They Cannot Be This Stupid

The Tory Party, seemingly having given up on increasing the supply of houses - is mulling the idea of increasing the demand for houses instead.

Yesterday’s Times carried a headline that should send shivers down the spine of anyone who even marginally cares about growth, productivity, or the basic competence of the Sunak ministry. In scrabbling for an answer to the Labour Party’s surprisingly admirable focus on housing supply over the bank holiday weekend, Downing Street appears to have conjured up the most moronic thing imaginable. While Labour are talking about increasing the supply of houses through planning reform, the Tories are genuinely mulling over the idea of boosting housing demand instead.

The spectre of Help to Buy - a policy that even many Tory MPs these days will privately admit has contributed to our extreme house price inflation - is back being bandied about at the heart of government. The report in Britain’s paper of record stated that:

“Officials in Downing Street and the Treasury are looking at proposals to help thousands of renters who have been unable to get on the housing ladder in the face of high prices and rising interest rates.

The move was discussed before the spring budget but was not taken forward amid fears that it would prove inflationary. Three government sources said a new-buyers’ support scheme was “back on the table” and could form part of Jeremy Hunt’s autumn statement.”

Not content with hiking corporation tax on British businesses and raising stealth taxes on British workers, the Treasury is now talking about measures that will boost demand for houses. This, even after the government has abandoned its housing targets - a move that no doubt leads to lower supply than otherwise would have been the case.

Already, as David O'Leary of the House Builder’s Federation has pointed out - (other than in the second quarter of 2020 which was obliterated by Covid) Quarter 1 2023 saw the fewest housing completions in England for five years. And that’s before the impact of target abandoning (with no reform to replace it) really takes effect.

Perhaps the most concerning thing about this all was the government source who appears to in one sentence repudiate a fairly foundational principle of Econ 101. This source told The Times “If we can’t do anything on housing supply we are going to have to do something on affordability”. Economist Jonathan Portes helpfully rephrases this idiocy in plainer English: “Economics is all about supply and demand, right? So if we can't increase supply, why don't we just increase demand instead?”

In other words the government’s thinking on this issue could be summarised as 'Oh, are you worried about house price inflation? How about we give you some more house price inflation!’

It’s worth revisiting what the Help to Buy scheme actually was, and how it led to higher house price inflation than we would otherwise have seen. The scheme was introduced in 2013, mainly comprising Equity Loans, Mortgage Guarantees, and later the Help to Buy ISA - which all allowed people to buy more expensive homes than they otherwise would have done.

• Equity Loans allowed five years of interest-free borrowing, providing a loan of up to 20% (or 40% in London) of the property's value

• Mortgage Guarantees enabled prospective buyers to secure big mortgages with deposits of just 5%

• The Help to Buy ISA simply pumped a taxpayer cash bonus into the accounts of first time buyers up to a certain threshold

These days Sir Keir Starmer likes to refer to “sticking paster politics” - where a profound problem is merely temporarily covered up in an expensive way. The Energy Price Guarantee that helped send markets spiralling in October (which Labour of course first called for) was one of Starmer’s examples in his big relaunch speech in January. He described it as “an expensive, last-minute fix, papering over cracks in our energy security that have been on display for years.” A quote with which it’s hard to disagree.

Some might say if only Labour had built a single nuclear power station in their 13 years in power, we would not have needed such expensive intervention. The same can of course be said for the Lib Dems and the Tories.

Help to Buy was of course worse than a sticking plaster. It was more like a medieval leeching treatment. Something dressed up as a solution that in reality worsened the condition of the patient.

Far from alleviating the problem of high prices, Help to Buy only accelerated their spiralling unaffordability. Through the state subsidising demand, signals were sent to the market that an individual who could before only just about afford X could now just about afford X+subsidy. Prices therefore chased the subsidies.

Subsidies pushed more and more buyers into the market, while the state prevented the market from responding in kind by increasing supply. Simply subsidising the demand side of the equation leads to one outcome.

As the meme goes…

And more than that, by irresponsibly encouraging people to overleverage themselves with massive mortgages, millions of households were thus far more vulnerable to even minor or modest interest rate rises than if they had taken on less debt.

Help to Buy is the media friendly face of a monster. It is a PR-painted plaster barely obscuring the beast of inflationary policy that is set to make the lives of all of us who are yet to own a home more miserable still. It is perhaps the most misnamed policy in the western world.

And yet, this is the big idea briefed to The Times over the bank holiday weekend. Leeches to balance the housing humors. A perhaps inevitable consequence of a Number 10 more concerned with short term media cycle news items than long term policy for growth. It smacks of a policy operation that has almost given up. One that is more concerned with pleasing Janet than Deano. One that answers questions on housing by raising the inevitably unrepresentative concerns of home owning Tory Party members.

As the Prime Minister told Paul Goodman of Conservative Home last month “What I heard consistently, particularly from our councillors and our members, was what they didn’t want was a nationally-imposed top-down set of targets telling them what to do.”

