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UK Housing: A Slave Market

In 1965 there were 3.5 people per house in the UK. In 2015 there were 2.6 people per house. In the last fifty years the supply of houses per person has risen abundantly by 23%. Population has grown but supply of houses has grown more.

The number of people living in each household has fallen by about 27% in the last fifty years to 2.3 per household in 2015, mostly because there are more people living alone now than there were in the past.

The combined effect of these two factors of increasing numbers of houses per person and shrinking families (households) is that the ratio of houses to households has not changed at all since 1965. In 1965 there were 11% more households than houses and there still are today.

These facts prove that the belief that house prices have risen because of overcrowding in the UK exacerbated by immigration is rubbish. It is a popular myth but no less false for that. It is not the explanation for why house prices have gone up in the last 50 years by a factor of 66 instead of the factor of 17 that inflation alone would account for.

Relative to income houses have become dramatically less affordable in the last 50 years for the average person. Meanwhile credit markets have got much deeper. As a result, despite the fact houses are four times more expensive by ratio to income, 49% more people owned houses in 2013 (64%) than in 1965 (circa 43%). Not only is there less overcrowding than there was fifty years ago, there is also more security of tenure.

If the basics of supply and demand and security of tenure are not putting pressure on house prices then why have UK house prices gone up by a factor of 66 in the last 50 years?

The reason is that the residential land and buildings market in the UK is not a free market.

Capital gains on the sale of a primary residence are exempt from tax. Interest rates are artificially low. Then there is the planning system; these are three reasons.

In their 2010 report for the Department of Communities and Local Government, Doctors Hilber and Vermuelen calculate that between 15% and 25% of the price of a building is a function of builders being constrained by the planning system.

I calculate that 22% of the price of land and buildings in 2015 is a consequence of easy borrowing and 25% is a result of capital gains tax exemptions, only 33% of the price of land and buildings being a result of supply and demand.

Had the market been free the average price of a house in 2015 would not be the £190,000 it is (Nationwide Building Society) but would be £63,000 instead. If so, house prices over the last fifty years would still have risen faster than inflation but only by 30%, not by 200%. This would have meant that by now, say, 88% of households would have been able to afford to own their own house. For those who could not, renting would be extremely cheap.

It might be thought that if no public housing had been built in the last fifty years we would have fewer houses per person than we had in 1965. This view takes no account of publicly subsidized building crowding out the private sector. With a combination of more private supply, and costs of 67% less, only a fraction of the 17% now in subsidized housing would need to be. The public purse could pay for this group to be housed in private housing without needing council tax and business rates to pay to build that housing.

Since 1965 residential land and buildings have acted like a gravitational force upon the nation’s capital which now tends, all other things being equal, to flow towards them. This is bad. Primarily, because it distorts the free market in capital and so makes the economy inefficient. In recent years it has also meant that land and buildings, even with deeper credit markets, are becoming beyond more people’s means (64% of households were owner occupiers in 2013 as opposed to 68% in 2001).

A free market in private property would systematically expel capital out of land and buildings into the general economy but in a gradual manner not catastrophic for most owners.

An arbitrary and inefficient land economy has survived and thrived because it serves two powerful vested interests: the 64% of Britons who live in owner occupied housing and the government who has kept the cost of paying the interest on its borrowing down by artificially low interest rates and quantitative easing.

1) A free market in land and buildings would reduce our exposure to debt inflated bubbles because borrowing would be harder to get.

2) A free market in land and buildings would lower the real price of land and buildings, making them hugely less expensive relative to people’s incomes over the next fifty years.

3) A free market in land and building would result in more efficient use of the nation’s capital and so make the nation richer.

Where do the political parties stand on setting the land and buildings market free?

Labour’s anti-little-old-lady policy aims to tighten the shackles on the property market even further by controlling rents. Controlling rents will push buildings to be withdrawn from the rental market as renting becomes uneconomic. This will cause the price of buildings to rise (as there will now be fewer of them on the market worth investing in) with the especially arbitrary twist that profits from capital gains will therefore increase relative to profits from renting, accelerating the shrinking of the rental market further. The net effect will be that the poorest 20% of people, who typically rent, will find it harder to do so and perversely some will end up on the street. Labour’s policy is to protect the poor but it will have the reverse effect.

The Conservatives are also enemies of a free land economy. They have, for example, allowed social housing tenants to buy their own houses at a massive discount under the “Right to Buy Scheme”. Sadly, all these Conservative pounds showered on the housing market (in the form of discounts) will only drive up prices as will the ever tightening Conservative screws of regulatory control over property managers and landladies.

