#ElectionEconomics: what are the parties proposing on housing?

The UK is in the middle of a housing crisis related to availability, quality and affordability. The political parties promise high rates of housebuilding, and more, but questions about delivery remain.

As election fever mounts, it is fair to wonder what has happened to the housing crisis. Housing is central to the economy, as well as to households’ financial and wider wellbeing. Yet it has not, so far, headlined in key debates and it has little profile in the manifestos.

For the Conservatives, housing is the 11^th element of a ‘clear plan’ for ‘bold action’; for the Liberal Democrats, it’s 12^th in a 20-point ‘fair deal’ manifesto; and for Reform UK, it is listed as item 15 in the document ‘our contract with you’.

For the Green party, providing fairer, greener homes for all via a ‘right homes, right place, right price’ charter is third on the list in an ambitious bid for 'real change'. Labour’s proposals for housing are wide-ranging, but oddly they do not feature as one of ten policies to ‘get Britain’s future back’, six ‘first steps for change’, five ‘missions to rebuild Britain’ or three ‘strong foundations’.

Political scientists increasingly recognise that housing affects voting behaviour. But this is a complex matter, not least because there is a long-running political consensus on most of the big issues. This seems unlikely to change substantially in the run-up to the election on 4 July.

New homes

The UK lags behind other developed countries on measures of dwellings per capita (or homes per adult). In England, for example, there are 434 homes per 1,000 inhabitants, compared with 590 in France and 587 in Italy. This figure is also lower than the OECD average of 487. Recognising this, all political parties say that they would build more homes.

Figure 1: Housebuilding in England and Wales

Source: Watling and Breach, 2023; based on Holman, 2005

The current government estimates that 300,000 new homes are needed per year in England alone. Extending this across a five-year term of office, Labour say that they would apply mandatory targets to achieve 1.5 million dwellings, while the Conservatives tilt towards 1.6 million (edging ahead by abolishing nutrient neutrality rules for new developments) and the Lib Dems aim to deliver 1.9 million.

The big bet is that planning reforms will work, and that the building industry will deliver. But even if these astonishing targets are met, no party will build more than two-thirds of what might be needed to ‘catch up’ with key European comparators.

On the finer details, while all the parties favour brownfield sites for new build, Labour and the Lib Dems also anticipate, respectively, a generation of new towns and (ten) new garden cities. In Labour’s case, this would perhaps be enabled by a change in compensation arrangements for the compulsory purchase of land.

Neither the Greens nor Reform share the overall building aspirations of the other parties. But the latter say that they would rely on modern methods of construction, while the former expect every new home to meet PassivHaus international energy performance standards.

The Lib Dems are planning for zero carbon, solar panels and biodiversity replacement, while Labour talk in more general terms about ‘climate resilience’. How close any of this will bring the UK to net-zero carbon emissions over the next few years is a moot point.

Owner-occupation

Just as they have for half a century or more, most parties favour owner-occupation (although the Greens barely mention it).

For first-time buyers, Labour say that they would devise a new mortgage guarantee scheme, while the Conservatives propose maintaining stamp duty exemptions and rebooting their controversial equity loan scheme (help-to-buy). The Scottish National Party (SNP) would reintroduce a simplified help-to-buy ISA (individual savings account) scheme.

Unless the Greens have the balance of power, council tenants’ ‘right-to-buy’ their homes at a discount looks set to stay, in some form at least, in England. It was abolished a decade ago in Scotland, five years ago in Wales and partially in Northern Ireland in 2022.

The Lib Dems would replace right-to-buy with a rent-to-own scheme, while Labour would review discounts and promise to ‘increase protections’ for new build. The Conservatives would extend the principle by creating incentives for private landlords to sell to sitting tenants.

These measures together may slightly widen the margins of owner-occupation, but they are unlikely to address growing disparities in housing wealth. Neither would they change the stark fact that house price to income ratios are the highest in living memory. In 2022, the price tag for the average home in the UK was nine times average earnings. The last time the ratio was this high was in 1876.

Housing quality

There remains an impasse around the quality and condition of the existing housing stock. Compared with the European Union (EU), twice as much (38%) of the UK’s housing stock was built before 1946. That proportion rises to 75% (compared with 61% in the EU) for houses built before 1980.

But while Labour express an appetite to tackle energy efficiency in the private rental sector, and the Lib Dems are offering an energy upgrade scheme, there is no more than passing talk in the manifestos of repairs, renovation, retrofit or regeneration across the board. This is despite the fact that one in seven households live in properties that fail the decent homes standard.

