.

Myth Two  House prices rose too fast because there was insufficent new build

              House prices are mainly determined by the price of second hand houses. 300,000 houses move from empty to use each year aside from any new developments, and many occupied homes change hands. The main reason homes became so expensive in the period 2001-8 was the huge surge in mortgage finance, with companies like Northern Rock falling over themselves to lend higher multiples of earnings, bigger proportions of the purchase price, and to accept ever higher valuations. The mood was very different from when I  bought a house in 1993. Then the Building Society would not accept the valuation I had agreed to pay, despite it being around 25% below the previous peak. They worked the mortgage out on a lower figure to protect themselves in a falling market.

                It would not have been possible to keep house prices down by any possible increase in the new build rate. In places like Wokingham where the build rate was very high it did not have any impact on relative house prices. They joined in the general boom. The authorities should have restrained bank lending by calling for more banking cash and capital against loans. That would have worked.

Myth Three  All the empty houses are in the wrong place, so they cannot answer the problem

                 If you accept that most development has to take place in the crowded south-east and London, the figures show there are still plenty of empty homes even in these popular areas. In 2010 there were 650 empty homes in Southwark 586 in Harlow, 508 in Bristol, 485 in Greenwich.  The South-east as a whole had 99,000 empty properties, and London another 80,000.  These numbers compare with 63,832 new homes built in the first half of 2011 nationwide.

Myth Four Most of the new homes need to be built in London and the south-east

              The government has said it wishes to establish greater economic balance in the UK. That will require the provision of more homes for energetic and mobile people to go to Wales or the North to set up businesses , or to expand businesses already established there. Places that have been down on their luck need to build homes for the more prosperous and upwardly mobile, so they can move in with their enterprise and spending power, to help move the local economy forward.  The presence of large numbers of empty homes in places like Leeds (1433), Sheffield (874) and Nottingham (838) should be an advantage, as this should allow more homes to be made available at sensible prices quite quickly, with suitable repair and decoration.

                 Many of you write to me about the high level of house prices. It is certainly true that house prices in the hotspots are very high. It is also true that there are now much cheaper properties available in other locations well away from London. If the government means what it says about bringing new life and jobs to less successful areas it should be possible to bring these cheaper properties into use. With the current chill on bank balance sheets I would not expect further house price inflation. Gradually house prices and incomes will get into better balance. The government and Councils could speed this process up by selling more of their empty properties and development land at realistic prices for an early sale. House prices have fallen by almost a fifth from the 2007 peak overall, at a time of continuing price inflation generally.

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108 Comments

  1. rodney dawkins
    Posted August 31, 2011 at 6:36 am | Permalink

    I wonder if you are choosing to ignore location as the primary determinant of the value of a home. Sure there are empty houses, but perhaps they have been built in cheap, less desirable areas. A large proportion of the cost of a home is the land value.
    Because so much of Britain is owned by so few powerful individuals, it feels as if immigration in such large numbers was madness. There is not enough building land. The best way to realise that if we want to let governments have their gdp boost by letting immigration go thru the roof again is to take an internal flight. There is masses of space in Britain. It served landowners to restrict supply of land, and obviously the public do not want to see Britain lose its hallowed green spaces, but we joined the EU. We can’t wish to become a larger country and at the same time try to cram more and more people into concentrated housing.

    Reply: There are planning permissions outstanding for 300,000 homes, so there is no immediate constraint on land supply.

    • Bryan
      Posted August 31, 2011 at 9:46 am | Permalink

      All outstanding planning permission requests in my neck of the woods are for housing on green belt land.

      Despite there being no shortage of houses for sale or rent in my area the local Tory district council is hellbent on going ahead, as it is with fortnightly bin collections. Another case I assume of civil servants know best!

      • Posted August 31, 2011 at 10:47 am | Permalink

        In my area too the developers find Metropolitan Green Belt their favoured sites. The planning authority do not always resist, perhaps because sometimes the owner is a public body.

        There are other important aspects which have not been considered in the article:

        1
        Essential infrastructure is either stretched or failing in many areas where additional housing is wanted by the likes of Grant Shapps.

        2
        Population pressures lead to significant problems and the south east is already very densely developed

        3
        Immigration is the main driver for additional home formation and consequently for any demand for housing

        4
        Planning authorities requirements for “affordable housing” (not to be confused with good low cost housing) to be given to social landlords in any development above a couple of houses and the S106 charges of as much as £14,000 per house are serious obstacles.

    • waramess
      Posted August 31, 2011 at 10:21 am | Permalink

      As you say Rodney, never let the facts get in the way of a good story

  2. lifelogic
    Posted August 31, 2011 at 6:52 am | Permalink

    5% stamp duty and new, hugely over the top, politically correct, building regulations push up building costs pointlessly as does the weak pound.

    In the south east it might well cost £100,000 to move from one semi to another (in taxes and various moving costs) so no one is moving. Taxes on turnover are wrong in principal and ones of 5% are totally absurd.

    House prices are clearly controlled by supply, demand, planning, available bank finance, population increases, building costs (increased by the weak pound) planning restrictions, the wealth of the population, confidence and similar factors.

    As Cable and Osbourne are clearly are not sorting out the banks, not creating confidence nor generating growth then there is some clear downward pressures. But then population is increasing due to “migration”, the weak pound makes building more expensive and planning is restrictive and tends to encourage the wrong homes in the wrong place.

    They should also get rid of the absurd Energy Certificates left over from the HIP packs particularly as they tell you nothing useful you you did not already know. Also according to the Met office it has been the coldest summer for nearly two decades. That despite are the vast amount of Co2 coming from the priests of the green religion, Huhne’s mouth and large department. Also C02 from the manufacturing processes of constructing thousands of countless and largely pointless wind farms.

    Reply: I fear the energy certificates are EU required, so they cannot get rid of them without sorting out the issue of our relationship with Brussels.

    • lifelogic
      Posted August 31, 2011 at 7:09 am | Permalink

      If they want to encourage activity, in the cheaper house price areas, they should cut fuel duty – as transport costs in these remoter areas are prohibitive. That and the usual list of getting rid of regulations, reducing the size of government and tax, moving to just a free trade EU, restricting benefits to the genuine, confidence and the hope of avoiding labour on 2015 and getting rid of Huhne’s expensive energy nonsense.

      I assume therefore that they clearly do not wish to encourage such activity.

    • lifelogic
      Posted August 31, 2011 at 8:14 am | Permalink

      Indeed energy certificates EU dictated, like much other nonsense. Totally pointless – I already know when my house was built, what roof insulation it has, that it has single glazing and an older (rather more reliable) boiler and any other viewers can see that too. What is the point in someone (who has been on a short course at FE college) travelling round, and wasting energy at my expense to tell me this (on a piece of paper that no one ever asks to see anyway)?

      • alan jutson
        Posted August 31, 2011 at 9:00 am | Permalink

        Lifelogic

        I have to agree with you about energy certificates. They do seem a waste of time.

        Another solution if you are interested, just ask to see the last few years utility bills. Athough that will not give you much help given the rate at which they are increasing.

        Aware there could be a difference as to how the present owner uses energy, and may not be the same as the new owners plan, but it was ever thus.

        Daughter and Son in Law purchased a home last year. Detatched property, built in 1912, solid brick construction, tiled roof, single glazed, little loft insulation, old central heating system, old electrics.

        Do you know what!
        It would cost more money to heat than a new build !

        So why did they buy it ?
        Because it was in a nice area, they liked the look of it, it had history and character, it had large rooms, high ceilings, a decent sized garden and they could in time refurbish it to their own taste.

        Were they interested in how much it cost to heat, to a degree, but it was way, way, down on the list, and certainly would not be a deal breaker, as additional loft insulation, and a new boiler and controls in time would soon sort out some of those elements, although not much you can do that is cost effective with solid walls.

        The biggest draw back to moving as you say is the cost of doing so.

        It seems crazy that stamp duty at its highest rate is charged on the whole purchase price of a property, and is not stepped.

        If the Chancellor wants to get things moving again in the construction industry, he wants to lower stamp duty, and reduce VAT on house improvement and maintainance.
        After all new build is Zero rated.

      • lifelogic
        Posted August 31, 2011 at 9:14 am | Permalink

        I seem to recall John Major droning on, many years ago in his usual manner (clearly aimed at rather dim 7 year old’s) about “subsidiarity”. So clearly as he promised -the choice of energy appliances, insulation, lighting and certificates could surely be left to the right level. Namely the house owner, potential buyer or potential tenant who should be aware of the local climate and how the property will be used (particularly over the winter months).

        Or was this just another Tory lie?

    • oldtimer
      Posted August 31, 2011 at 9:36 am | Permalink

      You make a very good point about the cost of moving house. I have no doubt that it contributes to inertia in the housing market. I also have no doubt that it is yet another example of the Law of Unintended Consequences that has arisen as a result of a tax measure, namely stamp duty. It changes behaviour; people respond to rewards and penalties.

      The benefits system is a prime example. I suspect that the Disability Living Allowance will turn out to be another example. Up until now payment has, apparently been based on self assessment and does not require a medical assessment. According to the Minister, appearing before a critical BBC this am, it costs £12 billion pa. The BBC appeared to be objecting that the proposed change from self assessment to requiring a medical inspection amounted to another “cut”. Knowing what we know about benefits fraud it would not surprise me if some claims do turn out to be fraudulent. It is just too easy – rather like the income self assessments that enabled people to over-borrow to buy a property.