Conservatives, Labour, Liberals and Greens are all competing with each other to promise to build hundreds of thousands of houses at immense cost to the Public Purse of, say, £7 billion per hundred thousand homes.

I call on UKIP to instead get behind a free market in land and buildings (by repeal of the 1947 Town and Country Act, by abolition of capital gains tax relief on the sale of primary residences and by reform of the Bank of England and the mechanisms of monetary policy) so as to strike off the land economy’s chains.

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About Aidan Powlesland (9 Articles)
I am an entrepreneur. I stood for parliament for UKIP in the general election in Harrow East in 2015 the year in which I became funding Officer for the Suffolk South constituency.

14 Comments on UK Housing: A Slave Market

  1. Robert Stephenson // November 23, 2016 at 1:14 pm // Reply

    Why should PPR Relief inflate house prices? It does not seem clear to me why that would be the case.

    Is there not the possibility that abolishing PPR Relief would incentivise homeowners to stay put, not putting their property on the market to avoid CGT, thereby restricting the supply? We can observe the same effect with Stamp Duty.

    • Aidan Christopher Ulrich Powlesland // November 24, 2016 at 12:17 pm // Reply

      Dear Robert,

      In determining whether there is a shortage of supply relative to demand the volume of supply is neutral without also knowing the volume of demand. For example, if there is a volume of 100 houses transacting and 120 potential buyers the upward pressure on price is 20/100 whereas if the volume is 1000 houses transacting and the number of potential buyers is 990 there is a downward pressure on prices of 990/1000 even though he volume of transactions is far greater in the second case.

      By contrast to the set who own, the segment of the 36% who do not own, but who are would-be buyers, would not be discouraged by the ending of the tax relief from selling as they have nothing to sell but their level of demand would be diminished by the ending of relief as alternative forms of investment become more alluring so among this set supply (0) would remain the same but demand would diminish. Your interesting observation makes the point that pressure on the housing market would be most relieved from the bottom (those who do not own) up but does not, of itself, show that pressure on supply would increase.

      At the end you write “We can observe the same effect with Stamp Duty”. This might not be so.

      Your proposition is that raising Stamp Duty has increased prices but the evidence is that the rate in increase of house prices has fallen with the introduction of increasing Stamp Duties. Measuring this is certainly not straight forward (and this applies whether your observation is right or wrong) because of other very likely larger factors at work and because Stamp Duty is a complicated tax frequently changed.

      However let us attempt a back of the envelope analysis focused on average houses which is to say those priced between £125,000 and £250,000. Prior to 04-Dec-14 stamp duty on these houses was 1%. Since 04-Dec-14 the duty has doubled to 2%. In the 2 years 04-Dec-14 to 04-Dec-16, since the tax increased, house prices in the uk have risen from circa £190,000 to circa £200,000 so about 5%. In the two years 04-Dec-12 to 04-Dec-14, before the tax increased, house prices rose from circa £170,000 to circa £190,000 so circa 12%.


  2. Interesting article this one. About fifteen years ago, I calculated a regression line to identify the long term trend in property prices. I calculated that over a period of one or two hundred years the long term trend was for prices to increase by one percent above inflation: now look what’s happened.

    Immigration is undoubtedly a contributing factor to current property prices, but when you look at the numbers closely, you open up a can of worms.
    Historically property hasn’t been a particularly good investment, but now it’s driven by speculation and a whole variety of other factors that I don’t have time to write about here. There will always be a demand for property, it’s not the property market that’s in question.

    The banking industry is heavily dependent on property and has an interest in maintaining prices, when you look at the numbers now, they are mind boggling. Yes the property market is healthy, I’m not sure about the financial markets that support it though, it’s now as divorced from fundamentals as the stock market. I won’t make any predictions but things are getting interesting.

  3. Thinnish Free-Thinker // November 21, 2016 at 12:03 am // Reply

    If we go back even further in time, we’d probably find that there were 15, 16 or 17 people per house in the UK — Victorian slums. But who would want to go back to that? Rachman-style landlords, perhaps?

  4. Does the 2.6 people per household in 2015 include immigrants living in garden sheds as recently exposed especially in London and illegal immigrants living in households and therefore not included in census and registering to vote?

    • Aidan Christopher Ulrich Powlesland // November 22, 2016 at 11:28 am // Reply

      Dear John,

      Perhaps not, but if not and we added to the figure the UK’s 1.2 million illegal inhabitants it would rise from 2.6 per household to 2.65.


