Britain's property disaster was entirely avoidable

My column in this week’s Times deals with the long-term causes of Britain’s property crisis. You can read the full thing on their website (£) but here’s an excerpt from the middle:

As the 20th century wore on, government after government encouraged voters to buy their own homes. A promise to open up home ownership to all became a permanent feature of Conservative and Labour manifestos alike. Over time, they introduced policies to make it cheaper to buy: tax was waived on mortgage interest, capital gains tax was exempted from families’ first properties, incentives were introduced to encourage council tenants to purchase their homes with Right to Buy. The proportion of households owning their property rose from 23 per cent in 1918 to 71 per cent by the turn of the millennium.

This rising tide of home ownership obscured policy mistakes beneath the surface. While plenty was done to increase demand for homes, government policy gradually served to reduce the supply. Draconian restrictions such as those brought in with the Town and Country Planning Act of 1947 resulted in the erection of green belts around big towns. The preposterous upshot is that there is now considerably more land lying undeveloped throughout England, protected by the green belt — 13 per cent — than is built upon — less than 9 per cent.

This policy blunder would have been unforgiveable enough were it not accompanied by many other discrete policies that have ratcheted up demand yet further: a rental regime that protects tenants less than in almost any other country; a permissive immigration policy; ever-cheaper mortgage finance — thanks both to financial innovation and successively looser monetary policy. Help to Buy’s mortgage guarantee scheme is only the latest in a long line of wheezes to stoke our appetite for property.

It doesn’t take a genius to work out what happens when one cumulatively puffs up demand while limiting supply. Prices rise, pushing property out of reach for first-time buyers. Existing owners who benefit from those price rises buy second homes, with the result that Britain has one of the highest shares of multiple homeowners in the world.

Most dangerously, the financial system becomes ever more dependent on mortgage business. As it becomes more difficult to work out what property is really worth, recurrent bubbles become inevitable. All three of the big banking crises faced by this country over the past century were, in large part, due to problems in the mortgage industry.

You can read the whole thing in The Times’s business section today.