1

Dorling,D.andCheshire,P.(2015)VerbalEvidenceGiventotheSelectCommitteeonEconomicAffairs,London:HouseofLords,December15th.

Partiallyrevisedtranscriptofevidencetakenbefore

TheSelectCommitteeonEconomicAffairs

Inquiryon

THEECONOMICSOFTHEUKHOUSINGMARKET

EvidenceSessionNo.3 HeardinPublic Questions41-58

TUESDAY15DECEMBER2015

3.35pm

Witnesses:ProfessorDannyDorlingandProfessorPaulCheshire

USEOFTHETRANSCRIPT

1. This is a partially corrected transcript of evidence taken in public andwebcastonwww.parliamentlive.tv.

2. Membersnorwitnesseshavehadtheopportunitytocorrecttherecord.Afinalcopyofthetranscriptwillbepublicallyavailableinearly2016.

3. MembersandwitnesseswereaskedtosendcorrectionstotheClerkoftheCommitteewithin7daysofreceiptinlate2015.

1

Memberspresent

LordHollick(Chairman)BaronessBlackstoneLordGriffithsofFforestfachLordKerrofKinlochardLordLamontofLerwickLordLayardLordMonksLordTurnbull

_______________________

ExaminationofWitnesses

ProfessorDannyDorling(UniversityofOxford)andProfessorPaulCheshire(LondonSchool

ofEconomics)

Q41 The Chairman: Professor Cheshire and Professor Dorling, welcome to the Economic

Affairs Committee inquiry into housing. Youmay see some comings and goings from the

CommitteemembersbecausethereisaBankofEnglandBillontheFlooroftheHouseanda

numberofourcolleaguesareveryactiveinthedebateonthat. Iapologise inadvanceif it

looksabitlikearevolvingdooratsomestage.

2

Q42 ProfessorDorling, youhavewrittenabout theoverconsumptionofhousingand that,

crudely, we are occupying rathermore space thanwe need to occupy, and if that space

could be liberated and distributed it would address some of the demand problems for

housing. Could you just elaborate on that and, in particular,whatmeasures or steps you

wouldtaketoencouragetheliberationofthat—shallwecallit—surplusspace?

ProfessorDannyDorling:Thewaywecantellweareoverconsumingisbylookingatevery

census for the last 100 years, whichmeasured howmany people therewere, howmany

roomstherewereandthedistributionofpeoplebyrooms.Bythelastcensus,in2011,the

best-off1/10thofthepopulationhadfivetimesmoreroomsperpersonthantheworst-off

1/10th.Ithadshotupfrom1991.Thelasthighpointwas1921,sowehavehadanincredible

increaseininequalityandthedistributionofroomsbetweengroupsofthepopulation.That

isonewayoftelling.

This isanhistorichigh. Ithashappenedfor tworeasons.One isageing.Ourhousingstock

workedquitewellwhenpeoplediedintheir70sandworksnotsowellwhentheyliveinto

their80sand90s.Thereisalsoincreasedinequalityinincomeandwealth.Tacklingthatisa

muchlonger-termissue,butifyouhaveaveryeconomicallyunequalcountryyouwillhave

problemswithhousing,andwehavethebiggestincomeand,probably,wealthinequalities

inwesternEurope.

Shortterm,though,ahugenumberofpeoplearerattlingaroundinrelativelylargehouses

on theirownthat they findhard toheat,which theyare lonely in,and theywould like to

move,but there isnot suitableaccommodationnearby for them.Theywant tokeep their

friends; sooneway to reduce theoverconsumption is tobuildhousing for elderly people

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nearwheretheycurrentlylive.Theotherwayisanythingyoudothataffectshouseprices,

whichmeans that somebodysitting ina largehousedoesnot think that thevalueof that

housewill carry on rising, and the longer they hang on in there on their own, themore

moneytheywillbeabletogivetotheirchildrenandgrandchildren.Sothere isaperverse

incentivetostay inahousethattheyfindhardtoheatatthemomentbecause itbenefits

theirwider family.Weneedplacesnearby forpeople to go tobecause theywant to stay

near to their friends. You cannot simply say, “Can the elderly move out of the more

productivecitiesandbemilesaway?”.Their friendsarenearby, sowedoneedplaces for

themtogo.Longerterm,youcandothingslikephasingouttheallowanceforsinglepeople

where theypay less council tax. That is another incentivenot tooverconsume,but it is a

phasingoutthatisneeded.Youdonotwanttodoanyofthesethingssuddenlyforpeople.

TheChairman: So the first stepwouldbe tobuild suitablealternativeaccommodation for

older people nearby and then you would take out the single-person discount, and that

wouldprovideataxincentiveforthemtomove.

ProfessorDannyDorling:Yes.Onekeythingaboutsuitableaccommodationisthatitcanbe

apartments. Itmustnothave stairs.Asweage,we reallywant to get away fromhousing

withstairs.Forthebaby-boomgenerationbornafterthewar,therewillbeanawfullylarge

number of people who are going to find stairs very difficult. We just do not have the

bungalowsforthatpopulation.

TheChairman:Ifthereisalatentdemandforthesehouses,whyaretheynotbeingbuilt?I

thinkthereareoneortwospecialistcompanies,suchasMcCarthyandStone,forinstance,

whichfocusonthatmarket.Ifthereisalatentdemandthere,surelytheywouldhavesought

tomeetit?

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ProfessorDannyDorling:Thehousingmarketiswonderfulforshowingyouhoweconomic

models donotwork inpractice. You canmakeabiggerprofit building so-calleddetached

executivehousingforfamilieswithtwocar-parkingspaces.

Q43 Baroness Blackstone: Who do you think, then, should be building this appropriate

accommodation for elderly people tomove into? If the private sector is not fulfilling the

demandsofthemarket,wheredoyouwantthistocomefrom?