  5. This article is a load of smoke and mirrors.
    The idea that the huge increase in population ( yes, caused by mass uncontrolled immigration ) is not a causative factor in the increase in house prices is just absurd.
    Laws of Supply and Demand are the first thing economics students learn about.
    Even today housing is more affordable in the north of the country than in the south, the latter having borne the brunt of the immigration pressures. ( Whereas interest rates and all the other stuff cited are the same north and south.)
    Housing supply is an unique phenomenon in that there is an absolute limit to the amount of land available for builders to build on. ( Cf the supply of motor cars / washing machines .)
    Yes it is further restricted by green belt controls, but those are rational and genuinely needed to stop the whole country from being concreted over.
    The green belt is already being eroded anyway, under the extreme pressure to release land for housing.

    • Aidan Christopher Ulrich Powlesland // November 22, 2016 at 11:20 am // Reply

      Dear Rhys,

      Thank you for talking the trouble to blast my article with your frank rebuttal of it as a load of S&M.

      If numbers of people and numbers of houses were the only two factors at work then, with far more houses per person now than in 1965, prices would naturally have fallen, in real terms, the opposite of what they have done. This proves that other factors combined together are even more important.

      What I could have said, which might not have provoked you so much, which I did say in the detail, was that circa 35% of the price of houses was a result of population growth exacerbated by immigration but if I had put it that way I might not have prompted you to write the interesting reply that you did and the presumption that 35% of the cause was more like 100% of the cause would have gone unchallenged.

      Net immigration into the UK since 1965 has raised UK population by circa 4.2 million (2 million immigrants, plus 1 million offspring net of deaths, plus 1.2 million illegal immigrants including offspring net of deaths). Let us suppose that 6.5% fewer people would have had a disproportionate ,13%, price decreasing effect then we could calculate in turn that prices would have been 4.5% lower without migration. This would have knocked £8,600 off the price of an average house in 2015 and so is by no means unimportant but still makes migration a fifteenth as important as the factors I have quantified.

      I was not arguing against the power of supply and demand. Rather I was quantifying how low interest rates, tax breaks, planning law and people choosing (or having) to live alone contribute to supply and demand relative to supply and demand excluding these factors.

      My article did not attempt to focus on what should be put in place of the 1947 Town and Country Planning Act but a more bottom-up-system for resolving conflicts of interest in land use could well result in a more robustly defended green belt.

      Personally I do not think that 25 million dwellings is the ideal number for 65 million people. On the contrary, the three changes I argue for would have the effect of increasing the supply of houses at the same time as decreasing their cost. If that is smoke and mirrors than deliver me from the light.


  6. Thinnish Free-Thinker // November 19, 2016 at 11:28 pm // Reply

    Is this the Aidan Powlesland who, on 3rd January, 2014, was served by the Health and Safety Executive with an Improvement Notice because of his failure to produce a current Landlord’s Gas Safety Record dated within the previous twelve months for one of his properties? (Check it, it’s on the Internet.) An entrepreneur, he says, and one who wants the system changed so that it will “lower the real price of land and buildings” and sees the 64% of Britons who live in owner occupied housing as a “vested interest”. Not that you have a vested interest in such a change, of course, eh, Aidan? Well, glad I didn’t put a cross against his name on the NEC ballot sheet — assuming it’s the same guy, of course. Perhaps you would care to enlighten us, Aidan, one way or the other?

    • Aidan Christopher Ulrich Powlesland // November 22, 2016 at 12:23 pm // Reply

      Dear Thinnish Free-Thinker,

      It is I, and unashamedly so.

      When the Gas Safety certificate was produced later than it should have been it found that my late mother had had built, for aesthetic reasons when she was living in the house you draw attention to, little walls on three sides, about four courses high and seven bricks long, around a boiler vent. These little walls breached the regulation (because they were too close to the vent) but had the boiler leaked gas the walls would not have constrained venting. In line with the regulation the twenty eight harmless bricks were duly removed and I was duly fined. My point is not that I was fined for something that for forty years had done no harm, nor that the requirement to produce such certificates is an example of health and safety madness. My point is that late production of a certificate does not touch upon such truth as my arguments about housing command.

      You are right that I am arguing for a shift in the balance of economic power from those who own land to those who do not and as you yourself are sensitive of most of us are in land owning households. However, even if you do not agree with me that this shift would be good you have no reason not to accept my testimony as to why I advocate it. The reason is to create a wealth. More wealth would be of benefit to those who own land and those who do not equally.