      • waramess
        Posted August 31, 2011 at 10:26 am | Permalink

        Very little has changed since 2006 except that banks are no longer lending, interest rates are around zero percent and thats about it. Same old benefits, same old cost of moving same planning constraints same old everything.

        • lifelogic
          Posted August 31, 2011 at 1:44 pm | Permalink

          Interest rates medium terms on Mortgages are about 5%+ not 0% and that is if you can get one.

          • Bazman
            Posted September 1, 2011 at 2:40 pm | Permalink

            5%+ APR is a good deal and this is quite expensive over the years.

    • Jean-Luc
      Posted August 31, 2011 at 10:36 am | Permalink

      I found my energy certificate extremely helpful when buying my other house in France; it told me for example just how ‘cheap’ it would be to heat the house in winter.

      I also think you’ll find that, compared to France, the UK taxes etc. are nothing!

      • lifelogic
        Posted August 31, 2011 at 1:51 pm | Permalink

        It cannot tell you that because it depends on the local weather, whether you are in all day or not or at weekend, whether you choose to heat the whole house or not. How much ventilation you like, how many rooms you heat and what temperature you choose to set the thermostat at and when you go on holiday.

        Anyway you could have made a similarly accurate “guestimate” by looking round the house yourself in 10 minutes or asking to see old bills. Or if you wanted you could get one done – just please don’t force everyone to waste money and time on them by law.

    • lifelogic
      Posted August 31, 2011 at 5:54 pm | Permalink

      Why on earth is Vince Cable so determined to push the banks away from the UK too? Is this Cameron’s policy as well? I had thought they were confining themselves to just destroying most of the other industries using over regulation, high green energy costs and over taxation.

  3. Mick Anderson
    Posted August 31, 2011 at 6:57 am | Permalink

    More unoccupied houses could be brought back into use if VAT were suspended (or even removed) for property renovations.

    There is no VAT charged on materials used to build a new house, which makes that more attractive for a property developer. Reducing the cost of renovations by 16.7% would tip the balance back the other way, especially as it is generally easier to win planning consent if there is already a building on the plot. It would provide a boost for the building industry, especially small, independant outfits, who are better able to adapt to such a new regime quickly.

    This move would also be environmentally friendly, as it would reduce the pressure to cram more shoeboxes on to green fields, and in many cases reduce the amount of materials and time required to bring a house into use.

    Finally, it would help to bring down the cost of housing.

    Yet again, governmental greed for tax take is harming the economy.

    • alan jutson
      Posted August 31, 2011 at 9:03 am | Permalink

      Mick

      It would also help create a more level playing field on price, when a legitimate builder, who pays taxes and completes all of the neccessary inland revenue forms, quotes against a cash is king cowboy, who often pays no tax.

  4. Posted August 31, 2011 at 7:51 am | Permalink

    Land Value Tax would have sorted all this out:

    There’s be no incentive for NIMBYism, because by preventing new build and pushing up the value of your own house, you’d just be pushing up your own tax bill.

    It would act like a higher interest rate on housing, so would keep prices lower.

    There’d be barely any empty houses.

    There are so many really bad taxes, I’m sure you can think of plenty we could replace with LVT.

  5. Posted August 31, 2011 at 8:36 am | Permalink

    The only way you are going to get labour and entrepreneur mobility like you wish is through land value taxation as Mark suggests . Then businesses would attempt to cut costs by moving to lower value areas, also elderly empty nesters would move to smaller houses in cheaper areas rebalancing the housing stock. It is a good thing to tax unearned wealth if in doing you encourage investment in the productive side of the economy and you can cut marginal income taxes/stamp duty/inheritance tax in the process.

    Prescott tried the you must move to the North policy with the Urban Task Force – it created a supply constraint shock in houses prices in the South.

    By the way most empty houses in the South East Councils you mention are due to large estates awaiting redevelopment – think of the Aylesbury Estate in Southwark.

    • Tedgo
      Posted August 31, 2011 at 10:37 am | Permalink

      “Then businesses would attempt to cut costs by moving to lower value areas, also elderly empty nesters would move to smaller houses in cheaper areas rebalancing the housing stock.”

      What a load of drivel. You obviously have no idea how high the costs are in moving an established business, particularly if its manufacturing. How do you move your skilled labour force particularly if there is any distance involved. How do you maintain customer service while you are moving. I have helped moved a factory, because the business was expanding, its costly and disruptive.

      Many businesses provide a local service pertaining to their current location.

      Why should elderly people, often on low fixed incomes, have to move house with all the attendant costs and disruption, because you think its right to tax them out of it. They need to save as much as possible for the day they need care services.

      I am elderly and on a fixed income. Even now I find my house too small but I cannot afford to move.

  6. Posted August 31, 2011 at 8:48 am | Permalink

    @rodney

    Housebuilders have a pipeline of about 2 years (500,000 homes) in terms of household growth. The OFT found in 2008 that if pipelines were less then three years it put upward supply pressure on house prices – they key metric is number of months to get planning permission start to end multiplied by percent refused, which means they need 3 years supply if we are to build the houses we need.

    Housebuilders have doubled there pipelines in recent months – especially since they have seen the feeding frenzy of ‘build what you like where you like’ of the National Planning Policy Framework. But a lot of it is speculative and on sites that are unlikely to ever get permission because too many housebuilders have taken too many options around the plum towns and not all of them can get permission at once.

    Conclusion – developers pipelines are too low – they need to be at around 750,000 and better distributed.
    https://andrewlainton.wordpress.com/2011/08/28/developers-build-up-landbanks-without-planning-permission-ahead-of-nppf-telegraph-2/

  7. Nick
    Posted August 31, 2011 at 9:00 am | Permalink

    In 2010 there were 650 empty homes in Southwark 586

    Yep. All of them on the Heygate estate run by, you’ve guessed it, the local council.

    This council is knocking them down, because it is too expensive to fit new lifts in the existing shafts. Quite why it can’t tack on a new lift shaft and brick the old ones up …

    No doubt, lots of brown envelops flying around and people getting rich.

    Now, by the looks of it, they have kicked everyone out, and the money’s run out.

    Time I think to abolish all housing allowances and put MPs in there for their accommodation, because its all they deserve

  8. Javelin
    Posted August 31, 2011 at 9:00 am | Permalink

    You say the South East has 100,000 empty properties however there was a net migration of 200,000 into the UK.

    Not sure what was meant by empty, but I would bet that only a 50% occupancy rate could be achieved realistically and that would be swallowed up by one years immigration to the South East.

    For this reason I think your figures need to be put in context and are really just nibbling away at the problem. Realistically we need to stop net immigration. House prices are very high because of over enthusiastic buyers and very low interest rates.

    I’m not sure where current house owners think the buyers for their homes are going to come from when they wish to move house. Banks won’t lend, graduates have debts, renters can’t save, salaries are not rising, costs are rising. The only thing left to throw into this volatile mix is interest rates returning to their long term average – like a match the economy will explode, and like all good explsions will be followed by an implosion. And just to underline what a mess we’re in the slow growth rate of under 1% will mean this volatile mess will be around for 5-10 years. The only chance of not having an explosion is if house prices fall steadily over that period of time.

    In fact I would turn this around and say the economy will not pick up until house prices fall because house prices rising seem strangely linked to the feel good psyche in the UK.

    Reply: I agree about cutting immigration – we have done that subject to death recently

    • Iain Gill
      Posted August 31, 2011 at 9:33 am | Permalink

      dont remember that?

      id love to see an open honest debate

      it remains the one issue talked about by real people much more than the politcal crowd

      • Liz
        Posted August 31, 2011 at 11:07 am | Permalink

        All the main news channels covered the housing “crisis” yesterday without one of them mentioning immigration – one of the main reasons for high house prices, high rents and the shortage of family homes. What do they hope to achieve by this sort of self censorship?

    • Iain
      Posted August 31, 2011 at 9:01 pm | Permalink

      ” I agree about cutting immigration – we have done that subject to death recently”

      The subject of immigration will only be done to death when you politicians actually get off your backsides and do something about it.

  9. Nick
    Posted August 31, 2011 at 9:00 am | Permalink

    New taxes solve nothing. Period.

    Taxes and government and politicians are the problem. They have engineered the current mess

    • A different Simon
      Posted August 31, 2011 at 10:41 am | Permalink

      Nick ,

      Of course Govt spending needs to be reduced but it is not correct to say new taxes solve nothing .

      If you want to discourage something , you tax it .

      At the moment we need to encourage employment and investment in productive activities .

      Along with an unbalanced economy relying on wealth redistributing activities like financial services rather than wealth generation , proberdy speculation has been a large reason for the mess we find ourselves in .

      The young are completely disenfranchised due to it .

      Thus it makes sense to move the burden of taxation away from taxes on labour onto taxes on the unimproved value of land .

      Churchill was a big proponent of Land Valuation Tax .

