David Cameron III

  

Dear David

I promised you proposals for Economic Action.

You are the only political leader in the vulnerable western economies who is breaking free from sterile debate

Twentieth century bumper sticker politics, simplistic, insulting even - Left against Right, Labour against Tory, Republican against Democrat.......

You stressed leadership in your conference speech.  I applauded all the way.  You meet the fabled Napoleon test.  You are lucky.  You hold  aces and trumps.  Play them.

At Manchester you named keys to growth.   High technology, research, development, and manufacturing are already powering ahead into the wider world, supported by our universities, Cambridge, Warwick, Manchester.......

Given wise regulation, banking and services will remain world beaters.

But at home for wellbeing, employment, growth, it has to be:

Housing     Housing     Housing

Economic and political history tells you that housing is a driver of domestic economic activity, growth, employment and wellbeing.  It is a fast acting multiplier. 

With Housing you really are lucky. 

Keep going now.

Here is why:

1. Although Britain has had a house price boom (bubble) we have not built enough let alone too many houses.  Just look at Spain, Ireland, USA; thousands, hundreds of thousands, of new or newish empty houses.  We have waiting lists.

2. Our population is forecast to increase by at least ten million in the next twenty years.  They alone will require at least 2,500,000 additional homes.

3. Sir William Woods’ work and the 1947 Town and Country Planning Act were effective for about twenty years.  They supported the post war recovery.  But the last forty years have left a chronic shortage, an obsolescent housing stock, a house price boom (or more accurately a bubble in the price of the land on which houses sit) and a frozen market place.

 

4. Britain has traditionally built houses cheaply to low technical standards, compared with say Germany, Sweden or Switzerland.   In order to meet today’s environmental demands and new and pending Building Standards, construction costs have to increase.  Thus, although your changes to planning regulations should decrease the land or site element of total prices to the historically viable level of around 20%, the increase in the construction costs will, over time, support the current average (boom level) price of houses. 

You spoke of Harold Macmillan, Supermac.   You as Supercam should set three clear targets:

• Build 300,000 new homes each year.
• Renovate, and bring up to current Building and Environmental Standards, 150,000 existing homes each year.
• Adjust the amount of housing available for rent to around 40% of total housing stock.

To achieve these targets you need some new tools and old principles:

1. All tenants, owner occupiers, landlords, builders and developers should operate on a single, fair, disciplined level playing field.  Rents and prices for an equivalent property should vary only because of differences in efficiency between one provider and another and one location and another.  Rents and prices should not vary because of some capricious and distorting political subsidy.  Rent Acts, 1915 onward, central planning, and prices and incomes policies are gone with the 20^th century.  The sun beats and the rain falls, wear and tear erodes, irrespective of public or private ownership.  The true risk adjusted cost of capital is the same for all.  Get real.  In 1946 everything was in short supply – except shortages and spivs. For food, clothes, cars, furniture, you name it, production and marketing was freed from the restraints of war and central planning. Today there is quality, quantity, choice, abundance.  Housing alone was left under Rent Act and central planning control.  Today we have housing waiting lists.   We have spivs subletting council houses.

2. The housing market is stuck.  Lenders won’t lend; buyers can’t buy; investors won’t invest because none has any confidence in current house prices.  In the middle, or long run, prices and costs and expectations will stabilise, see comment 4 above.  Right now, all are terrified of collapse and negative equity.  Current price levels need to be underpinned.  Announce immediately that VAT at 20% will apply on 80% of the price of new houses.  However this full rate should be levied in incremental steps of 4% over five years.  Use VAT to create expectation, confidence, action. 

3. Bring the VAT rate on all building materials and on approved renovations into line.  i.e.  Reduce to 4%, increasing back to 20% over five years.

4. Eliminate complicated, capricious and potentially corrupting Section 106 Agreements.  Pay Local Authorities annual capital amounts equivalent to the full 20% VAT on the new houses sold and the renovations undertaken in their areas.  Local Authorities will then have the incentive, the arguments and the cash to handle atavistic, NIMBY malcontents.  They will also have funding for new infrastructure.

5. The bricks and mortar, the roof and the increasingly complex heating, cooling and management systems of a house wear out.  They corrode and fail; they depreciate, just like almost everything else.  Only the land on which the house sits does not depreciate.  Lazy politicians, Her Majesty’s Revenue and Customs and NIMBY’s have been deniers.  Introduce standard cost, indexed, trade-able depreciation allowances on new houses and planning approved renovations.  As there would be a market for such allowances, buyers, especially first time buyers, would be helped to raise their deposit.  There would be a new, profitable and useful market for the finance industry.  Cash rich, income poor, buy to let, baby boomers would have a tax efficient investment opportunity in their own country.  They could invest safely and effectively, in the UK.   For the sake of their grandchildren, and other people’s grandchildren, let them do it.

6. National Savings and Insurance have stopped offering index linked bonds.   Apparently demand was too great.  The government has “no money,“ shoppers are skint, but lots of money is looking for a steady safe home.  To help fund the level playing field, create an England Housing Corporation.  Let it sell a £50 billion IPO bond issue to the Bank of England.  The rate of return on the bonds could be around 3.4% indexed to open market, national rent levels. (See action 1 above.)  Make a retail market for this and further bond issues. 

Octavia Hill (she was not only the founder of the National Trust, she also created a truly effective social housing movement) and Harold Macmillan got it right.  You can too.  The Left, the National Trust (shame on them,) the entrenched bureaucracy, the decent, but NIMBY, folk of East Coker, they are all yesterday’s men and women.  I want to move forward.  Most do.

Paws4Now

Jock