Labour proposes major reform of housing market

Labour proposes major reform of housing market

Land could come under 'common ownership', inheritance tax could be abolished and the buy-to-let market could be tightened under housing proposals floated by the Labour party yesterday (June 3).

In a paper entitled Land for the Many, written by a group of academics, economists and land experts for the Labour leadership, and published by the Labour party, a set of reforms aimed to stabilise house prices, end the "buy-to-let frenzy" and revolutionise tax policy was put forward.

The authors recommend a Labour government should set an explicit goal to stabilise house prices and pinpoint land price inflation as the root of house price inflation.

To do this, a Labour government would discourage land and housing from being treated as "financial assets" and one solution would be a radical common ground trust — a non-profit institution that would help prospective buyers purchase homes.

At the buyer’s request, the trust would buy the land underlying the property to make the upfront cost of home ownership more affordable. The buyer would then pay a land rent to the trust.

The paper suggests that by bringing land into common ownership, "land rents can be socialised rather than flowing to private landlords and banks" and "debt-fuelled and speculative demand can then be reined in without the risk of an uncontrolled or destabilising fall in values".

In order to end the so-called buy-to-let frenzy the authors suggested major reforms to the private rented sector.

These include open-ended tenancies, a cap on annual rent increases and firmer regulation and restrictions on buy-to-let mortgages.

Under the reforms, landlords would lose their power to evict a tenant who has not broken the terms of the agreement in the first three years of the tenancy and would then have to provide grounds for eviction after that point and rent increases would be capped at the rate of wage inflation.

The paper also suggested the Bank of England should "encourage a shift in bank lending away from real estate" towards "more strategically useful sectors of the economy".

Banks currently have a strong incentive to lend against housing collateral as capital requirements for mortgage loans are lower than for other types of lending such as small businesses, it stated.

This bias could be reversed by raising the risk weightings for mortgage lending and lowering the risk weightings for productive forms of lending, or by enforcing a maximum ratio of mortgage lending to productive lending.

Once house prices are "stabilised" — due to the common ground trust — a Labour government could then tighten the rules over maximum loan-to-income and loan-to-value ratios which the paper states would prevent any future debt fuelled re-inflation of house prices.

The paper goes on to discuss tax reforms, including a progressive property tax, stamp duty reform and inheritance tax abolition.

A progressive property tax would replace council tax and would be payable by owners of property, not tenants.