Public sector house building originated as a response to private sector failure to provide decent housing for lower income families. Thus new towns such as Welwyn Garden City and Harlow were constructed.
In addition, large areas of towns and inner cities were bought up and redeveloped, some with more success than others. These were common sense moves by the public sector. Real solutions to real problems.
Then came the Thatcher revolution and the right-to-buy council houses. The idea was to unblock council house waiting lists by releasing funds for councils to build new homes. Sadly most councils failed to ring-fence the money and whittled it away on other things.
As a result, public sector house building fell away. Many have argued that was when the seeds of today’s housing crisis were sown and we now have housing associations running social housing, rather than local councils. This was combined with government tax incentives to encourage home ownership.
At that time, irrespective of whether you occupied the property you owned or let it out, you could offset the mortgage interest when calculating your income tax. Some readers with longer memories may recall the Mortgage Interest Relief at Source (MIRAS) scheme in which lenders netted the tax relief for you.
Now, fast forward to the 2020s. We have had more than 20 housing ministers in the past 25 years. No time there to develop and lead a co-ordinated, long-term and well-thought-through housing policy, let alone to become a strong advocate of such a policy within government.
Instead we have had multiple interventions in the past few years, including Help to Buy, which have failed to address the housing supply problem, but only encouraged demand.
The current housing minister, Chris Pincher, has drawn widespread criticism for his recent call for old people to downsize without suggesting any incentives to do so.
Incentives
Among the perverse set of incentives for certain classes of property owners are the following:
Beneficiaries of the highest set of tax incentives are the owners of holiday lets. Provided the property is demonstrably advertised for short-term let you can offset the full cost of mortgage interest against your letting income, along with maintenance costs and you may even get relief on business rates.
Combined with higher gross yields than for other long-term letting, this form of ownership of housing is particularly tax advantaged.
Next come the long-term letters. Run your letting business through a limited company and you can get your mortgage finance fully offset against your income. A lower gross rent than from holiday lets, but much less effort in servicing the property.
If you do not want to run a letting business through a limited company, letting yourself still gets you a 20 per cent tax credit for your finance costs to offset against your tax bill.
Bottom of the pile is the ordinary owner occupier. No tax breaks on the cost of buying, just no capital gains tax when you sell.
There is an argument that these would not matter if house-builders were incentivised to provide enough homes to meet the demand, for first-time buyers or downsizers. Instead they are allowed to build up land banks with planning permission and thus ensuring they control the supply, which does not meet the demand, leading to ever higher prices and making it difficult for the younger generation to get on the housing ladder.
Even though on larger sites developers have to provide a certain amount of social or affordable housing, it is not enough to meet the demand faced by housing associations or the affordable market in general.
Everyone accepts that the planning laws need reforming, but making it easier for builders to get planning permission will not solve the housing shortage and probably only lead to even bigger land banks.
Government need to make the big house-builders use up their existing land banks before being granted any new permission. That does not mean the laws cannot be reformed to make it easier for small and medium-sized building companies, which find it difficult to compete in the current market, to get planning permission.
They traditionally develop smaller sites that are more sympathetic to local surroundings and at a lower price, thus forming a vital function in providing less expensive homes.
Keith Barber is director business development at the Family Building Society