Q44

ProfessorDannyDorling: Itwould be very good if a lot of itwas rented. Aswe age, and

becausethediseasesofwhichwearedyingarechanging—sofewerheartattacksandmore

long-termillness—wearelikelytohavetocascadethroughaseriesofpropertiesinourold

age. Youare looking, ideally, at a rented stock inmany cases. Then it is awhole rangeof

providers. I quite likenew townmodels.Housingassociationsare finebutwedoneed to

planforageing.Thatmeansthattheideayoustayinthehouseofwhichyouareanowner-

occupierintoyour80sand90sbecomesdangerous,becauseyoucansuddenlyfindthatyou

cannolongerusethathousebutyouthenhavetodealwiththesale.Ofcourse,thepointof

being an owner-occupier is that you can fix the house yourself—you do not require the

landlordtofixit—butyourabilitytogetupaladderandfixthingsdiminisheswithage.We

arenotpreparingourhousingfortheageingthatistocome.Thebaby-boomyearwas1946-

47,soyouneedtothinkaboutthatparticularagecohort.

Baroness Blackstone:May I just add to that? Housing associations are doing this but, at

present,onarelativelysmallscale.Theyareabletostartoffwithindependentlivingandno

extracareatallandmoveintoadditionalcare,oftenstayinginthesameaccommodation.It

doesnothavetobeabungalow,either.Itcanbeinaniceapartment.

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Professor Danny Dorling: Yes. Apartments aremuchmore efficient than bungalows with

this.Thereareexamples.TheJosephRowntreeHousingTrustinYorkdoesaverygoodjob

onthis.Bournevillehasawholecascadedownthehilltothenursinghomeatthebottom.

Wehaveaprobleminthatweseehousingassociationsasprovidinghousingforaparticular

economicsegmentofsociety,forpeoplewhoareworse-off.Untilwegetawayfromdefining

our tenuresbyhowwealthy,averageorpooryouare,wewill continuetohaveahousing

crisis.Thisnewhousing isgoing tobeneeded foreverybody, irrespectiveofwhether they

wereearninghighorlowduringtheirlife.Youalsogrowalotmoreincommonwithother

peopleasyouageandsuffermoredisabilities,butwehavethismodel.Wehavemovedtoa

modelwhereweseecouncilhousingashousingforthepoor—itwasnotbuiltlikethat—and

housingassociationhousingashousing forpeoplewhoarenot thatwell-off,andthenthe

privatesectorshouldlookaftereverythingelse.Thisisamodelthatisgoingtodisbenefitthe

babyboomers,particularlythemiddle-classbabyboomers.

LordTurnbull:Ihavesomeproblemwiththevocabularyhereof“overconsume”.Wedonot

talkaboutanoverconsumptionofcars,althoughweallhavemuchbiggercarsandmorecars

per family. We do not talk about an overconsumption of food, although we certainly

overconsume that, but we do not make it a policy problem; but you are quite near the

answer,whichisthatweoverinvest.Whathashappenedinrecentyearsisthathousinghas

becomeaninvestment—thisprobablysolvesyourproblem—andpeoplearenotbuildingso

manycustom-builtpropertiesfortheelderlybecausethedemandisnotstrong,anditisnot

strongfortheotherfeaturethatyouhavementioned,whichisthatpeoplehangonforas

longaspossiblebecausetheyarenotconfidentthatthereareotherstoresofwealth.Ifthey

downsizeandturnitintocash,whatonearthdotheyputitinto?Theannuitymarket,which

wouldhelp thempay the rent,hasbeenshot topiecesaswell.The financial incentive for

people tostay in thesehouses, I suspect, isprobably thepointofentry into thisproblem,

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ratherthanthinkingthat,somehoworother,theyhavetotax.Itisabouttaxation.Itisnot

abouttaxationofoverconsumption,butitisoverstimulationofinvestment.

ProfessorDannyDorling:Yes.Speculationisthemainissue.Thepointabouttheuseofthe

word“overconsumption”isthatlandisfinite.Ifyouaretakingupacertainamountofspace

intheCityofLondon,thatdoesnotallowotherpeopletodoit,whereaswithmanyother

goods you are not curtailing other people’s opportunities by your consumption. It is the

effectsonothers. If Ihadfivehouses—theLondonflatImightuseoccasionally,theonein

OxfordIusewhenIamteaching,thefamilyhomesomewhereelse,aholidayhomeandso

on—thatwouldcauseanindirectdisbenefittothepeopleinmanyofthoseareaswhocould

not live in thoseplaces. Youneverwant to forcepeopleout. Youwant toprovidepeople

with theopportunities tomovewhen theywant todo it. Loneliness is oneofourbiggest

problems inBritain.Thedanger is thisoverconsumptionof toomanyhomesbya fewand

homes thataremuch larger thanourneeds.Supposeweeventuallygetasituationwhere

housepricesoflargepropertiesbegintofallgradually,inwhichcaseitbeginstomakesense

tosell.Thefasteryoumoveoutofyourhouse,thebetteroffyourchildrenwillbe,butthe

difficulty is hanging on to a house that is declining in value because people do not have

somewheretogo.Theotherdisbenefit isthat,withprivaterenting,youcannottrustwhat

the landlord will do with the rent, and you have no way of increasing your income as a

pensioner,ornotinaneasyway.

TheChairman:ProfessorCheshire,doyou think thatProfessorDorling ison to something

here?

ProfessorPaulCheshire:Intheoverallbalanceofproblemsinthehousingmarket,thisisa

very small component. I tend toagreewith LordTurnbull that it is confusionof thisneed

conceptthattendstodrivetheamountof landthatweprovideforhousingwithdemand.