      The reason to seek a free market in the land economy, as to seek one in general, is to create as much wealth as possible. Whether or not you agree that a free market would have this effect you could be so generous as to allow I do.

      You are also right my household is one of the 64% that own land and buildings but you were confused about cause and effect. Were my motive self-interest I would have to be opposed to the three changes I advocate since they would bring the real cost of housing down. My self-interest would be better furthered by the cost of houses going up. So for self-interest I would have to advocate tighter planning controls, negative interest rates and greater tax breaks for house owners – the opposite of what I argued for.


  7. I always thought that house prices were controlled by interest rates. So when George Brown brilliantly gave control of interest rates to the bank of England to look after inflation the control on house prices was removed. House prices have continued to rise as interest rates have fallen because mortgage repayments have been cheaper.

    Added to that the banks started exceeding the 3 times male salary + 1x wifes salary, so more money was available. The prices rose in sync with the available finance.

    Since the 2008 crash that has been cut back and it has left the prices too high and too many people not able to get on the housing ladder.

    Now that the boom generation have become pensioners and are not getting decent returns on their money they either help their children get a mortgage or buy houses to rent out. Good old George Osborne though spotted that and brought in increased stamp duty on anyone buying a second home or helping to fund a descendants home. The returns in rent from an investment in property is still way better than putting it into any form of savings scheme though. While the boom generation keep investing in property it will hold its high price. Once they die out and the money is gone the bubble must burst.

    • Aidan Christopher Ulrich Powlesland // November 21, 2016 at 1:08 pm // Reply

      Dear Anthony.

      If the government were to lead interest rates into negative territory to any substantial degree, to over-regulate the market further (for example by controlling rents) or to feed the many headed hydra of planning regulations even more and if people were to favour living alone even more strongly, or all four, then the bubble, unless the prospective population decline which you are right to draw attention to were dramatic, would tend to inflate even further.


  8. That’s interesting. I’d be interested in comments on two of my views about housing cost, both based on the principle that increasing the money supply tends to lead to inflation:

    1. That house prices are as high as they are driven in large part by the availability of large mortgage loans intended to be serviced by two incomes, the main beneficiaries being not householders but lenders, property developers, estate agents, etc.

    2. That housing benefit leads to increases in rent, the main beneficiaries being landlords, not tenants.

    In respect of the first point the year 1965 is particularly interesting to me. I was born in 1965; later that same year my parents bought, on a mortgage funded by my father’s wage, the house in which my widowed mother still lives. Although my own working career has been in positions that pay more, in “real terms”, than my fathers’ job, there is no way I could have afforded a house like my childhood home.

    • Aidan Christopher Ulrich Powlesland // November 21, 2016 at 12:35 pm // Reply

      Dear Simon.

      Thank you for your comment on my article on housing.


      My analysis suggests that circa 20% of the price of houses is attributable to tax breaks. If so then the availability of credit would account for circa 25% of the price of houses.

      An alternative way of looking at it would be to use the Bank of England’s estimate as to mortgage holders free cash flow to calculate that about 10% of property owners would have to sell if base interest rates reverted to the fifty year mean suggesting that at least 10% of the price of houses is due to the availability of credit.

      A third approach would be to weigh the fact that although prices in real terms have quadrupled in fifty years a 50% larger proportion of all households own houses than did in 1965. This suggests that the availability of large mortgages causes at least 33% of the price of a house and at most as much as 50%.

      An average of the three approaches suggests that the relatively low cost and availibility of loans accounts for 10%-40%, say 25%, of the price of a house and possibly more. Exactly as you say, “in large part.”


      4.8 million households receive housing benefit but 3.3 million of these, or 68%, are renting social housing. The main beneficiary of housing benefit, other than the recipients, are not private landlords but local governments, housing cooperatives and other charitable providers of homes.

      Although some reports claim, in relation to the 1.5 million benefit claiming households that do rent from private landlords, that renting to benefit claimants is more profitable than renting to those who do not claim benefit, many landlords decline to let to benefit claimants which suggests that the problem with private landlords is not that they make too much money from benefit claimants but that too many landlords are afraid to try and make any at all .

      With 1.5 million benefit receiving households paying private landlords you must be right that housing benefit, which circa 20% of UK households are now in receipt of, raises rents but perhaps not by as much as would be expected because of the large role played in the market by social housing (17% of households).

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