      • Tedgo
        Posted August 31, 2011 at 2:17 pm | Permalink

        I am not sure about land tax. I live in a village which is surrounded by a 400 hectare (1000 acre) arable farm. I am not sure whether farm land is currently taxed or not, but many of the smaller fields are in between groups of houses. There is no planning permission on those fields, nor would it be granted. Would the farmer have to pay increased land tax because of their position. Farming is a very low margin industry as it is, so any extra tax is undesirable.

        Equally land tax would force farmers to put areas currently set aside for wildlife back to productive use. The tax could also hit nature reserves, play grounds and village greens.

        Putting council tax on empty properties would have much the same effect as land tax without the complications.

        An area of the village has outline planning permission for 46 houses and a promise by the developer to build a village hall, for free. Its all on hold due both the developer not being able to get financing, and the slow down in house sales.

        • Posted August 31, 2011 at 3:41 pm | Permalink

          Land taxes work by taxing the potential uplifted land value of a site, above a certain threshold. This means that uses such as wildlife areas would not be taxed at all.

          • Tedgo
            Posted August 31, 2011 at 6:16 pm | Permalink

            You avoided answering about the fields between the houses. I assume they would be heavily taxed, putting the farmer out of business, or ultimately raising food prices. Seems like a good plan.

          • David Price
            Posted August 31, 2011 at 6:37 pm | Permalink

            So you’d be able to continue to tax a piece of land independent of the ability of the owner to pay, or even it’s real value. I detect a trend here – (local) government could therefore continue to isolate itself even more from the realities of the economy.

            No thanks, I’d rather that you address the real causes of the problem – immigration which causes too many people looking for too few properties (and jobs) and public sector over spend which restricts our capacity to grow and probably keep rental prices up to high.

            By the way, since when has it been a right rather than an aspiration to own property?

  10. Gary
    Posted August 31, 2011 at 9:10 am | Permalink

    The housing minister was all over the radio yesterday telling us how much the govt is helping first time house buyers. That is the problem. Instead of letting the property bubble deflate, as it would in a free market, here we have the politburo sticking its oar in.They show their hand. They are actually on the side of the banks, as they willingly throw our tax money and new recruits onto the housing pyramid, in yet another attempt to bail out the bankers. History will record this.

  11. norman
    Posted August 31, 2011 at 9:12 am | Permalink

    I don’t know anything about housing and building regulations but the impression I get is that planning permission is still a massive factor.

    If a field gets planning permission for 100 houses to get built on it you’d expect the value of it to go up somewhat to compensate for the admin and planning that has had to go into things but it seems to shoot up astronomically in value. The same if you have an abandoned warehouse (or whatever) and then the council decides to allow a block of flats to be built there then the value of the land shoots up.

    This may not be the case but it is the impression I get.

    Then there are scandals regarding dodgy deals between councillors and developers that I seem to read about every fortnight in Private Eye (which may be a tiny proportion or it may be more prevalent but people aren’t being caught, who knows) that leaves a bad taste and seems fishy to an outsider.

  12. Alex
    Posted August 31, 2011 at 9:19 am | Permalink

    “Myth Two House prices rose too fast because there was insufficient new build”.
    Can you explain how, in a market-based pricing system, a large drop in supply does not cause a rise in prices? Yes, there was a rise in demand as well, stoked by cheap credit, but that should have caused a rise in supply as prices rose. However, restrictions on planning permissions caused a drop in supply.
    Sorry John, you are just wrong on that one.

    Reply: the main supply is second hand, so the rise and fall of new build has much less impact than in msot markets. The supply of second hand is related to the provision of finance. Isn’t it interesting that new build has fallen sharply in the last couple of years, yet house prices have also fallen sharply. There is no sign that less new supply props or raises prices.

    • lifelogic
      Posted August 31, 2011 at 10:49 am | Permalink

      To the reply:

      New build has gone down as a direct result of the banks pulling back development funding from sound developers – led by Government owned RBS/Natwest group (Helpful Banking) and most of the other banks who are no longer really in the development finance business at all. Hence the lack of growth.

      Developers have thus scaled down activities and laid off workers (for no sound business reason) just forced to by the lack of sensible bank lending and a need to repay the banks in order to assist with their internal (self inflicted problems). Also to enable them to comply with EU bank stability regulations.

      A bank is someone who will lend you an umbrella when the sun is shining only to snatch it back the minute it starts to rain. A good general rule of thumb I find is: If the banks are all desperate to lend to you, it is probably not a good time to be buying anything as it is all likely to be over priced.

    • Major Loophole
      Posted August 31, 2011 at 12:06 pm | Permalink

      John,

      “the main supply is second hand, so the rise and fall of new build has much less impact than in msot markets.”

      Surely, supply is supply? The total supply available is still too low in relation to demand. Individual families will have their own preferences for one or the other, but few will say in their hour of need (e.g. new baby on the way) “It’s new build or nothing” or ” 2nd hand or nothing”.

      “The supply of second hand is related to the provision of finance.” Of course: if there’s no money available you cannot purchase! But new motor car purchases are heavily dependent on finance too and car prices did not triple between 1997 and 2007

      There are indeed a number of empty properties, but you can no more have no empty properties than have ‘full employment’ at less than 2% of the workforce. The minimum empty property percentage is not far off that figure. (Italy’s rate is about 12%) And as someone else has noted, many empty homes are not suitable—in their current state—for occupation.

      Successive governments’ own figures for new build numbers needed have been at least 250,000 pa for years. But this figure ignores replacement need: a further 250,000 per year are needed to replace ageing (and energy inefficient) stock. Even at that rate it will take 100 years to up-grade the stock. At current replacement rates it will take over 1,000 years (do the maths). Notably, much new build—especially light weight timber frame—has a design life of only 60-75 years, so the replacement rate cycle will further increase the total repacement numbers needed annually. And who thinks we can do without energy efficiency improvements across almost the whole stock? (Heating costs will cripple most households’ spending power long before alleged climate change roasts us all.) Government certainly doesn’t, but suffers from depressingly low horizons about what can and does need to be implemented to achieve an 80% reduction in energy waste by 2050: the Technology Strategy Board (TSB) is spending nearly £100m on a range of ‘exemplar’ whole-house makeovers costing on average about £86,000. Do they seriously think home owners, en-masse, are each going to spend at this level to make their houses smaller? In any case, what is that the TSB don’t already understand about the 2nd Law of Thermodynamics? Why do they have to do in macrocosm the equivelent in microcosm of putting 18 inches of fibreglass in somebody’s loft just to see if it works?

      Also, new build completion numbers, low as they are, are still too heavily biased against family homes. Even when 3 bedroom family houses are built (and a few 4 beds) they are too small so either people can’t wait to move or simply can’t move and have to put up with it

      Emphasis on development on brown land preference has had unintended consequences too: huge areas of East London, for example, are being sat on by investors because alternative land supply is constrained. Ironically, if you want more redundant brown land developed you must increase supply of green land to provide an incentive to brown land hoarders to sell.

      Wokingham Council is to be applauded if, as you say, they’re seriously takling the problem. But as you’ll know, nationally there’s been a decline of 25% in the numbers of new build consents issued this last year over the previous year as LPA’s respond to abolition of RSS’s and, in effect, seek to export their areas’ problems to neighbouring areas. Councils are not making up the figures when they report that 1.8 million qualifying families—5.4 million people–are on affordable housing waiting lists.

      I’ve no doubt that Grant Shapps and his fellow minsiters sincerely believe that their Localism Bill will cure the problem, but I very much doubt it myself.

      • lifelogic
        Posted August 31, 2011 at 3:45 pm | Permalink

        Yes supply is supply but if say only 5% is new build – then if this goes up or down even by say 50% it still has only a marginal effect on the overall supply.

        I agree about the lack of new build houses (that are not toy size ones as is now the fashion). They also go for horrid tiny windows to comply with energy requirements more cheaply – and you can only drive a toy car too it you want to get it up the drive/garage.

        • Bazman
          Posted September 1, 2011 at 3:13 pm | Permalink

          Toy furniture as well. There was a story in the local paper showing how normal size furniture would not fit through the doors and passageways of a new build house. The people did not realise this until they went out and bought new furniture to replace the stuff that came the the house. At least the old council houses where a good size and often came with a garden.

          • Tedgo
            Posted September 1, 2011 at 6:34 pm | Permalink

            Council houses, in the 1960’s, had to conform to the Parker Morris minimum room size standards and therefore have more generous rooms. Those rules no longer apply.

            Other countries still maintain similar standards for all housing, Denmark having the most generous minimum sizes.

          • Bazman
            Posted September 2, 2011 at 6:49 pm | Permalink

            Good to see this Parker Standard has been removed. It gives the house buyer so much more choice and bigger rooms due to less bureaucracy. What where these people thinking with this lefty communist nonsense?

  13. alan jutson
    Posted August 31, 2011 at 9:23 am | Permalink

    John

    You are correct, Wokingham and the surrounding area has had a large amount of new build in the last few decades, but it has also caused problems in the form of the now inadequate infrastructure to cope with the increased taffic flow.
    Frequently roads are jammed at rush hour and during the school run, as you will be aware when trying to travel into Wokingham from the South.
    The Finchampstead road usually has a line of vehicles half a mile or more long.

    I am no NIMBY, but certainly Wokingham cannot take too much more development unless some serious thought is given to some new roads, a sort of relief or ring road even, multiple sets of traffic lights which seems to have been the plan for the past few years, is not the answer, and is not working.