7

Theproblemwehave is that theallocationofhousingspace isdeterminedbydemand,as

onewouldexpectinamarketeconomy,butwearedeterminingthesupplyby,essentially,a

fiat.Therearesomedisincentives tomobility,andstampduty isoneof them.Somequite

rigorousresearchshowsthatstampdutythresholds,andnowjuststampduty,reduceshort-

rangemobility.Itdoesnotseemtohavemuchimpactonlonger-rangeinter-labourmarket

mobility, but on people downsizing to a smaller house it appears to have a statistically

significantbutrelativelyunimportanteffect.Theotherthingisthewaythatwetaxproperty.

Counciltaxhasmanydisadvantages,oneofwhichisthatyouarenottaxedonthebasisof

thevalueofyourhouse.Somethinglikeasitevalueoralandvaluetax,whichwouldproduce

anincentivetoreuselandformoreefficientpurposesmorequickly,wouldbeanadvantage.

Again, it is relatively small potatoes in the overall problem that we have with housing

affordabilityandhousingavailability.

Q45 Lord Lamont of Lerwick: Imeant to ask about immigration, but I think I knowwhat

ProfessorCheshire’sviewonthatis.Youjustrepeateditbysayingthatyoudonotthinkitis

themostimportantproblem,ifitisaproblematall,because,asIunderstandit,yourviews

are that the shortage is caused by planning. If I might, I would like to ask a couple of

questionsinsteadaboutplanning.Ireadanarticleyouwroteinwhichyoupraisedtherule-

based systemof planning as in continental Europe or theUnited States,where there are

planscoveringlocalcommunities.Wouldyouliketoenlargeonthatandsaywhyyouthink

the whole basis of the British planning system is wrong? You refer to countries such as

SwitzerlandorGermanyhavingmoresensiblesystems.Couldyoutellushowtheplanning

systemcouldbealteredtoreleasemorelandandaffectthepriceofhousing?

Q46

ProfessorPaulCheshire:MayIjustmakeonepointonpopulation,whichcomesbacktothis

earlierpointaboutwhatdrivesdemand?Theissueisthatthereisadirectdemandforoneof

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the important attributes of housing,which is space in them, and that is very sensitive to

incomes.Theincomeelasticityofdemandforspaceinhousesseemstobe,accordingtomy

estimatesatanyrate,aroundtwo,so,aspeopleget richer, they try tobuymorespace in

houses;butwehavebeenprovidingon thebasisofpopulationandnot real incomes.We

havebeensystematicallyunderprovidinglandforhousingeversincewesetupthesystemin

theearly1950s.

Withrespecttoyoursecondpoint,again,thisisnotgoingtotransformourproblem,butone

of the problems with our system is that it injects additional risk into the development

process,becauseyoudonotknowwhattheoutcomeofadecisionisgoingtobeinadvance

and it becomes politicised. As we have development control rather than a zoning or a

master-planningsystem,youhavetowaitforthepoliticalprocesstodiscoverwhetheryou

aregoingtobeabletodothedevelopment.

I was on a platformwith the Secretary of State for the Department of Communities and

LocalGovernmentaboutayearago—and Iwasvery impressed—whereheentertainedus

withananecdoteofhisfirstexperienceofmakingdecisionsinthedepartmentin2010.An

appealcametohimthathadbeenrightthroughtheprocess.Ithadspentaboutfiveyears

gettingthere,anditwasforamedium-sizedhousingdevelopmentinanurbanareawhereit

was agreed that the plan said that there should be housing. It had been rejected at the

borough levelbecauseaparticularmember,whowasan influential localmember,didnot

wanttheopprobriumofhavingagreedtothisdevelopmentwhentherewaslocalopposition

to it, but was quite confident that it would be passed through the inspectorate.

Unfortunately,the inspectoratedidnotpass it,so itwentuptotheSecretaryofState.So,

almost the first decisionby the Secretaryof State, according tohim,was to agree to this

development going through the system. That had taken something like five years and an

enormousamountofresourcesintheformofplanninglawyers,appealsandsoon,butthat

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isthetipoftheicebergthatyoucouldmeasure.Thebitthatyoucannotmeasureisthefact

that itmakesalldevelopmentmoreriskysothere isariskpremiumthathastobeadded.

Becausedevelopmentisquiteariskyprocess,youhaveexpectedfutureflowsofincomeand

costs,but theyareexpected,and, if you increase the risk, you increase thenecessary risk

premium for projects to become viable. Making decisions in the way that we do, in

contradistinctiontomuchofcontinentalEuropeortheUnitedStates,meansthatwehave

nocertaintyintheoutcome,whichhastheeffectofmeaninglessdevelopmentand,intotal,

lessgetsbuiltbecauseyouhavethisadditionalriskpremium—

LordLamontofLerwick:Butdoesarules-basedsystem,asyourefertoit,meanthatpeople

do notmake planning applications but they just put upwhat they think accordswith the

rules,andthenifsomeonesays,“Pullitdown”,theyhavetopullitdown?Isthatwhatyou

areadvocating?

Professor Paul Cheshire: No. For example, because housing in Britain is so expensive, I

import my recreational housing services from France. France has a rules-based system. I

wantedtogreatlyincreasethesizeofthehousesoIsimplyreadwhatthelocalcommunity’s

planswere,Ilookedatlocalbuildingregulations,Igotanarchitecttodrawupproposalsthat

conformed to those requirements and it took 13 days to get permission to do it. That is

inconceivable in the British system. It was a perfectly democratic process in that the

communehadadaptedalocalplanthatsetupwhatcouldbebuiltwhereandwhattherules

were. Isimplywasabletodiscoverthoserulesrelativelyeasilyandaskforsomethingthat

wasinconformitywiththoserules.

Q47 LordLamontofLerwick: InyourarticlethatIread,youareprettyscathingaboutthe

greenbelt.Yousay:“Thefinalmythaboutgreenbeltsisthattheyprovideasocialoramenity

benefit.Thereality is thatachild inHaringeygetsnowelfarefromthefactthat fivemiles

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away in Barnet, there are 2,380 hectares of greenbelt land; or in Havering over another

6,010 hectares”. You lay stress on the fact that a lot of the green belt is just intensive

agriculture,whichyousayisnotreallyenvironmentallyimportant—wewillleavethatpoint

aside—butwedoneedagricultureanyway.Ijustwonderwhetheryouarenotdownplaying

thegreenbeltabitmuch.

