The government plans here outline how they hope to address the problems of affordable housing.
Zoe Williams in the Guardian blames buy to let : ??????buying to let is naked greed, and the real reason behind the housing shortage??????. She??????s arguing that its the middle classes exploitation of differentials between the rental and freehold markets have distorted Londons housing market to the point of crisis.
She??????s right of course, but probably almost as naive as me in her solution – 100% capital gains tax on second properties.
This is the problem in a nutshell: The more people buy houses as an investment, the higher the demand, and hence the higher house prices rise … and that means bigger buy-to-let mortgages … bigger repayments … which means rents are hiked in order to turn a monthly profit. Property price inflation runs at a much higher rate than wage inflation …. which means housing becomes less and less affordable.
The existing housing stocks primary function is no longer shelter but investment.
It??????s amazing how all those individual actions have collectively brought one of the worlds great cities to a point of real crisis.
But what if all those individual actions collectively precipitated a solution?
What if all that middle class money currently buying was used to build instead?
At the moment, it??????s cheaper to build something from scratch than to buy something that??????s already built (which is odd – outside of antiques and old masters, can you think of another product that is cheaper new than second hand?).
So build-to-letters would be exploiting market differentials as much as buy-to-letters currently do. Only this time, the end product is more than personal profit. The positive by-product would be more, and affordable housing.
All you??????d need would be the means of organising the finances: Some kind of framework by which an individuals cash could be linked to individual apartments. Maybe that means housing associations, local authorities, or PPP agencies providing the infrastructure – the shared bits of a building (plumbing, central heating, structure, common parts perhaps). In fact, to keep things simple you would need to work backwards from property law – from suitable virtual leasehold agreements perhaps. That would mean that mortgage companies would be happy to lend. The Bank of England would be happy because the inflationary pressure of the housing market on interest rates would drop.
Government could contribute land and relax planning laws, housing associations could provide framework, investor-individuals would provide investment and absorb some risk, tenants would get cheaper houses, and could buy into their properties, thus releasing capital to investors who could use these sums as deposits on mortgages for new schemes.
Like I say, I??????m naive. Williams suggests that taxation is a way of controlling selfish and antisocial behaviour of buy-to-let. But this is alternative is means that a progressive social agenda can exploit those desires.