How to Solve the Housing Crisis – TLDR News

How to Solve the Housing Crisis – TLDR News

[Music] not long ago we made a video explaining the uk’s housing crisis and explaining the main issues britain had when it came to housing if you haven’t watched the video on the crisis yet we recommend you do so because we’ll be referring back to it a fair bit in this video it’s linked below anyway after that video we had a lot of people asking us for a follow-up on potential solutions to the crisis so here we are let’s explain how britain’s housing nightmare could be solved before we do if you two want to say in our video topics then every video has a link to the topic suggestion form in the description so whenever you come up with a topic you want explaining send it our way as i said it’s linked down below so before we get into some possible solutions we’re going to look at the government’s current policy and explain why it won’t work the government’s policy is currently two-dimensional it basically consists of expanding help to buy and reforming the planning system help to buy is great if you qualify for it because it essentially means you get more money to buy a house but unsurprisingly if you give would-be home buyers more money you just inflate the cost of houses and have to spend even more on help to buy for it to be effective this is exactly what’s happened help to buy originally started as a 250 million pound scheme restricted to first-time buyers and has now been extended until 2023 at a total cost of 30 billion pounds the government’s other policy is about reforming planning as we mentioned in the housing crisis video the uk currently uses a weird case-by-case planning system in theory reforming this would be a good idea because it would provide builders with more certainty which would reduce speculative pressure on land and allow smaller builders to enter the currently oligopolistic market originally the government wanted to do three things reform the green belt increase local housing targets via an algorithm and move to a zonal planning system unfortunately rural conservative voters hated the plans because they didn’t like the idea of more houses in their area or in the greenbelt so prongs one and two got scrapped the current planning bill still includes some stuff about zonal planning but reports suggest that as many as 80 conservative mps are planning on voting against it so it’s unlikely to get through and if it does it won’t make that much of a dent so what could work well we should start off by saying that no one knows for sure as we hopefully made clear in the previous video the housing crisis is complicated and smarter people than us are still currently arguing about the right way to go about fixing it so we’re gonna hedge our bets and look at three possible solutions because well we apparently like doing things in threes they are a 50 planning uplift tax a land tax and the so-called street votes policy we’re going to explain each policy and then present some arguments for and against it let’s start with the planning uplift tax planning uplift essentially refers to the increase in value enjoyed when a piece of land receives planning permission these uplifts are sensational in 2015 the average hectare of agricultural land went from 21 000 pounds to 1.95 million pounds once planning was granted at the moment the state doesn’t get any of this it just hands over planning permission and the lucky landowner makes a killing a 50 tax on this would mean that if i got planning permission i would have to pay 50 percent of the increase in the value to the state this tax would probably replace other indirect land value taxes like the community infrastructure levy and section 106’s which require developers to build a certain amount of affordable housing there are two main advantages to this tax first it should replace the speculative pressure on land values today developers buy up land in the hope that it might get planning permission and they can make a killing drastically pushing up the price of land cutting their profits by 50 should reduce some of this pressure and mean lower house prices second the tax will give local authorities more money to build social housing and improve local services and infrastructure however there are some potential downsides first there’s the question of how you calculate planning uplift unless the developer puts it on the market right away after receiving planning permission you can’t really know how much for sure it’s worth this is why the uk uses stamp duty it’s paid at the point of sale after you’ve decided how much the property is worth second this tax has been tried before in 1967 harold wilson implemented a 40 uplift tax known as the betterment levy unfortunately developers stopped applying for planning permission and just waited for a more developer-friendly conservative government to come into power and scrap the tax which is exactly what ted heath did in 1970. in 1976 callaghan introduced an 80 development land tax but again in 1979 thatcher scrapped it essentially this tax doesn’t work if developers know that a new conservative government will come along and scrap it because then they just wait it out this actually means less houses get built and house prices increase even more however some conservatives today notably former housing ministers nick boles and sajid javid have actually come out in favour of an uplift tax which means that it might stand a chance of cross-party support in the future the second option is a land value tax economists have been talking about land value taxes since henry george’s progress and poverty was released in 1879 but they’ve never really caught on it’s a simple enough idea you make people pay a percentage of the value of their land each year most people suggest a land value tax of between one and four percent so if i own one million pounds worth of land i’d pay