Q48

Someonecommentingonyourarticlesaid:“Ithinkyou’rebeingalittledisingenuous,Paul.

Noneoftheargumentsyouput‘for’greenbeltshaveeverbeenargumentsforgreenbelts…

Theonlypurposeofthegreenbelt istostopcitiesexpandingforever”.Whenyoucontrast

thewaythatplanningoperatesinsomepartsoftheUnitedStates,asIhaveseen,orinJapan

withtheribbondevelopment,Iwonderwhetheryouarenotunderestimatinghowplanning

isvaluedbythepopulation.

Professor Paul Cheshire: I certainly would not advocate that one should build regardless

anywhere,becausethereareclearissuesofmarketfailureinlandmarkets,andoneneedsa

system of planning land-use regulation to control for those. Obviously, one needs to

preserveareasofoutstandingnaturalbeauty,parkland,areasthathavepublicaccess,sites

of special scientific interest, areas of water catchment, et cetera. One certainly does not

wanttobuildeverywhere,regardless.OneoftheproblemsthattheUnitedStateshasisthat,

unless one is aware of the details of how systems work, one is sometimes misled. For

example,AmericanurbaneconomistcolleaguesofmineclaimthattheBayareaisbuiltout.

ThereisnospaceforanymorehousesintheBayarea,whichis,theysay,thereasonforthe

highpriceofhousingintheBayarea—anditis.However,ifyoustandonGoldenGateBridge

and look northwards toMarin County, you are looking at a community where there are

minimum lot sizes of 60 acres. One of the problems in the US is that they have these

enormous exclusionary zoning processes, essentially,where they haveminimum lot sizes.

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Forexample, inPhoenix,Arizona,many communitieshave10-acreminimum lot sizes and

somehave25-acreminimumlotsizes.Thereyouhaveasystemofregulationthatproduces

theexactinverse.Oursystemproducespeoplejumpingacrossthegreenbelt.Ifyoulookat

amapofwherethehighlyskilledwhoworkincentralLondoncommutefrom,theycommute

from all over southern England, even from Norwich, Bournemouth and certainly from

Oxford.

ProfessorDannyDorling:WehavepeopleinOxfordjumpingoverthegreenbelttoLondon.

Oxforditselfhas40,000peopleeverydaydrivingacrossthegreenbelttocomeinforjobsin

Oxford. You must have a measure about when a green belt has failed to be green. The

Oxford green belt, which in some places is just two miles from the city centre, so it is

incrediblytight,ishelpingproduceanenormousamountofpollution.Youcouldbuildround

Oxford away from the river plains within cycling distance of the centre, which would be

muchmoregreenthanhavingagreenbeltthatisnotgreen.

ProfessorPaulCheshire:Wearespending£18billiononCrossrail,which isgoing tobring,

say, Taplow or Iverwithin 35 or 45minutes of central London, but you cannot build any

housesthereatall,althoughsouthofTaplowthereisalotofnotveryinterestingintensive

agriculturalland.Only1,500peopleliveinTaplow.IfyoulookatIveronGoogleEarth—Iwill

notgoonthepublicrecordaboutthequalityofthelandaroundIver,butitisinthegreen

belt—there is room there for, probably, 50,000 houses, which would probably be an

environmentalimprovement.

Q49 LordGriffithsof Fforestfach: For the sakeof clarity, Iwould like toask thequestion

thatmy colleaguenever askedbecause I amnot sureof the answer, not having read the

pieceyouwrote.Whatistheeffectoftheimmigrationthatwehaveseen,particularlyinthe

last10yearsorso,onthehousingmarketintheUK?

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Q50

ProfessorPaulCheshire: IwasatameetingwiththeGLAthismorning,soweweretalking

aboutLondon.TakeLondonasanexample,becauseIwasdoingmyhomeworkonLondon.

Thepopulationof London since 1951has increasedby less than 5%. Real house prices in

Londonhaveincreasedsixfold—thatis,realhouseprices,allowingforinflation—soitisnot

populationthatdriveshouseprices.Itisthefactthatpeople,astheygetricher—andwein

this roomareprobablyallexamplesof that—choose toconsumemorehousingspaceand

moregardenspace.Youmayormaynotlikeit,butcars,forexample,arecomplementaryto

space consumption. Car ownership since 1951 has gone up thirteenfold. If you are

concerned, as I am, about the effects of cars on the environment, it is not a question of

where youbuild houses, although, asDannywas saying, encouragingpeople to commute

acrossthegreenbeltisnotaparticularlygoodidea;itisaquestionofhowyoupricecarbon

andhowyouregulateemissionsfromcarsandprovideforcycling.

LordGriffithsofFforestfach: I takethepointabouttheelasticityofdemandasbeingvery

important. Ifyou lookedatthemarket for lower-qualityhousing, therentalmarket,which

presumablytheflowof immigrationwould impact,doyoufind inyourstatisticalworkany

evidencethatthereisarelationship?

Professor Paul Cheshire: I have looked at interregional populationmovements,which are

induced by regional changes in differential house prices, which is another issue, because

howmanypeopleliveinaplaceispartlydependentonwhatthecostofhousingis inthat

place compared with other alternative places. I have looked at the impact of changes in

populationcomparedwithchangesinrealincomesonhouseprices.Backin1997-98,Ididas

vigorousamodelasIwascapableofdoingtoestimatetheimpactofdifferentlandreleases

onfuturehouseprices.In1996,aGreenPaperwasconcernedaboutpopulationgrowthand

wherewewouldhouse themall. Thiswasa1996 to2016 forecastof futurehouseprices

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given the land-releasepolicies thatwe thenhad. Theanswerwasa132% increase in real

housepricesby2016ifrealincomesgrewattheirlong-termtrendrates.Ifyoutookallthe

income growth out of thatmodel, so you assumed that real incomeswere constant over

time,thenrealhousepricesgrewbyonly4%.Theproblemwithourplanningsystemisthat

it allocates land on the basis of a forecast of household numbers, not on the basis of a

forecast of housing demand or space demand. So we have been systematically

undersupplyinglandsincetheearly1950s.