Let us not forget that Rishi Sunak campaigned to become Prime Minister on a policy platform of freezing in aspic every element of the green belt (which has itself more than doubled in size since 1979). As I reported over the summer, this bafflingly rigid policy could lead to inefficient and land intensive ‘leapfrog’ development, and would include ‘protecting’, amongst other things, concrete car parks.

There are many in the Tory Party who do get this. Who have been banging the drum for planning reform long before Sir Keir alighted on the issue - notably free market crusader Simon Clarke, and man who became the Cabinet’s first millennial, Robert Jenrick. Yet today, the influence of anti-market Tories appears stronger.

We can’t forget that Rishi Sunak, upon becoming Prime Minister, immediately reversed Liz Truss’s liberalisations on energy infrastructure planning. In the middle of an energy crisis. He had to be dragged kicking and screaming by a parliamentary rebellion to reverse one element of this - the effective ban on onshore wind farms.

Anyone who believes in growth and markets should be very concerned when this Prime Minister is cheered along by MPs who merrily brandish anti-growth banners with words like “55% GROWTH NOT SUSTAINABLE OR NEEDED”.

This is where my head starts spinning. This is where I begin to develop a nagging feeling at the back of my mind. Is the real inheritor of the buccaneering, supply side reforming, anti-growth coalition slaying Liz Truss inheritance… Sir Keir Starmer?

As I wrote on the day of Starmer’s ‘growth mission’ launch back in February: “If you didn’t know anything else of what the Labour Party is, the history of Sir Keir, or composition of the PLP - you’d be forgiven for thinking his speech today is a flavour of Trussism. It would be easier to imagine Truss-backing economists switching to Starmer rather than Sunak.”

And in these pages that same month: “in some ways, if Keir Starmer were to genuinely to follow through on his party’s newfound planning and infrastructure rhetoric, he could lay a greater claim to the Truss inheritance than Sunak has.” Rachel Reeves is one of the only politicians who is brave enough to buck modern poltics’ anti development zeitgeist, using a keynote speech last year to describe “cranes going up” as “a sight we have not seen often enough in our country.” Can you imagine a shire Tory or Lib Dem saying such a thing? The Labour Party’s slogan has even become “build a better Britain”.

Could today’s Labour Party really be more free market on this issue than the Conservatives?

The Times’ tenacious columnist and Red Box editor Patrick Maguire has picked up a what appears to be an understanding from those in Starmer’s inner circle, that without planning reform - without overhauling Attlee’s Town and Country Planning Act - the mission for growth will be almost impossible to deliver.

Maguire quotes insiders saying growth ambitions and spending limits “will require us to be bold when it comes to things like planning”. He reports that “intensive development on the 50-mile Oxford-Cambridge Arc and a generation of new towns are all under discussion”.

Free market think tank world has long agreed if there is a single policy to best boost British growth it’s pushing ahead with the Oxford-Cambridge Arc, where hyper-productive (but struggling to physically grow) Oxford and Cambridge are linked up in an arc of growth boosting infrastructure; road, rail, labs, and housing. The road has already been cancelled, and the rest of the plan has seemingly recently put on ice by Michael Gove.

Delivering new towns and hubs of investment like the arc sounds like Sajid Javid’s Tory leadership pitch. It sounds like the promise of Liz Truss’s investment zones.

And it’s right. This isn’t untested theory, it’s been done before. Before pre-war rearmament muddied our GDP statistics, housebuilding was responsible for a third of the increase in GDP between 1932 and 1934. You only have to think about how many suburban family homes today were constructed in that famous 1930s semi-detached style to see the impact this burst of growth had on the country. As economic historian Nicholas Crafts explained a decade ago, the UK’s remarkable growth in the early 1930s “was not driven by fiscal stimulus; indeed it blossomed at a time of fiscal consolidation.” Thanks to the housebuilding boom, growth exceeded 4% per year.

So it is more than a little confusing and concerning that a socialist party - the party that was responsible for the post-war planning system that broke our housing market in the first place - appears to be taking on this deregulatory mantle.

As the Centre for Cities recently explained - the time the UK started to fall behind our European counterparts on housebuilding wasn’t the 1980s as so many erroneously point to, the crucial inflection point instead came in 1947. Using newly available data on housing that was collected after the Second World War by the United Nations, the Centre concludes that:

“Britain’s housing shortage began at the beginning of the post-war period, not at its conclusion.”

“Housebuilding rates in England and Wales have dropped by more than a third after the introduction of the Town and Country Planning Act 1947, from 2 per cent growth per year between 1856 and 1939 to 1.2 per cent between 1947 and 2019.”

Perhaps this iteration of the Labour Party really does want to repudiate its growth destroying past. After all Tony Blair undoubtedly benefited from his Conservative predecessors dismantling many of Attlee’s other nationalisations. And never reversed those decisions.

