Home truths: What George Osborne can't say about house prices...

The Chancellor can't turn the clock back to a time when people could buy a London property on a salary alone

John Rentoul@JohnRentoul
Sunday 15 June 2014 10:41

You want politicians to tell the truth? Well, listen to George Osborne. On Thursday night the Chancellor said: "The British people want our homes to go up in value, but also remain affordable; and we want more homes built, just not next to us." There, in 130 characters, is The Truth. We want incompatible things and, as Osborne went on to say, "You can see why no one has managed yet to solve the problems of Britain's housing market."

He made it as clear as he dared that there is a limit to what the Government can do – indeed, a limit to what people will let the Government do. This is one of those questions on which the gap between simple solutions and complex problems is at its widest. Usually, whenever the subject of house prices comes up, the response is to say, "Build more houses".

As if on cue, Ed Balls, the Shadow Chancellor, responded to Osborne's speech before he had even delivered it: "George Osborne is still failing to tackle the root cause of the housing crisis, which is that we are not building enough homes to match rising demand." Balls repeated Labour's promise of "getting at least 200,000 new homes built a year".

As Henry Mencken could have told him, "there is a well-known solution to every human problem – neat, plausible, and wrong". Building a lot of houses sounds plausible. But, first, what is the problem? Are house prices too high? Osborne pointed out in his speech that they are still lower in real terms than they were in 2007, and are expected to remain so "for some years to come". They are higher in London, but not in the rest of the country. That means that, if high prices in London are the problem, Balls's 200,000 houses a year should be built in London. Not so plausible, or neat.

High prices in London reflect people's desire to own property in London – including many people from abroad.It would be reasonable to say, although you can see why Osborne didn't say it, that the market will price people out of the capital and that market forces will drive jobs and people to other parts of the country.

Instead, Osborne took refuge in that other "neat and plausible" escape route: brownfield land. Why not build houses on urban sites that were once built up, or old railway yards and so on? Well, if it were that simple, it would already have been done and, in most of London, it has been. Osborne announced a new way by which local councils could give "pre-approval" for building on brownfield sites, but it would be surprising if that will make a big difference.

The longer version of The Truth that Osborne could have set out in his speech is that politicians cannot do much about the price of houses in Britain, and the even longer version is that we should not want them to. Some of the worst housing in this country was built in the 1960s when the political pressure to increase the number of units built each year was greatest. It would be lovely if 200,000 tasteful Victorian terraced houses could be built somewhere that people want to live and where no one lives already, but you do have to wonder whether it is possible and whether either Osborne or Balls could make it happen.

Even if lots of good-quality houses could be built in London, would it reduce prices much or for long? If such houses were successful, more people would want to live in London. It would increase the magnetic power of the city to attract immigrants from the rest of the country and from abroad. It is beyond a mere politician's power to turn the clock back to a time when normal people could afford to buy property in London with their salary alone.

Osborne presented himself as a man of action in his speech on Thursday, restlessly legislating for better regulation of the City and more prudent supervision of the housing market. But an unspoken bit of The Truth was that he was continuing the trend of politicians removing themselves from contentious areas of decision-making.

It started with Gordon Brown giving up the power to control interest rates in 1997. Then Osborne himself contracted out forecasts for the economy, public spending and taxes to the Office for Budget Responsibility four years ago. In the Mansion House speech last week, he made it clearer that he was shuffling off responsibility for anything that might go wrong in the housing market to the Bank of England's new Financial Policy Committee. In effect, he said: "I have given it the tools it needs if a house-price bubble gets out of control. So, if it all goes wrong, don't blame me."

He might as well have said, "No one has managed yet to solve the problems of Britain's housing market", and that he could not either, because they are insoluble. But there is only a small amount of Truth that people can handle at any one time.


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