LordGriffithsofFforestfach:ProfessorDorling,areyouinbroadagreementwiththat?

ProfessorDannyDorling:Itishardtodetermine,because,atthesametimeasimmigration

at thebottomendof themarket rose,wehadahuge increase inuniversity studentsand

thenaverybigincreaseingraduates,alsoatatimewhentheirsalarieswerenotenoughto

allowthemtodoanythingbut rent.Thereare threesourcesofpopulationgrowth.One is

fertilityandbirths,whichisstillbelowthereproductionrate.Thesecondisimmigration.The

thirdonethatwealwaysforgetisthebiggestone,whichisageing.Becauselifeexpectancy

hasbeengoingup so fast inBritain in the last 20or 30 years,moreofus are around for

longerandneedtobehoused.Thisisnotaproblem;itissomethingtobecelebrated,butit

isbyfarthelargestsourceofadditionaldemand.Worldwide,themainreasonwhyweare

goingtogetto10billionor11billionpeople intheworld isnotmorebabies—fertilityhas

beendroppingsince1971—butthattheworldisageing.Ifyouhavealifeexpectancyforthe

planetthatdoubles,youendupwithtwiceasmanypeopleatanyonetime,anditissimilar

forBritain.

We never talk about that third component, which is the largest component of all. It is

particularly tricky for housing because we have these established models of when you

traditionallyformafamily,howyoupackyourselfinandthenwhatyoudo.Wedonothave

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anestablishedmodelforhousinginoldage.Wedonothaveanestablishedmodelforwhat

youdowhenoneofyouisonyourown.Doyoustayonyourownfor20years?TheOffice

forNationalStatisticsabout10yearsagodidasurveyof theelderlyaskingaboutoptions,

tryingtoseewhetherthe1960sgenerationmightbehavesomewhatdifferentlyfromolder

ones and not stay single so long in old age, because that would have a huge effect on

housingdemand.Weworryaboutimmigration.IfweweretoleavetheEuropeanUnion,it

wouldbereallyinterestingtowatchwhattheeffectonhousingdemandwouldbe.Thatwill

be the independent test and natural experiment that you could do to find out the

importanceofimmigrationtohousing.

ProfessorPaulCheshire: Ihavetointerjectthereandsaythatitwouldnotbeacontrolled

experimentbecausetherewouldbealotofothereffectsaswell.

Q51 LordMonks:While we are in themigration/immigration area, over the years there

have been some fairly colourful phrases used about migration and immigration. Mrs

ThatchertalkedaboutanewGranthamrequiredeveryyear,andBobRowthornrecentlyina

Civitas journal talkedaboutanewLetchworthGardenCityeverymonth,which isa rather

graphicwayofputtingit.Doyouacceptthatthesearethenumbersthatarerealistic,evenif

youmightnotusethesamecolourfullanguage?Wherearetheyallgoing?

Q52

Professor Danny Dorling: It is several hundred thousand net a year at themoment. It is

historicallyunprecedented.Theonlyslightprecedentisafterthe1929crash,whenwehad

in-migrationagainbecause thewholeofworldeconomycrashedand thenpeoplemoved.

Thiscurrentpeakofimmigrationisassociatedwiththateconomiccrash.Wheredoyougo?

Yougototheplacewhereyouspeakyoursecondlanguage,andyoutrytomakeyourlifein

England.Soitmaywellnotbealong-termthing.Wheredotheygo?TheygotoLondonorto

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Oxford.AquarterofthepopulationofOxfordisoverseas-bornnow,andtherateisnotjust

goingup,butitisaccelerating.Onlyasmallproportionofthatisthestudents.Migrantsgoto

theplaceswhere the jobsare,where it isworth thembeing, and they stay foras longas

thereareopportunities.Often,theythensettle.Thereisalsoanenormousmovingaroundof

peoplewhocome,stayforashortamountoftimeandthenjumptoanothercountry. It is

veryhardtocontrolthat.

I wrote one paper looking at the long-term net migration pattern for Britain based on

cohorts,sonotinoneyearbutwhathappenstoeverybody,say,bornin1916.Areweanet

importeroranetexporterofpeoplebornin1916?Fordecades,wewereanetexporterto

therestof theworld.Wewereanetexporter ineveryrecessionapart fromthisone.The

long-termmigrationpatternfitsbirthrates,sowetendtohaveimmigrationpeaks30years

afterwedonothavebabies.Wehadanimmigrationpeakinthe1950sand1960sfromthe

Caribbean, because we did not have many babies in the 1930s. We had a low point of

fertility in the1970s.Wehadan immigrationpeak in the1990sand2000s.People find it

easiertofindjobswhentheyarenotcompetingwiththechildrenwhowerenotborninthis

country. These are interesting connections to ponder.Given that current birth rates have

been pretty high in Britain, you can suggest that in 20 years’ time the opportunities for

peoplecominginwillnotbeasgoodastheyhavebeen.

ProfessorPaulCheshire:Theotherfactorispartlylifestylebutitisalsoincome.Short-term

work-relatedmigrantstendtoliveat incrediblyhighdensities, inmulti-occupation,sothey

donottakeupmuchspace.Iwouldgoback,again,tomyearliermorestrategicpointthat

whatreallydrives it isreal incomegrowthandage.Someresearchsuggeststhatthereare

threethingsthatinfluencehowmuchspacepeopledemand,oneofthembeing,whichisthe

most important, income,butalsoeducationandage.Aspeoplegetolder,everythingelse

beingequal,theytendtoconsumemorespace.Youngwork-relatedmigrantsalsotendtobe

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quiteyoung,asdostudents.Ifyoulookattheunderbuildingwhichwehaveachievedduring

thepast30or40years,youaretalkingaboutsomethingthatisfar,farmorehousingthan

Grantham.