    Just out of interest, when does a house qualify for being listed as empty, and for what period of time must it be empty before it is listed as such.

    Have noticed that a few of the once empty shops in the Town Centre are now being occupied by a range of businesses, since these are some of the very properties that are to be knocked down to make way for the new town redevelopment scheme, I assume the Council have made efforts to fill them on short term leases until D day. If so well done, much better to have shops open and trading, rather than standing empty and being an eyesore.

    Reply: the definition of an empty home is one that is empty for at least six months.
    I suggested to the Council that they only did one development area project at a time, and ensured proper payments from the developers to put in the infrastructure they need. They have said they intend to extract the cash from developers in each of their locations for infrastructure. The Council and other landlords do seem to have found some short term tenants.

  14. Iain Gill
    Posted August 31, 2011 at 9:28 am | Permalink

    1 remove the link between the address you live at and the school your child is eligible to attend, break the nonsense link between house price and quality of local schools.
    2 remove the link between the address you live at and the GP you are allowed to register with. (this was “supposed” to be already government policy, clearly not happening on the ground)
    3 declare any bank balance sheet which relies on the price of an average house being higher than 3 times average salary as unsafe, and in this way encourage sensible lending by the banks. This in itself will force prices to sensible levels.
    4 the wasteland public housing estates in the north east and north west which have had countless amounts of public money thrown at them which are far too far away from any possible viable employment for the vast majority of the residents, just shut them down. Why is the public purse supporting large housing wastelands totally counter the norms of supply and demand. If there aint no jobs there should be no demand for housing.
    5 stop the countless rules which interfere with house building

  15. Geoff not Hoons
    Posted August 31, 2011 at 9:30 am | Permalink

    Mr.Redwood, Compared to approx. ten years ago there are many fewer house builders left. Whether through failure, merger or acquisition they have reduced to probably a half building nowhere near the old numbers. Why is this? According to my late brother who was CEO of a quoted house builder, there is no longer the ‘good’ profits in it that there were. Perhaps Bovis this week is an example, doubled the previous years profit and managed £8m. mainly through cost saving. House building is one of those odd business’s that in times of down turn suffer doubly ie reduced selling price and longer lead times from finish to sale and of course lower volumes as well. The empty house situation has been with us for years and is unlikely to change much through government involvement, the need is for people to have that lovely word confidence to want to spend their time on repairs etc. if they can get a mortgage in the first place.

    Reply; there are fewer builders partly because there area far fewer houses being built.

    • Geoff not Hoons
      Posted August 31, 2011 at 10:33 am | Permalink

      Mr.Redwood, Thank you for your reply. ‘Fewer builders and fewer houses’ my point was simply that if the companies concerned saw good returns in building again they would be doing it!!

  16. Helen
    Posted August 31, 2011 at 9:37 am | Permalink

    The high price of rents is a major stumbling block for families coming off benefits. When a job pays minimum wage, but the rents for a basic 3 bed house [in York for example} are around the £700 mark, getting a job isn’t possible for the family to survive. When you add council tax on top of that, it isn’t worth them working.

    I am not in that position myself, but know many families who are and whilst I work and pay taxes, I cannot bring myelf to condemn them for it. I totally understand the dilemma they are in. This is through no fault of their own, but is certainly the fault of a society based on rising house prices.

    Instead of letting house prices fall to meet the reality of incomes, the government encouraged rising prices, by pushing for the odd policy of selling only part of a house and renting out the rest of it. That was a stupid idea and made the problem far worse.

    • lifelogic
      Posted August 31, 2011 at 1:57 pm | Permalink

      I think you can get help with rents and council tax if on a low income, even if working but I agree the difference in pay and incentive to work is far too low.

  17. Gary
    Posted August 31, 2011 at 9:41 am | Permalink

    @alex

    This is not a free market, and that is not a market based pricing system.The banks are underwritten to make reckless loans by the govt and the central bank . Reckless lending inflated this bubble, reckless lending always causes asset bubbles,coupled with borrowers seeking shelter from the credit inflation that drove them out of their savings accounts. This was bound to end badly, and now we have the govt trying to inflate the bubble again. All these loans into non-productive housing had withered manufacturing. It is a cancer. This will wreck the economy further. They don’t know what they are doing.

    Reply: Today house prices are falling and mortgages are difficult to come by and on strict criteria.

    • lifelogic
      Posted August 31, 2011 at 11:00 am | Permalink

      “All these loans into non-productive housing” It is often said (usually by the dimmer LibDems) that housing is non productive capital. This is simply not true. A house produces rent or accommodation which is badly wanted and needed. Just as a factory produces rent, or profit income in some form. Many even work from home anyway.

      Industry needs workers and they need to live somewhere. The houses are clearly needed as part of the needs of the workers for the factory/industry. Just as they need food and tools to do their jobs.

      • Gary
        Posted August 31, 2011 at 12:37 pm | Permalink

        Housing is absolutely non-productive. If you have no means of earning anything from productive exports because you have put all the capital into housing, then you will live in squalor in your own house. It is absolutely not essential to own a house ! You can rent, put your loan into a productive business and be far better off. Thus nonsense about having to own a house at any cost has put us into a deep economic hole.

        • lifelogic
          Posted August 31, 2011 at 4:02 pm | Permalink

          No: If you rent a house you rent a house and pay rent. If you buy a house with a mortgage you borrow (rent in effect) the money instead of the house and use it to buy one. So you pay rent or interest not much real difference.

          When you buy a house the money is paid over to the seller who then uses it for something else. It is not lost in some black unproductive hole in the cellar of the house.

          To run a business you need perhaps tools, a factory, plant, staff and they need houses (rented or bought makes little odds), transport to work, food, clothes and the rest. (Without all this you have no business simple at that). House are part of the input needed to produce.

          Perhaps a folly at the bottom of the garden or an ornamental fish lake or an overly large house is non productive but the basic house is clearly needed – unless you want all the workers to sleep on the shop floor.

          You might, as you say, perhaps be better off renting and putting it into a business or you might not be. It rather depends how well the housing market and the business go relative to each other. You will probably find it easier to gear up the house purchase with borrowing than you will with the business especially with the non functional banks as currently exist.

          • Gary
            Posted August 31, 2011 at 5:03 pm | Permalink

            You rent, borrow, and start a business with the loan, create jobs, earn foreign exchange. Everyone benefits, the economy grows, you get income . That is how germany does it.

            You plow all the country’s borrowings into houses and that is it. You have created nothing.

          • lifelogic
            Posted August 31, 2011 at 6:05 pm | Permalink

            You still need the houses as well as the businesses both are needed to be productive unless you suggest we all live in tents or all sleep on the shop floor.

            Clearly no one is suggesting “all” investment should be in housing, or businesses, or roads, or ships, or clothes, or tropical fish or anything else.

            Germans live in houses and flats too as I understand more rent perhaps but that makes no real difference to the countries overall investment in property.

          • lifelogic
            Posted August 31, 2011 at 6:18 pm | Permalink

            If you rent out a house it produces rent. If you run a business it produces profits (hopefully). Renting out houses is a business just as renting out cars, trucks, computers or ships is.

            In what sense is it not productive?

          • alan jutson
            Posted September 1, 2011 at 9:09 am | Permalink

            Lifelogic, Agreed

            Gary, Ever thought of the following.

            If you invest in property you also invest in industry.
            Labour to build, raw materials of all sorts to purchase having been worked, excavated, sawn, transported, kitchens, bathrooms, door knobs, locks, electrical fittings/appliances, carpets, glass and paint manufactured delivered and installed.

            Much of the above which goes into the house is manufactured (more jobs) or has added value by further processes.

            If we did not invest in property at all, then the housing stock would deteriorate, and the construction industry would collapse.

            No of course not everything should be property, but a balance of businesses, which gives a balanced economy.

          • Caterpillar
            Posted September 1, 2011 at 11:07 am | Permalink

            Isn’t the issue one of whether house prices reflect the productivity or potential future productivity of the asset? Alternatively whether house prices are too low/high, reflecting either insufficient investment or speculation? I would come down on the side of too high and speculation, so that resources have not been optimally invested.

            In the way that Govts may give tax breaks to invest in R&D or capital, where there is the potential for investment lower than a societal optimal, then the question is asked whether policy has been such that there has been too much money directed at housing and insufficient directed at other assets that can increase the productivity of the country? My feeling would be that low interest rates, issues around CGT and no loan-to-value policy have contributed to a misallocation of resources (or if such esources should be directed to houses then other supply side constraints should also be removed).

        • Bazman
          Posted September 1, 2011 at 11:33 am | Permalink

          Often the only way to get a pay rise is to lower your own living costs without lowering your standard of living and the main way of doing this is to buy your own house and pay off the loan. This then frees you from rent of property or money and allows you to be in charge of your own destiny and not at the whim of a landlord, bank or employer. You may not have produced anything in the material sense, but have created wealth and security for yourself and your family. Upsetting for many people who rely on desperate people to work in the economy creating wealth for others or believe this should be the way. Except for themselves of course.

  18. CO
    Posted August 31, 2011 at 9:58 am | Permalink

    Very disappointing post Mr Redwood – yet another supposedly free market supporting Tory chooses political expediency over a) the facts b) the future of the country.