Housing and taxation

Finally, the manifestos do not indicate anything imaginative on housing taxation. Overall, the Greens are unique in promising ambitious tax changes, including a wealth tax, which some economists advocate. Labour have not ruled this out either.

Otherwise, discussion of tax in the manifestos is largely about how to close loopholes, reduce evasion and keep basic rates low. Importantly, no party leans towards any meaningful reform of the way that residential property is taxed, even though it is well-known to be outdated, irrational and regressive.

There are, of course, cross-party differences on whether to ramp up or roll back housing taxes that already apply. The Conservatives say that they would use stamp duty concessions and capital gains tax exemptions to extend owner-occupation. The Lib Dems propose allowing a quintupling of council tax on second homes (which would either raise certain local authority revenues or grow owner-occupation, both at the margin). Reform, in contrast, have plans to restore rental income tax deductions that were previously available to small landlords.

But no party has set out plans to tackle the iniquities ingrained in council tax. This poorly designed regressive wealth tax is based on valuations that are 30 years out of date and is levied arbitrarily on those whose homes are worth least. Households in the North East, for example, pay proportionately more on average than their counterparts in the South East, which is the opposite of ‘levelling up’.

Nor does any party propose to remove the inconsistencies of capital gains tax, which – even if brought into line with income tax, as the Greens intend to do – would still be set to zero for the majority of under-occupied high value homes. There is, finally, no mention of the sticky topic of stamp duty, a tax levied against buyers, not sellers, which distorts the market.

The elephant in the room for all the manifestos is that, together, these housing levies – capital gains tax, council tax and stamp duty – are long overdue for reform (even without factoring in the thorny issue of inheritance tax). Until that happens, there will be few opportunities to widen housing’s tax base fairly and effectively or to create the substantial new funding streams that an affordable housing system needs.

Funding affordable homes

It is on the matter of affordable, and especially social, housing that the manifestos tend to diverge. Even then, the main parties steer clear of pledges relating to rent controls (though the Greens support them and the SNP may renew their existing rent cap policy) or housing benefit, while broadly favouring the end of no-fault evictions.

Regarding social housing, on the one hand, the Greens (like the Lib Dems), aim for an ambitious 150,000 new socially rented homes each year. This would be ten times the current rate of delivery, although some would be second-hand. Labour promise, without attaching numbers, ‘the biggest increase in social and affordable housebuilding in a generation’. There are pressing questions, nevertheless, about whether sufficient funds can be raised for all this.

On the other hand, in the absence of costed plans to boost social housing, parties on the political right are (once again) linking housing stress to immigration. Regarding access to housing, Reform say that they would use the law to prioritise local people and ‘those who have paid into the system’, while the Conservatives plan to legislate for local, and UK, connections tests for social housing to ‘ensure this valuable but limited resource is allocated fairly’.

The stock of social housing in the UK is the lowest it has been for 50 years, and migrants are not particularly over-represented as council tenants. As a result, the prospects of these proposals making much practical difference are remote.

But if the idea of ‘housing for locals and nationals’ is a revamp of the old residence requirements, date order waiting lists, or homes for ‘sons and daughters’ – which can cut across the principle of needs-based allocations – it is worth noting that such measures have previously been regarded as divisive and discriminatory.

Labour’s manifesto also refers to priority housing for local people, in the form of ‘first dibs’ for first-time buyers to ‘prevent entire developments being sold off to international investors before houses are even built’.

This is partly a bid to curb the growth of ‘buy-to-let-or-leave’ among high net worth overseas individuals. Data show that the number of property titles registered to individuals with an overseas address more than doubled between 2010 and 2021. Labour propose increasing the stamp duty paid by such property owners by 1%.

A further challenge to affordability, arguably, is the growth of listed property companies and large corporate landlords, which are starting to transform private renting. These companies may also be out-competing first-time buyers for property and land, but no party mentions this trend.

Effectively regulating, properly taxing and actively managing the financial expectations of absentee, especially corporate, housing investors might be one way to raise funds for affordable housing.

Add to that the impact of a wide-ranging reform of land and property tax, and there is a chance of making a rounded policy response to the complex housing needs hidden by a half- century of political consensus.

In the meantime, with so little public investment in housing since the 1980s, the extent to which a sector so critical to social wellbeing has come to rely so heavily on a flow of private sector funds – which can be as much about extracting as adding value – is surely worth debating.