ProfessorDannyDorling:Theotherthingworthsayingisthatwehaveanenormousnumber

of emigrants,whomwe always forget. A lot of elderly emigrants are in Spain,Malta and

otherwarmer parts of Europe.We havemore people in the rest of Europe than has any

other European country. If a significant proportion of that group were ever to return,

housingthemwouldbeincrediblydifficultandprovidingahealthserviceforthemwouldbe

incredibly difficult, whereas, as it is, we are attracting in young, fit and highly qualified

people who cram themselves into rooms in London and are massively economically

productive,andweexportpeopleattheendoftheirproductive livestosomebodyelseto

lookafter.Itisanamazingdeal.

LordKerrofKinlochard:ItislikethehorrormovieBrexit“TheReturnoftheLivingDead”,is

itnot?

LordMonks:Justtopursuethismatteralittlemore,Chairman,ProfessorDorlingmentioned

to theHouseof LordsBuilt EnvironmentCommittee thatmigrantswerenot theproblem,

but it is the foreign investors who are stoking up prices and the financialisation of this

industry.Again,theevidenceyougavewasinterestingandgraphic.Howdoyousquarethat

withwhatyouhavejustbeensayingaboutmigration?

ProfessorDannyDorling:AttheverytopofthemarketinLondonandafewotheraffluent

placesinthesouth-east,youhaveinvestingfromabroad.Itwasoneofthethingsthatledto

ourincredibleandcurrenthousinginflation.Everythingcametogetheratthesametime,the

babyboomandlotsofotherfactors,butonewasthatpeople’smoneywasnolongersafein

17

Swiss bank accounts because the Americans were looking there for tax evasion; Chinese

investors decided that the Chinese housing market was not safe; Singapore brought in

capitalcontrolssothattheChinesecouldnotinvestinSingaporeandsotheyjumpedover

andcametoLondon.Itmaynotbeahugenumberofproperties,althoughitdoesresultin

the population of Kensington and Chelsea falling, as we build more and more rooms in

KensingtonandChelsea.The realdanger is that theescalationofhousepricesat thevery

topofthemarket issohigh—Oxfordhasa16:1housingpriceto incomeratioandLondon

hasa15:1ratio—andthatresultinpeoplebeginningtobelievethattheridiculousincome-

to-priceratiosareokay.IreadinMetrotodayofayoungcouplewhohadboughtaone-bed

flatcostingalmost£600,000.That lookscheapcomparedwithwhat investorsfromabroad

arepaying for luxuryproperties.Therealdangerof theoverseaspurchasers is that itputs

peopleintoafalsesenseofsecurityaboutwhatanormalhousingpriceis.Wewillhaveto

waittoseeforwhatthatresultsin.

Q53 LordLamontofLerwick:Doyouhaveanyestimateofwhatproportionofnewbuildin

London is accounted for building for foreign investors? I have seen reports by builders

admitting that there is quite a highpercentage—30%of newbuild—for foreign investors,

defending iton theground that itprovidescapital forother typesofbuilding.Thatwould

appeartoconcedethatthereisquiteasignificanteffectonnewbuild.

Q54

ProfessorDannyDorling:Forthemoreexpensiveproperties,itisveryhigh.Idonothavea

figure.PrivateEyehasaccessedthedata.Youcangoandlookdownyourstreettoseewho,

fromwhere,hasboughtproperty.Becausethatdatahasonlyveryrecentlybeenreleased,I

havenot seensomebodydoinganaggregateanalysisof it.Therearecomplicatedways in

whichpropertyownershipishiddeninBritainthatmakeithard.Therearestillwaysinwhich

youcanbuythroughacompany,whereasinfactitisapersonalinvestmentbutyoumakeit

18

lookasthoughitisacompanyflat.Ifyouaregoingtodoaproperanalysisofthis,Iwould

startoffbyasking,“Whicharegenuinehomes forgenuineresidents?”,and foreverything

elseIwouldbealittlebitsuspect.

ProfessorPaulCheshire:Allhousesareasubstituteforallothers;soconcentratingononly

newbuildispartlyrelevantbutnotentirelyrelevant,becauseyouhavetothinkofthestock

ofallhouses.Youonlychangethestockinverysmallpercentageeachyearwithnewbuild.

There are some Bank of England figures suggesting that foreign ownership of houses in

Londonasawhole, includingoldhouses, isonly3%,but it ismuchhigher in someof the

super-primeareas.Londonisaworldcityandweareboundtohaveforeignpeoplewanting

toownpropertyhere.Inasense,itistobewelcomedbecauseitispartofwhatLondonis,

butitisreinforcedbytheshort-termassetissueandquantitativeeasing,whichmeansthat

sterlinghasnotlookedlikeabadbetgivenwhathasbeenhappeningintheworldoverthe

last five years, as ratesof returnonother typesof asset classhavebeen so low that you

mightaswellparkmoneyinhousinginLondon.Inthebroadspreadofthings,thatisashort-

termratherthanalong-termphenomenon.

ProfessorDannyDorling:Peopleareparkingmoneywheretheycangetarateofreturnon

therentthatistinyat2%,1%or½%.Ifyoubuyamillion-poundsemiatthetopendofthe

PiccadillyLine,whichwasanupperworking-classhouse40yearsago,youcanprobablyonly

rent it out for about £20,000 a year. That is just a 2% return. What I find disturbing is

watching the prices carry on rising, and then you suddenly realise that people are not

investingtogetareturnbutbecausetheyareafraidofeveryotherinvestmentvehicleand

theyseethisassaferinaturbulentworld,intheworldpost2008.Ifindithardtorationalise

whysomebodywouldinvesttheirmoneyknowingthatthereturnwouldbethatlowunless

theyaregoingforthesecurityofland.