    For a start you are using, i assume not deliberately, all empty homes when in fact these statistics are a mere snapshot of housing stock not taking into account those properties being bought and sold, refurbsuhed etc.

    Even long-term emtpy homes are simply those dwellings which have been unoccupied and substantially unfurnished for over six months. These stand at around 300,000 with the vast majority of privately owned.

    We have one of the lowest vacancy rates in Europe.

    Your point about credit availability is well made but simply blinkered. Of course, over recent years (from 2000) effective demand rose sharply and prices were driven up but this is not unrelated to the long-term undersupply of houses (coupled with a quickly increasing population – and increased number of households – over the last twenty years).

    Under supply is a major factor in unsustainable house prices but the two key elements are different types of protectionism:

    a) protecting banks and those in debt by keep interest rates low. Raising interest rates would see the correction through default and repossession of those who under normal circumstances would not have been able to afford their homes. Unfortunately any institutions exposed to these mortgages would also become victims.

    b) since a) is unlikely to be countered then long-term increases in supply (coupled with support for families, reductions in immigration (impossible)) are vital. This is impossible because of self-interest on the part of home-owners across the country. These home-owners are, essentially, the only voters in town so the political parties will support them come what may.
    What would help is if people were told, forcefully, that buying a house does not give them a property right over the land next door and, furthermore, private property rights for land-owners were replaced. How can you possibly argue against the market deciding how many house to build and where?

    Car manufacturers don’t have to get permits to build cars, they don’t have to buy a set number of car engines from a small number of suppliers and they don’t have to pay huge taxation on completion of each vehicle. If they did, cars would cost a fortune.

    Reply: the figures exclude those temporarily vacant whilst changing hands etc

    • CO
      Posted August 31, 2011 at 3:31 pm | Permalink

      No they don’t.

      The CLG stats (Live Table 615) shows 300,526 long-term (6 months+) vacants.

      Where are your figures from?

      reply: the empty homes site

      • CO
        Posted August 31, 2011 at 4:54 pm | Permalink

        Right… fairly crucial mistake there.

        David Ireland (Empty Homes Agency) is doing a good job, but unfortunately his figures – unsurprisingly given his role – are for all vacant dwellings (each region is exactly the same as “all vacants” in CLG Live Tables). They are just a result of CTB returns.

        The key figure is the much lower 300,000 empty homes based on long termm vacants (transactional etc).

        Perhaps it is time that you got yourself a fact-checker.

  19. Gary
    Posted August 31, 2011 at 10:06 am | Permalink

    Yes, because we are deleveraging. The bubble has become unsustainable. We in the bust part of the mania. It is of no use trying to inflate this bubble again. Why try and recreate that what got us into the mess in the first place by throwing more taxpayer money at it ?

  20. Gary
    Posted August 31, 2011 at 10:21 am | Permalink

    why are banks are not lending ?

    Falling house prices . With house
    prices falling, banks could end up with
    large losses in event of repossession.
    If they lend a 100 % mortgage for
    £ 100 ,000 and house prices fall 20%
    they will lose £20 ,000 . When house
    prices are rising default is less
    important because they can sell house
    and even make a profit . This is why
    banks are requiring large deposit for
    loans and why people struggle to get
    mortgages despite

    2. Recession In a recession there is a
    greater chance that people will default
    on their mortgages / loans .
    Businesses are more likely to go
    under . Therefore banks want to be
    much more cautious about lending in
    case they lose their loan.

    3. Poor Balance Sheets . In the boom
    years , banks became highly leveraged .
    Basically this meant they lent a high %
    of their deposits. Banks like Northern
    Rock were borrowing to lend. These
    business strategies are now seen to
    be too risky so banks are trying to
    encourage a greater % of deposits .
    This is why they don’ t want to cut
    rates . They feel they need to attract
    savers not borrowers .

    4. Lack of Finance . Banks are reluctant
    to lend to each other . There is a
    shortage of credit(in a deleveraging credit is destroyed as bad debts). Therefore ,
    although credit is cheaper, it just isn ’t
    there.

    It is argued that if banks do pass on
    the whole rate cut , then they will lose
    their depositers and therefore could
    actually have less funds to lend out .

    This is part of the cleansing of debt post-bubble.

  21. David
    Posted August 31, 2011 at 10:21 am | Permalink

    “Myth Three All the empty houses are in the wrong place, so they cannot answer the problem”
    There are quite of lot of people in the “wrong place” who don’t work – if we were to refuse to give houses in the South East to people who don’t work then there would be enough houses for workers.
    I used to work in Woking – I am not rich so could not afford to live there.
    However there were loads of pro single mums who got free housing while I had to travel a long way to get there.
    If the council had rented houses in Middlesborough and put them there, then they could have had enough council houses for workers.
    Some people say this “extreme right” but to be honest houses for workers seem fairness to me.

    • Iain Gill
      Posted August 31, 2011 at 7:33 pm | Permalink

      There should be a difference between genuine folk who have come upon hard times, especially folk widowed or become seriously ill, and folk who have never worked a single day in their lifes. Never working should never have become an easy choice.

      The way single mothers who have never worked get treated in this country really needs reform.

      There has to be incentives to study and work.

      Surely some common sense should come out of the riots? Somebody must realise the bloomin obvious?

    • Bazman
      Posted September 1, 2011 at 11:37 am | Permalink

      Maybe we could also take away their food/medical money too? As an incentive to work and in the name of fairness.

  22. Caterpillar
    Posted August 31, 2011 at 10:31 am | Permalink

    Median UK house price adjusted to CPI can be downloaded from Nationwide (www.nationwide.co.uk/hpi/historical.htm). If you fit the peaks you will see a 3.1% per annum real terms increase from 1975 to present, the troughs give 1.1% per annum, whilst an exponential fitted to the average of these is 2.4% per annum. To have a feel for the size of these percentages GDP per capita over the period has grown by approximately 2.2% pa whilst going forward it might be expected to be somewhat less than 2%. It is of course not at all obvious that house prices should increase in line with real GDP per capita – what is the productive gain?
    The Oxford academic Farlow wrote in early 2005 (www.economics.ox.ac.uk/members/andrew.farlow/Farlow Housing and Consumption.pdf),

    “allowing house prices to revert to fundamentals, while it harms consumption, at least conceivably puts the economy back on a footing that emphasizes real economic activity over speculative housing activity”

    Wheras Rightmove commented in May (www.rightmove.co.uk/news/files/2011/05/may-2011.pdf),
    “The Bank of England’s decision to hold interest rates at unprecedented low levels, compared to all other property market downturns, has disrupted the traditional economic formula of an excess of supply over demand leading to lower prices.”

  23. outsider
    Posted August 31, 2011 at 10:35 am | Permalink

    Dear Mr Redwood, I am not sure what your “empty homes” figure, as defined, really means in terms of available homes. I recently bought a 2 bed property in a nice South East town for immediate occupation after looking at over 20 others. Most were empty for a variety of reasons: death or moving in with partner (emptied to avoid Council Tax) but mostly because they had been bought to remodel, modernise and resell. In one or two cases, the houses needed a lot of work (well beyond DIY) and seemed destined for the buy-to-let market. These are, on the whole, valuable activities that greatly improve the housing stock but necessarily add to the numbers qualifying as “empty”.

  24. Electro-Kevin
    Posted August 31, 2011 at 11:10 am | Permalink

    250k net immigration.

    Welfare inflated rental.

    This is what has created Britain’s property ‘obsession’ and gave less astute people than me ‘feelgood’ about their properties.

    Once welfarism fails -because we’ve run out of money – the housing ‘crisis’ will begin to recede.

  25. ferdinand
    Posted August 31, 2011 at 11:18 am | Permalink

    It always mystifies me how so many commentators think that most non-rented houses are owned by the occupants; they are effctively owned by the banks. House prices are as you say factors of bank borrowing. If all mortgages were terminated tomorrow, there would no fewer houses just lower prices (values)

  26. Susan
    Posted August 31, 2011 at 11:20 am | Permalink

    I believe you are wrong on this issue Mr. Redwood, there is a housing crisis in the UK, which cannot be solved by simply filling empty properties or the small amount of house building that occurs at the moment. It is most likely that these empty properties would not be in the right places anyway. There is a lack of both affordable housing and social housing which with Britains continual population rise and new household formation will cause a massive problem for the future. The UK could stabilise house prices with a massive house building programme, however this is out of the question at the moment. Demand always pushes up the price of an asset, housing is no different. One only has to look at Aberdeen in Scotland to realise this is true. House prices began to soar once people moved there for work in the oil industry. This had absolutely nothing to do with any actions on the part of banks or building societies, it was pure demand.

    I can understand why people who live in a nice area would not like suddenly to be surrounded by inexpensive property, but this may be the only solution. However, often more housing is built without any consideration being given to whether the infrasture is there to support it.

    Banks could make borrowing easier, but with low interest rates this could be recipe for disaster.

    At the moment the Governments solution seems to be to try to move inhabitants from densely populated areas to ones less so. I am not sure this is the right approach, I believe only curtailing Britains ever increasing population is the real answer for housing, services etc.