To some extent, everything Attlee did to wreck our economy has now been reformed or mitigated - other than his Town and Country Planning Act.

Despite fighting the utility privatisations at the time they took place, Labour was happy to reap their benefits later on. Indeed, despite fighting Thatcher’s decision to end state subsidies for inefficient and uneconomic coal mines in opposition, in government Labour benefited from someone else having ripped off that plaster.

Tony Blair made a passionate defence of his decision to hold the top rate of tax down at 40%, not so long after his party had fought against Nigel Lawson’s decision to reduce it to that level. Blair even made the NHS less bad by increasing market involvement within the free at the point of use system at the same time as injecting extra cash.

Perhaps the Labour Party’s principles will be equally flexible when it comes to planning reform. But this is the Labour Party we are talking about. Just as many were convinced the party’s Clause Four moment had changed it forever, it wasn’t long before the militant tendency took hold again.

And let’s not forget how Labour, and Sir Keir himself, fought planning reform tooth and nail as “a developer’s charter” less than two years ago. How damascene is his conversion?

On the one hand, it seems of particular note that some among the new generation of Labour MPs really get this issue. Andrew Western won the safe Labour seat of Stretford and Urmston in December’s by-election. In his maiden speech this year, Western highlighted that the issue with housing is one of supply, an understanding that apparently goes beyond Number 10’s, and fascinatingly quoted Winston Churchill in doing so.

“I shall simply say that our housing crisis is, at its source, a crisis of basic supply and demand, the answer to which, however much we tinker at the edges, can only ever be to build, build, build. And why? Because: “Housing is the first of the social services. It is also one of the keys to increased productivity. Work, family life, health, and education are all undermined by crowded houses.”

Those are not my words, but those of Winston Churchill’s Conservative party in its 1951 manifesto.”

He’s right. Tinkering is window dressing. Tinkering is often counterproductive.

But herein lies the uncertainty. As with all parties, despite some good MPs, there are other bad ones. Despite what the Labour Leader says this week, he has been happy to indulge NIMBYism before. His Shadow Housing Secretary Lisa Nandy has a shameful NIMBY past herself, campaigning against thousands of homes for her own constituents.

And here’s the rub.

The forces of the anti-growth coalition are strong. Not once, not twice, but three times have the Conservatives tried to deliver a more rational set of market reforms to our antiquated Attlee-era planning system. And three times the forces of stagnation have defeated them.

The Boles planning reforms were killed off in 2014.

The Jenrick planning reforms were killed off in 2021.

And Liz Truss was turfed out of office weeks before her supply side reform package - which most importantly included planning reform - could even be announced.

To return to economic historian Nicholas Crafts, and what he wrote in the pages of The Guardian a decade ago - of housebuilding putting rocket boosters under the British economy in the 1930s. His piece sadly, and presciently concludes with this sentence: “The directions for reforms which could re-create 1930s conditions are clear enough but, sadly, politically too difficult.”

If they get in next time, the Labour Party will have been out of office for a decade and a half. The institutional memory within the party of just how hard it is to deliver the detail of contentious policy will have faded. And one has to raise an eyebrow at the party responsible for burdening this country with what are amongst the harshest planning restrictions in the world, now suddenly declaring 'we are the builders.'"

If Labour wins a host of former Tory seats, will the new MPs be similarly motivated by the sharp elbowed campaigns of the letter writing classes? Lib Dem MPs certainly are. Will Starmer have the skill or inclination to avoid the ire of Janet, the CPRE, the RSPB, the Wildlife Trust, and all the rest of them. Or the balls to stand up to them?

It’s all to easy to forget Boris Johnson’s ‘Build Build Build’ speech of June 2020, promising “the most radical reforms to our planning system since the Second World War”. The Tories under Boris and Dominic Cummings promised to smash the system and get things done. That was until the system smashed them into submission a year later. And Jenrick’s Planning for the Future white paper was thrown in the bin.

And through this all we can’t forget that the Labour Party’s vague planning proposals were announced at the same time as their own inflationary mortgage guarantee scheme - Labour’s own version of Help to Buy.

Sir Keir is not Sir Tony. His past is nowhere near as modernising or consistent as Blair’s. Blair stood for his party’s leadership on a manifesto of modernisation. Sir Keir stood for his promising to keep the radical agenda of his “friend” Jeremy Corbyn.

Yet today, Sir Keir’s rhetoric on this issue is far more welcome than that of the Tories. Labour’s flirtation with supply side reform is interesting. If they actually went through with it in government, the positive consequences could be profound. But there remain deep questions of trust, commitment, and achievability tied to their purported plans.

We will need to see a lot more flesh on the policy bone before the election, and see it baked into a manifesto commitment if Labour’s planning reform proposals are to avoid going the way of all those attempts that came before them. Otherwise perhaps Starmer, too, will simply fall to the scythe of the anti-growth coalition.