19

Q55 BaronessBlackstone:Doyouthinkalandvaluetaxcouldhelptheproblemofhousing

supply?

Q56

ProfessorPaulCheshire:Onthemargin,yes,itwouldbeamoveintherightdirection,butit

wouldnotbeananswer.Theproblemismuchmoredeep-rootedthanthat.Itrequiresmore

radicalaction.

BaronessBlackstone:Itisahelpbutitisnotsufficient.Itisnecessarybutnotsufficient.

ProfessorDannyDorling:Yes;andyouwouldmovetoitgradually.Youwouldreformcouncil

taxfirstandthenyouwouldtaperitsoitwouldbeoversuchalongnumberofyearsthatit

wouldnotaddressthecurrentcrisis,butitisaverygoodidea.

Professor Paul Cheshire: Also, you would try and divertmore of those revenues to local

authorities to give them some incentive to allowhousing to bebuilt. At themoment,we

virtually fine local authorities toallowhousing tobebuilt,which is very foolish compared

withwhattheSwiss,theGermansortheAmericansdo.

Baroness Blackstone:What about a capital gains tax on themain residence?Would you

favourthat?Isittoobigaleap?

Professor Paul Cheshire: I do not think that it would solve the problem. It would be

politicallyextraordinarilydifficult.

BaronessBlackstone:Yes,itwouldbe.

20

ProfessorPaulCheshire:Yes,inprinciple,butthatisatheoreticalanswer.

ProfessorDannyDorling: Youwould introduce something else at the same time and you

would introduce it tapered. Itwouldstartoffbeing1%sopeoplehadplentyofwarning. I

wouldknow,assomebodywithamortgage,thatwhen,ifIamlucky,in20or30years’timeI

sell thehouse Iam in, itwillprobablybe full-ratecapitalgains taxat thatpointonwhat I

havemade.Itwillbealongtimeinthefuture,whichwouldsimplydiscouragepeoplefrom

speculating. The problem at the moment is that you are encouraged to buy the most

expensivepropertyyoucanbecauseitwill,probably,goupmostinprice.Youwantpeople

to try tosavemoney.Youwant themtotry tobuythe lowestpricehometheyarehappy

with—thisisoutsideLondonandOxfordwhereitisimpossibletobuyforsomanypeople—

in other parts of the country, and eventually everywhere, you want it to be rational for

peopletobuythecheapestpropertythattheyarehappytolivein,nottodotheopposite.

ProfessorPaulCheshire:Theproblemisthatwekeepstickingourfingerintodykesbutmore

holespopoutbecause,underlying it, is thispressureof lackof supply.Pricesgoupand it

becomesaninvestmentassetratherthansimplysomewheretolive.Inarationalworld,you

wouldbeindifferentastowhetheryourentedoryoubought,andyouwoulddowhatsuited

your lifestyle and age most; but in Britain, where real house prices are doubling every

decadeorso,youhaveabigincentivetotrytobuyasmuchhousingasyoucanassoonas

youcan.

Baroness Blackstone:What about farmore bands for council tax? I saw somewhere that

somebodysaidweshouldgouptobandZ.

ProfessorDannyDorling:Ifyouaddedthemanddoubledthem,youonlyneedtogotoband

N,which, at the time I calculated it, captured the Sultan of Brunei’s property. It ismuch

21

better than a mansion tax because it is graduated and everybody knows that somebody

abovethemispayingahigherrate.Peoplecanpayit.Eveniftheyareonaverylowincome,

theycansimplytakeoutasmallmortgageandpayit.Irecentlyreceivedaletterfromaman

onalowincomeinLondonwhoseflathadendedupbeingworth,again,£1million. Itwas

nearCoventGarden,he said, “I cannotpossiblypayahigher tax”, towhich I said, “If you

takeouta£20,000mortgage,youcanpaythetax.Whenyouselltheflat,youwillstillhave

£980,000”.Thatmanwillstillbericherthan Iwilleverbe.Theargumentthatpeoplewith

highwealth but low income cannot pay does notwork. The other really important thing,

though,istheunfairnessacrossLondon:thefactthatyoupayhalfasmuchinWestminster

and Kensington and Chelsea as you pay in Barking and Dagenham for the same valued

propertyincounciltaxeachyear.LondonshouldhaveaLondon-widebanding.

BaronessBlackstone:YouwouldtakethisawayfromlocalauthoritiesinLondonandgiveit

totheGreaterLondonAuthority.

ProfessorDannyDorling: Iwouldgive it totheGreaterLondonAuthority. Iwouldmake it

London-wide. That is another part ofwhat is needed for the beginning of away towards

dampeningprices. Sensible, boringpolitics is to try todampen this current excessive rise,

because, if it goes up and up and up, we know what happens from other examples

elsewhere in time and in other places in the world. You want to do things that dampen

housinginflation.Alteringcounciltaxinthatwaywouldhelp,andaddingbandswouldhelp.

Adding bands would be seen to be fair by the vast majority of people because the vast

majorityofpeoplewouldnotbepayingabandL,MandN.Thisis,ineffect,whatNewYork

does.Youaretalkingaboutbringinginwhatwillheadtowardsaflatpropertytax.NewYork

isnotthatradicalaplace.NewYorkislikeLondoninmanyways.

22

Professor Paul Cheshire: Except that local authorities retain the revenues in the United

States,whichisquiteimportant.