  27. Chris
    Posted August 31, 2011 at 11:27 am | Permalink

    I confess that, being born in a rural area and currently living in one, I don’t share the enthusiasm for urban living and sprawling developments. I’m not a NIMBY either, but we do need to remember that the UK relies heavily on its beautiful scenery for the tourist trade. If only the designers of housing estates would pay more attention to aesthetics and actually create something that LOOKS nice and is pleasant to live in.
    Here in the south-west, we have thousands of acres filled with endless sprawls of rabbit-hutches. It’s just mile after soulless mile of dull boring brickwork, with the occasional lollipop tree and “community space” (often vandalised). There is nothing beautiful about these places and I certainly wouldnt live in one. The additional problems are, of course, traffic congestion; Weston-super-mare is a nightmare and Portishead has been labelled as a giant cul-de-sac.

    If more countryside is to be given over to building, then why dont developers start being more imaginative and create large villages—instead of continual sprawl— that are interconnected with pleasant greenery, wildlife havens and places where people can escape the urban noise for a while. AND MAKE SURE that these green areas are kept free from further building. This would create village-type communities with their own identity, just as was done in the “old days” but with a modern twist. It would offer great opportunities for attractive house design as well as landscaping and the inclusion of appropriate “local” facilities.

    Instead, the fashion seems to be selecting an existing olde-worlde village and encircling it with modern development, thus taking away the original village ambience and stuffing it with traffic.

    As for prices; well I think many homeowners are not necessarily excited about their property value “going up”; their first interest is that it is a home to live in. We bought our house 25 years ago (admittedly with a large deposit) and have not moved since. If the price fell back towards its purchase-price, it wouldnt bother us because everything else would have fallen as well.
    Renovating old property should be encouraged; my view is that many Victorian and earlier houses are more strongly constructed than modern ones. The materials were tougher (my 120-year old original windows are hardwood); the fact that these houses are still standing whereas many modern ones have tumbled must say something. They also have attractive features, larger rooms and gardens; all of which are highly sought-after and some of which don’t exist in the new-build.

    Continual building, however, is not desirable; there is not an infinite supply of land. Brownfield sites are being reclaimed but there is still a lot of resistance by developers; this really ought to be overcome once and for all. I regularly see old, rundown industrial sites (especially Bristol) that would benefit enormously from being cleaned up and converted into housing.

  28. Damien
    Posted August 31, 2011 at 11:34 am | Permalink

    There are a number of fiscally neutral changes to the tax code that would greatly assist homeowners return empty property into the marketplace. For example the small homeowner wishing to make improvements to a dilapidated is prevented from deducting many costs of improvements because HMRC decided that these are ‘capital’ expenditure as opposed to ‘repairs’. The HMRC website gives examples of non-deductible capital expenditure as “the cost of refurbishing or repairing a property bought in a derelict or run-down state”
    (Further guidance is given in an article in TB59 issued July 2002 entitled ‘Schedule A: computation of profits: repairs to property’).

    Empty properties are a waste of scarce resources, a blight on neighbourhoods aesthetically and practacally in terms of crime and do not generate taxes through use. The economic opportunity cost is high also in terms of new-build housing averaging at over £137k per unit compared to repairing an empty property. Empty homes tend to be distributed over a wideer area and are a more attractive first option in contrast to building estates for the future, many of them to be occupied by the long term unemployed. The repair of small dwellings is labour intensive and would bring much work to struggling small business while providing a positive contribution to the housing stock.

    I am struck by the fact that only £100m has been targeted by the government for the 700,000 empty homes (£137 per empty home?) compared to the £137,000 per cost of building a new home for social housing. Tax reform in this one area is long overdue.

  29. alan jutson
    Posted August 31, 2011 at 11:38 am | Permalink

    You are correct, the biggest factor in house price increases has been:
    The increasing Loan to value advanced.
    The increasing earnings multiples applied.
    The introduction of Self Certification of earnings.

    Back into 1971 when we purchased our first home, in order to get a mortgage, you had to save with a Building Society for two years, to prove you were prudent and disiplined enough to save, thus they had a record of your finances, before they even considered a loan, which at that time was approx 3 times annual proven salary, or 2.5 times joint earnings.

    The present low interest rates have kept house prices reasonably stable at a lower level than the peak, but as soon as interest rates start to rise then house prices certainly may start to fall slightly or remain stable for longer (inflation devaluing their actual relative value slowly).

    Anyone considering a mortgage today, I suggest should for finanial safety, should calculate repayments on a 8% mortgage rate, as that I believe has been the average rate over the last 50 years.

    As interest rates eventually rise, then many more families may be subject unfortunately to reposession orders, if they are not careful.

  30. HJBbradders
    Posted August 31, 2011 at 12:22 pm | Permalink

    Yes, quite right. A house, like any other commodity, is only worth what someone is prepared to pay for it. A few years ago banks and building societies were throwing money at prospective purchasers, prepared to lend ridiculous multiples of earnings to people who, realistically, had little chance of staying the usual 25-year repayment course, even at the low rates of interest then prevailing. Hence the price of houses went through the roof, if you will pardon on expression. Now, interest rates can only go up and the media are screaming about the effect of increasing rates on hard-pressed mortgagees.

  31. Phil C
    Posted August 31, 2011 at 12:32 pm | Permalink

    I wonder if your figures for unoccupied homes includes second homes, which for council Tax puposes are described as having no residents. This could account for quite a large proportion of the number.

  32. Posted August 31, 2011 at 2:05 pm | Permalink

    John IMMIGRATION as an issue is NOT done to death,until it is Properly cut to the Bare minimum it will grow (etc),I shop every day for freshness in our food
    and use local retailers like the butcher and greengrocer, luckily we have two excellent ones
    in the high street 5 mins away.I know them and they know me on a first name basis PLUS
    most of the customers as well,this issue is the main topic of conversation and ANGER,right here in leafy detatched Surrey,(local illustrations of migration he does not like-ed),I looked in the local estate agents windows and an average semi is about £300,000 even a 1 bed flat is £200,000.If IDS and his reforms are properly instituted this will properly address the issue
    but only in part. I get round robin emails from all over the world and this issue is big everywhere, even South Africa where immigrants from the rest of Africa are not wanted
    at all and actually bad things happen [see i ED. myself here rather than have you do it,but a cursory google of this issue in regard to south africa suffices to illustrate it in detail].
    As for solving the housing issue IMHO Javelin is right ,house prices are very overvalued,
    at least 50% and until they reduce properly we are living in a fools paradise ,plus all the Tax extracted from the housing market by our parasitical state just makes things worse,
    except for a few like JR, politicians and civil servants of all stripes are stupidly ignorant
    of the law of diminishing returns.

    Reply: i was referring to amount of comment on this site. We are not going to write about immigration everyday. It is quite clear from the responses what the concerns are.

    • Electro-Kevin
      Posted August 31, 2011 at 7:45 pm | Permalink

      It’s not a subject of concern limited to John Redwood readers, I can assure you of that.

    • Bazman
      Posted September 1, 2011 at 11:40 am | Permalink

      What about migration from North to South in England? Desperate Northerners going down south taking all the jobs and raising property prices.

  33. sm
    Posted August 31, 2011 at 2:12 pm | Permalink

    Assets deflating and essentials inflating and with incomes falling in real terms partly because of world imbalances talked about before.

    Previous decisions to use of cheap money to fund spending and excess borrowing. We now have cheap money for some not all,devaluation, QE, with large continuing immigration with now rising unemployment cooling inflation pressure on wages.

    The current solution wont work for the majority in the UK as incomes will continue to fall while rents will probably not with high immigration. High immigration drives rents which supports house price for investment. Reduce immigration would reduce rents and slowly house prices.

    If after tax incomes fall faster than assets housing may be overvalued for a longtime.

    The empty numbers you state are small if you consider our immigration numbers over a decade and the destination of the migrants.

    The public want immigration cut, employers don’t as they don’t pay the full social costs, i suspect cheap labour and a race to the bottom to compete in a rigged game against labour in a ‘Free Trade’ world?

    This seems how it has to be if we are to retain the current banking/political, east/west trading and eu regime. Back to currencies and trade circle.

    Waiting for the inevitable big pop, sheer,fracture,rupture caused by a failing political/economic environment.

  34. John B
    Posted August 31, 2011 at 2:19 pm | Permalink

    Did you, Mr Redwood, include the number of Council houses standing empty in your empty house calculation or just private properties?

    How do we reconcile the claim that house prices are sinking – which apparently is a disaster – whilst at the same time hearing that people cannot buy because of rising prices?

    Why are people struggling to make mortgage payments when mortgage rates are at their lowest in living memory by a considerable margin?

    My observation is that first time buyers want the exact property of their desires in the location they want. What I bought and where was determined by what I could afford and what the building society at the time – 1977 – was prepared to lend, that was no more than 85% of the agreed price and no more than 3 times income.

    Interest rates were 16%.

    I find it very hard to be sympathetic.