somewhere between 10 and 40 000 pounds per year this tax would probably replace council tax which is defined by the price of your house and the business rate system which basically charges businesses owning commercial property in theory this tax should do two things first it should make holding undeveloped land less attractive which will encourage developers to build houses faster and second it should bring down the overall price of land making it easier for most people to buy houses there are two main advantages to this tax it’s efficient and it’s fair other taxes like say income tax are in some senses inefficient because if you make the income tax too high you make people less likely to work and you actually receive less revenue a property tax would have a similar effect at some level it would actually discourage development however the supply of land is fixed so a land tax won’t have the same effect because it’s not like you could discourage the creation of land this is why milton friedman who was famously not keen on taxes described the land value tax as the least bad tax the land value is fair because well fundamentally no one has more of a claim to the land than anyone else it’s not like either of us could have created that land so how can i claim it as my own now obviously today the land is yours because you bought it off the person who owned it before you who brought it off the person before them etc but imagine the first person to claim that land how could they justify that claim how could it be more your land than mine anyway one of the downsides to this policy is how do you calculate it this probably isn’t an insurmountable problem some countries like denmark do use land value taxes and they seem to be fine but it would probably be a bit controversial to begin with it would also be difficult for people who have big houses but not enough actual money to pay the new tax a possible solution here would be to allow bigger payments to be deferred until the property is sold as in denmark however perhaps the biggest obstacle to a land value tax is that it only hurts current landowners essentially once the land value tax is announced everyone who currently owns land will see a drop in the value of their assets while future land owners will get to trade the land at this new lower price now this might not sound too bad you’re probably thinking of a whole load of wealthy boomers whose land has been increasing in value for the last 30 years but imagine people who’ve been saving for years and have just made it onto the housing ladder only to see their assets value wiped out this is both intrinsically unfair and politically tricky nonetheless any housing reform will have short-term political costs so this shouldn’t be seen as a sufficient reason to rule out a land value tax the final solution comes from policy exchange a uk think tank and is known as the street votes proposal essentially the street votes proposal says that the housing shortage is mostly caused by restrictive planning permission and planning permission is so hard to get because residents don’t want new buildings near them they get ugly buildings noisy construction traffic congestion and fewer places at gp surgeries and in schools this means that even in areas with low housing density developers still can’t build because locals don’t want them to the street vote solution to this problem is to give residents on a street the power to choose how their street is developed essentially this turns every street into its own little planning permission authority a proposal is submitted by 20 of the residents on the street or residents from 10 different houses whichever’s more there’s then a street-wide vote on the proposal which passes if one at least sixty percent of the votes cast are in favor two at least one resident from at least fifty percent of households have voted and three at least one resident in at least fifty percent of the voting households is in favor the idea is that residents are more likely to agree to development if they get to choose it residents know their area better than anyone and so are less likely to agree to ugly buildings they’ll also be financially incentivized to do this because a prettier street means higher property values and some streetwide developments could also include improvements to their own property the proposal’s authors estimate this could increase house building by 110 000 homes annually which would translate into a 10 increase in total housing stock by 2035. if it works this proposal could mean more and therefore cheaper houses more beautiful streets and no sudden fall in homeowner wealth there are however two possible problems with this proposal first it is possible that residents won’t actually want to build more on their street even if they’ve got a financial incentive they might just like things the way they are and be happy to sit on an asset that’s already appreciating by seven percent every year second it’s not clear that this will really solve the housing shortage at least not in the short term most analyses agree that a one percent increase in housing stock would cut prices by less than two percent it might be that the uk’s housing backlog is too big to be solved by this sort of gradual policy and something more drastic is required what do you think though are any of these ideas enough is there an option we haven’t considered let us know your thoughts in the comments below be sure to subscribe to the channel and ring the bell icon to be notified every time we release a new video special thanks to our patreon backers who make videos like this one possible and if you want to see your name at the end of videos then you too can back us on patreon the links in the description below
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How to Solve the Housing Crisis - TLDR News

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