    I am also aware the Council house/flat tenants are very fussy too and insist on a property that meets there entire needs and desires – purchers usually have to make do with what they can afford – which is why a lot of perfectly good Council accommodation stands empty.

    reply: yes the figures include Council property and come from the empty house website sponsored by the public sector

  35. rose
    Posted August 31, 2011 at 2:25 pm | Permalink

    The other false assertion you need to knock on the head is that the baby boomers found it easy to buy. We married during an out of control property boom, following the Heath/Barber inflation, and started in a one bedroomed rented flat. We graduated to a three bedroomed flat after five years. When we finally got a house, it was after a decade of hard saving (no foreign holidays and no eating out, both of which the young now take for granted, even while they are students); and despite my husband being at the peak of his earning power and in a safe job, we still had to borrow the difference from his father as the building society wouldn’t lend on what they considered to be unsafe inner city terraced property – which was all we could afford.

    The Brown boom has given everyone ideas above their station, and the sooner they realize it was an abnormal period in our history, the better. Now of course our little terraced house is looked at with envy and resentment, and attracts a huge council tax, but that is only because the population has been unnaturally increased. We never hear the BBC mention that aspect of the housing shortage, nor do we even know what the actual numbers are in excess millions of people.

    Eventually the baby boomers will die, and their houses will become vacant. The last thing an overcrowded declining country needs is to build all over its fields and gardens, as in its future poverty, it will need them for food.

    • Bazman
      Posted September 1, 2011 at 11:42 am | Permalink

      I realised it was not going to last and kept hold of the money. That car some people bought will now be worthless, but that is what gave me the money.

  36. RDM
    Posted August 31, 2011 at 2:36 pm | Permalink

    As someone who, in the 80’s, got on his bike, moved to London and South England;

    I don’t disagree with your analysis, but I do not accept that People from more prosperous area’s can (or should) be relied upon to move to the regions and Wales.

    “That will require the provision of more homes for energetic and mobile people to go to Wales or the North to set up businesses , or to expand businesses already established there “.

    We should focus on generating wealth within these areas! Creating an Enterprise culture! It’s important to understand the need for long term change, from the ground up, both individuals and families. The inherent Risk of a startup is attached to the idea, and not the family’s home as collateral!

    Combine this with the need to grasp Technology and ideas’ based enterprises, to solve society’s problems.

    We have, within these areas, a need for the Banks to change their Relationship with the customers. Not lending for houses as assets(collateral), an end in it’s self, but as part of the means to an end. So, maybe a home could become part of a startup, a long term commitment to generate a revenue?

    Unless, of course, you can afford too, or you are a reasonable prospect for a Bank to give you a mortgage, then you are not worried.

  37. Gary
    Posted August 31, 2011 at 2:50 pm | Permalink

    Firstly the 738,414 empty homes figure is for both short term and long term (over 6 months). About 300,00 have been empty for 6 months or over. There will always be a number of short term and long term empty houses without there being an excess of available housing for many of the reasons already mentioned (and not forgetting that some will be occupied but claiming to be empty for council tax reasons or occupied on a temporary basis).

    “Myth One: The south-east is selfish, with Nimby Councils refusing to build the homes we need”
    The number of new houses built by councils is so small as to be irrelevant compared with a rising population of 400,000 a year (especially in the south east). An aging population also contributes to demand.

    “Myth Two House prices rose too fast because there was insufficent new build”
    There are other contributing factors such as cheap, available credit, but the imbalance between supply and demand is fundamental. Most purchases are for “second-hand” housing, but the difference between new demand and new builds affect the balance. The growing buy-to-let market also probably had an affect as properties were seen as a good source of steady income and an as an “guaranteed to always grow” investment.

    “Myth Three All the empty houses are in the wrong place, so they cannot answer the problem”
    The number of “empty” houses is irrelevant compared with the number of houses up for sale and the number of buyers. I presume the houses are empty for a good reasosn and not because they are perfectly habitable but just cannot be sold or rented.

    Possibly the clearest sign of the problem is the number of working age children still living at home. Another sign has been the falling internal migration within the UK. People can’t get on their bike and find a job if they can’t find affordable accommodation where the jobs are.

  38. Posted August 31, 2011 at 3:19 pm | Permalink

    Censorship[Ed.] by you john shows that George Orwell was right in the book 1984,what was wrong with my comment? all I said was Immigrants NOTHING on ETHNICITY,the word and it’s PLURAL are used everywhere all of the time,WHEN will that word be censored.What happens when this is done is it builds up resentment and like a volcano does inevitably there is an uncontrolled explosion.That is exactly what is happening right now [you know how i feel about it and what I do] but I still don,t think you understand that everyone resents this
    outward censorship which is done IMHO to force SELF censorship I even did in this comment regarding the South African content,of the at least 5 different people I speak to EVERY day [I am going out now for an hour] the Immigration issue and DETAIL you censored are spoken about,WHEN are we to get worried about the tHOUGHT POLICE ?.

    Reply I remove comments which I judge could waste my time in endless rows with people who were upset by them. It is quite possible to make the points you wish to make without attacking specified people or groups.

  39. Mike Stallard
    Posted August 31, 2011 at 3:25 pm | Permalink

    Mr Redwood, you have hit a very raw nerve!

  40. Tedgo
    Posted August 31, 2011 at 4:17 pm | Permalink

    House prices need to fall by 50%, to get back to a sensible value/earning ratio of about 3. Naturally people will then want Government to subsidise their negative equity. Unfortunately Government has no money for that and the banks will have to take a hit, after all they encouraged this madness.

    Youngsters would then have a chance of getting on the housing ladder. Why is that important. Because you don’t need nearly as large a pension, when the time comes, than you would need if you rent all your life.

    As I have said before, had indexed CGT been applied in the past house prices would still be affordable. We should apply the tax in the future, using perhaps average earnings as an index.

    I would be happy to see my house value fall be 50%, as long as everyone else’s did **. Its going to happen whether we like it or not.

    Houses are for living in.

    ** Sadly there are land taxers on this thread who would put us pensioners on the streets to get their hands on our unearned wealth.

    ps Thinking about unearned wealth why not tax peoples appreciating works of art and other antiquities, George ….

    • Tedgo
      Posted August 31, 2011 at 4:26 pm | Permalink

      ps I meant taxing art etc every year like land tax.

  41. Posted August 31, 2011 at 4:35 pm | Permalink

    John, I’m not sure Myth Two is false. John Prescott presided over the lowest new build since the end of the second world war. Surely, the basic economic rule of supply and demand whereby if supply is short, prices will rise to meet demand applies. I for one was in a good job in 2005 when I bought a house but if the usual “mortgage = wages x3 multiple rule” had been in existence there is no way I would have got a mortgage. Although the banks were wrong to hand out 100% and 100%+ mortgages, if it wasn’t for the banks lending far greater than x3 salary, many many more people of my generation (born in the late 1970s) would still be pouring dead money down the drain every month by renting.

    Reply: But supply of new homes has fallen even more in the last three years, but prices have also fallen.

    • Gary
      Posted August 31, 2011 at 5:27 pm | Permalink

      “Reply: But supply of new homes has fallen even more in the last three years, but prices have also fallen.”

      It is all relative. House prices have fallen from an exceptionally high level to just a high level. If there had been a greater supply compared with demand then they would not have risen as high and would be much more affordable now.

      House prices are still historically high. To quote Allister Heath in City AM, they are 4.4 times average income which is above the post 1983 average of 4.0 times, and well above the 3.1 times earnings after the early 1990s crash.

      Considering the events of the last few years (e.g. the credit crunch, stricter lending criteria, recession, high unemployment), it is surprising how high and unaffordable house prices are still. Low interest will have helped, but the lack of supply compared with demand is still the main problem.

      Reply: House prices have fallen around 30% in real terms, 17% in cash terms from the peak. That should not have happened if the supply of new homes theory worked.

      • Gary Burgess
        Posted August 31, 2011 at 11:35 pm | Permalink

        I agree that the 7 times earnings peak in the housing bubble was fuelled by unwise credit, but the inadequate supply of new homes compared with population growth was fundamental in creating the bubble and also the current unaffordability of housing.

      • Mark
        Posted August 31, 2011 at 11:56 pm | Permalink

        You might also like to consider why house prices in Ireland rose so dramatically despite a massive oversupply of vacant property, and the same in Spain. That they have subsequently halved is simply the consequence of the lack of subsidy on mortgages when the bubble burst – compared with the UK, where banks are shovelling a large chunk of the £100bn p.a. of subsidy that they get from the BoE into propping up mortgage customers via various forms of forbearance.

  42. Posted August 31, 2011 at 6:13 pm | Permalink

    Your naivety is breathtaking John ,examples who ? caused WW2 your answer a certain tooth brush moustached austrian/german politician,proper answer Adolph Hitler, a spade is a spade ,people who want an independant Scotland are Scots,the so called rebels in Sri Lanka
    were Tamils from the north, the people who suffered under Apartheid were Non White like my wife, none of these examples would object to being named neither would their oponents,why
    the kid glove treatment of immigrants.Also what do you think of the people who talk to me
    do you dissaprove of them,if you took a straw poll of your constituents what would they say and would they agree with you or me.In the 3 and a half years since I arrived back from South Africa I must have spoken to about 5000 people and 99% agree with me most actually broach the subject themselves.

  43. Posted August 31, 2011 at 6:48 pm | Permalink

    John look at today,s Daily Mail page 12, the article says in it,s headline 9 out of 10 jobs created last year went to Immigrants,the word used was FOREIGNERS,AND Priti Patel your fellow tory MP is quoted as saying this should RING ALARM BELLS IN DOWNING STREET
    in the second largest selling Daily newspaper in the UK. WHO will now ROW with her or is she Immune because of her origins or ethnicity,by your token the mail should not have written the article as it NAMES groups and sows supposed problems by NAMING them,the fact is that keeping it QUIET is WORSE by a factor of at least 10.If this continued to happen
    the Eruption in this country would be enormous,this is a problem that cannot be made to go away NOR will it,no matter WHAT.

  44. David in Kent
    Posted August 31, 2011 at 7:26 pm | Permalink

    I’m always amazed that there are so many vacant properties in UK. Who owns them? Surely if the owners are private citizens or even companies they will be doing their darndest to get them occupied. After all, some income is better than none.
    That makes me suspect that the owners are state bodies, local councils, who have no regard for return on taxpayer capital. Pressure on councils to sell property would put downward pressure on prices, helping first time buyers, and help councils balance their books.

    • rose
      Posted August 31, 2011 at 10:01 pm | Permalink

      I remenber the last time the subject of empty housing came up, most were council houses.

      • Gary Burgess
        Posted September 1, 2011 at 8:55 am | Permalink

        To use approximate figures to simplify the calculation, assume 36% of houses are rented and tenants change on average every 3 years and on average a property is unoccupied for 1 month between tenants. That means about 260,000 unoccupied properties are just ‘between tenants’.

        There are about 250,000 second homes in the UK.

        So you can account for two thirds of unoccupied houses for those two reasons.

        The remaining one third could easily be accounted for under ther reasons e.g. extensive building work, people claiming a property is unoccupied when it is, squats, the owner has died and the estate is being sorted out, the owner has emigrated and the property is on the market.

  45. Posted August 31, 2011 at 8:51 pm | Permalink

    I disagree with you John, my council has 31 ‘conservation zones’, in a small city. It’s all about NIMBYism and NIMBYism trumps every other concern – even energy efficiency and ‘climate change’.

    Loads of people I work with spend their lunch hour drooling over property websites and re-assuring each other that buy to lets yielding 4% or 5% are a magnificant investment as house price ces can’t go down and the government will bail them out via zero-interest rate policy etc.

    There’s even a culture where skivving off to phone the estate agent or deal with a tenant has become acceptable. For some of the multiple landlords (all tenants on housing benefit paying rents I can’t compete with of course) they spend more of taxpayers time looking after their property portfolios than they do their actual job.

    Worst thing is that it’s seen as acceptable by a lot of managers (who are also at it) , I wonder what they’d say if I sat there spread betting all day instead of working hard on big prosecutions and injunctions to try and keep a shoebox lid over my head.

  46. Mark
    Posted August 31, 2011 at 11:38 pm | Permalink

    It is instructive to look at the history of house prices and mortgages since 1997. I chose the Halifax index, and data series LPMB3C2 and LPMVTVU from the BoE which allow an average mortgage size for house purchase to be derived by division, and also an implicit loan to value ratio for the average mortgage.

    Back in 1997, house prices were under £70,000 (or £36,000 basis RPI based at 1983), and the average mortgage was under £40,000 – or around 57% LTV. There was a quantum leap in the size of mortgages at the beginning of 2001, since when LTV has remained over 70% even during the house price falls in 2008: currently it is at near record levels of 87% and £143,000 per mortgage on this measure. The data show a strong linkage between mortgage size and house prices, and suggest that a much needed price decline to make houses affordable could be managed by limiting the absolute size of mortgages gently downwards. It is noticeable that the low level of transactions is doing little to encourage sellers to lower their prices to achieve a sale.

    Deflated by RPI, current house prices look to be 35-40% overvalued compared with in 1997 – or around 30% overvalued if you use the Halifax earnings measure: however, taxes are rather higher today, making real affordability rather less.

    Equally noteworthy is that the stock of outstanding mortgages has been virtually unchanged since January 2010: is has oscillated £2bn either side of £1,240bn ever since. In fact, this starts to look like a policy of keeping this number a constant (athough the recent uptick might see us break out of this range – worryingly). By contrast the stock of unsecured lending to households (-23% from peak LPMB8DG) and of lending to businesses (PNFCs in BoE jargon – -15% LPMB9Y2) and even interbank lending (-20% LPMB8Y9) have all shown continuing falls. Business and consumers are being asked to cut back while paying through the nose for the privilege in higher interest rates and harsher terms while house prices and mortgages are being nursed, just so banks can cut their gearing and recapitalise. Of course, to cut gearing banks have to cut lending somewhere: it is time that the cuts were made on non-productive housing rather than productive business and even consumer spending (so long as it doesn’t leak into imports).

    Also important is the degree of forbearance by banks for mortgage customers. Court actions on overdue mortgages were just 57,000 in 2010 and will be lower still this year – below the average for 1997-2007, when there was a booming house market. Contrast with the 143,000 actions in 1992, when prices were falling in the SE.

  47. David John Wilson
    Posted September 1, 2011 at 12:22 am | Permalink

    In addition to empty houses there are a large number of shops in our high streets with empty accomodation above them which is used store rubbish from the shops. We need the council tax system adjusted to encourage the owners to release this accomodation onto the market.
    This could com in two forms. Firstly by ensuring that unused accomodation is included in the total floor space of the shops and secondly a short term rebate to cover the costs of bringing it back into use.

  48. Gary
    Posted September 1, 2011 at 9:07 am | Permalink

    “#
    lifelogic
    Posted August 31, 2011 at 6:18 pm | Permalink

    If you rent out a house it produces rent. If you run a business it produces profits (hopefully). Renting out houses is a business just as renting out cars, trucks, computers or ships is.

    In what sense is it not productive?

    Because a country has to earn foreign exchange, unless they make EVERYTHING in the country . And we don’t .

    Of course we need a mix of house buying and new productive enterprise, but that is not what we have, we have a housing bubble, and that not the signal that the govt is sending, or why else would they be going to such lengths ensuring the continuation of this property bubble ?

    If you think that you HAVE to own a house , it is only because there is a dearth of other investments , and that is the problem. The govt can’t seem to “get it”.

    No wonder we are up the Swannee !

  49. Dominic
    Posted September 1, 2011 at 10:31 am | Permalink

    1. london has the lowest proportion of empty homes since the 1970’s.

    2. the borough with the second highest number of empty homes is kensington and chelsea. they belong to foreign millionaires. good luck in relieving them of their london bolthole.

  50. EJT
    Posted September 1, 2011 at 12:05 pm | Permalink

    My wife and I rent 2 houses, have done for nearly 20 years, it’s simply part of our pension arrangements, having had “ portfolio careers” before the label was invented. It is becoming a steadily more onerous process due to regulatory creep.

    A warning here – adoption of EU laws, regs, procedures etc. could massively damage the private rental sector. I have european friends who leave property empty that they would like to rent, because they view it as too much risk to take on tenants.

    • Bazman
      Posted September 3, 2011 at 8:40 am | Permalink

      The main risks are that they trash your property and in the worst case refuse to leave and ultimately have to be removed by physical force which would be difficult and expensive if not sometimes impossible. Apart from this Landlords have never had it so good with short term tenancy agreements and the like. What legislation would you like to be amended? Legislation or its abolition of to do what you like will not be passed. The gas/electricity tests for every new tenants are an expensive pain and easy money for tradesmen, but what would you prefer? No tests? I sold my rented house to much hassle and not enough money. Without rising prices renting is pretty much like any other business and like many other business owners you are on the scrounge expecting the taxpayer and tenants to pick up the tab using the EU as scaremongering for legislation as yet unknown or adopted and maybe just made up by yourself.

  51. lojolondon
    Posted September 1, 2011 at 12:45 pm | Permalink

    Great article John! I was living in Islington in 1998 and remember that the council owned 10,000 EMPTY properties. Why not force them to fill or to sell. Flooding the market will mean that prices for rent and buy will fall. First-time home-owners could get in easily, and perhaps some investors will buy some up and let them out, that is also a good thing.
    Just imagine 10,000 homes all paying £100 in council tax each month? How can the council possibly justify keeping them empty and costing the taxpayer money?

  52. LoveLondon
    Posted September 4, 2011 at 4:07 pm | Permalink

    You know that you are lying, in 2010 you said:

    “Tight planning controls created artificial scarcity. Investors benefitted as a result.”
    (cites another blog)

    Researchers at the LSE dispute this as well:

    http://spatial-economics.blogspot.com/2011/09/empty-homes-and-housing-crisis.html

    Reply: The other blog you quote was a blog about investment in commercial property, talking abnout the yields on offices in Real estate Investment Trusts in the West End and City. It was not a comment on the general UK housing market, which is in my v iew mainly driven by mortgage finance variations.

  53. HJ
    Posted September 7, 2011 at 12:44 pm | Permalink

    I live in Wokingham but previously lived much further north.

    I am constantly surprised how expensive houses are even well away from the South East and further North generally. These areas also have very high levels of public sector employment with employees on nationally agreed rates of pay.

    Could it be that nationally set public sector pay is inflating the cost of housing in these areas and thus undermining what should be some of the private sector cost advantages of locating there?

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

    Promoted by David Edmonds on behalf of John Redwood both of 30 Rose Street Wokingham RG40 1XU

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