Q57 LordGriffithsofFforestfach: Iamattractedtotheideathatlocalauthoritiesrespond

toeconomic incentives. If theyget something frommaking landavailable toplanning, the

suggestionisthattheywillthenspenduptheplanningprocessandenablemorelandtobe

available.Thequestionisthattheyarepoliticallydrivenasentities,andbecauseofthatthey

willhavemanypressures,iftheyfindtheyhavemoreresourcesavailable.Towhatextentdo

youhaveconfidence,ifyouhadtogiveevidence,thattheywillrespondpositivelyiftheyare

allowedtokeepthecounciltax,forexample?

Q58

Professor Paul Cheshire: There is fairly convincing and rigorous evidence. This relates to

commercialproperty,butIdidastudy,whichwaspublishedintheEconomicJournalin2008,

whichlookedattheimpactofgoingfromalocalbusinessratetotheuniformbusinessrate

intermsofthe impact ithadonthesupplyofoffices.Thatshowedthat,asaresultofthe

increased reluctance of local authorities to give permission for office development, the

increaseinthepriceofofficespacehadgreatlyexceededanypossiblebusinessrate.Thereis

some quite persuasive econometric evidence from the United States showing that local

jurisdictions that impose what is called an “impact fee”, which is a tax on development

whichhastoberelatedtothecoststhatthatdevelopmentimposesonthecommunity,are

less reluctantormorewilling to grantdevelopmentapproval thanauthorities thatdonot

impose that tax. There is reasonablypersuasiveevidence.Also, in Switzerland,where you

havealocalincometax,alltherevenuesessentiallyfromgrowthgotothelocalcommunity.

Thatappearsalsotokeephousepricesdown.ThereisquitepersuasiveevidencebutIwould

notrelyonitasatotalsolution.

23

LordKerrofKinlochard:Itwouldbeimportant,surely,tokeepthecounciltaxrevenuegoing

tothelevelwheretheplanningdecisionistaken.

ProfessorPaulCheshire:Yes.

LordKerrofKinlochard:SoLondon-widemightnotwork.

ProfessorPaulCheshire: There isalsoagoodargument forhavingacity-region input into

theplanningprocessbecauseyoualsohavetheproblemofgainsfromfreetrade.Youhave

biglossesfromfreetradeforthosewhohaveanengagementinthepresentoccupation,but

youhavesmallgainsthatarespreadoutoververymanypeople.Iflefttothemselves,people

would never choose free trade. Similarly, with development, there are big costs in

developmentandonehastorecognisethatforverylocalpeople,becausetheyhavemore

congestion,noiseandpollutiongoingon,theymayloselocalamenities,theirroadsbecome

morecongestedandtheyhavenopaybackfromthat.Therearebig lossesto localpeople.

Themore local you put the vote, themore voice you give to people who lose from the

development process. You need to balance the wider social interest against the spatially

narrowinterest.Having,forexample,mayorsand,withthecitydeals,cityregionshavinga

bigsayinthingssuchasdemarcationofthegreenbeltfortheircityandthestrategicaspects

ofplanningandtransportprovision,wouldeffectanimprovement.

Q59 LordKerrofKinlochard:Ifeelverydepressedbecauseyoubothmakeapowerfulcase

fora complete reformof theplanning system,which, I amsure,politically isnotgoing to

happen.Iamnotquitesurewhattheansweris.Wouldyouliketolookatthethingsthatthe

Governmentaretryingtodoandtelluswhetheryouthinktheyareusefulintheireffectsor

not? In your publishedworks, you have both been a bit rude aboutHelp to Buy. Iwould

guess, from the way that this discussion has gone, you would not be too thrilled by the

24

inheritance tax changes that were in the Autumn Statement. What are the Government

tryingtodothatyouwouldsupport?

Q60

ProfessorPaulCheshire:Businessrateretentionispotentiallyuseful,buttheproblemisthat

ifitisdoneinisolationfromresidentialpropertyitisgoingtoprovideanincentiveforlocal

authoritiestoprovidemorebusinesspropertyandlesshousing,whichisnotwhatwewant.

Althoughitisagoodthinginitself,itisnotagoodthingforthehousingmarket.Tohavea

parallelchange,whichgavemoretaxrevenueadvantageto localauthoritiesfromallowing

building, as theNewHomesBonusattempted todo, is amove in the rightdirection. The

NewHomesBonuswent in as a good ideabut it cameout as soopaque, short termand

smallthatIdonotthinkitreallyhadverymuchimpact.

Professor Danny Dorling: One thing that is good is the beginning of curbs on buy-to-let

landlords. We have had a sudden and massive increase in buy-to-let landlords. Within

London,therearenowaquarter-of-a-millionchildrenwhoarebelowthepoverty linewho

are in private rented accommodation, slightlymore than those in local authority housing.

Thesechildrenare likely tobe forcedtomovehomeevery twoor threeyears.That is the

rateatwhichtherentsarebeingputuptoapointwheretheirfamilyhastoleaveandfind

somewhereelse.TheyaremovingaroundLondongoingfromschooltoschooltoschool.This

isdisastrous.Londonhashadthemostamazingimprovementinitseducationinthecentre

ofLondon in thepast20years.Tosuddenlydo this to families isverybad,but the rise in

privaterentingbypoorer families inLondonhasbeenverysudden.Somuchof thiswasa

resultofthecrashin2008.Peoplesimplycouldnotbuybecausethebankswouldnotlend

then. The number of mortgage transactions halved. Families carried on moving so they

rented,thepricesofrentsshotup,landlordsmademoremoneyandtheyinvestedthat,until

yougettoapointinmanyareaswhereonlylandlordsandinvestorscanbuy.Theproblemis

25

thatweweretryingtomovetowardsaEuropeansystemwhere it ismorenormaltohave

more private rented, butwe have ended up suddenly putting lots of familieswith young

childrenintothistenure,whichhassuchlittleprotectionthatafamilywithchildrencanso

oftenbeoutbidbyacoupleofyoungprofessionalswithoutchildrenwhocanpayahigher

rent. This is a very recent change in themiddleof London.The implicationsof it are very

worryingoutsideofhousing,ineducationandotherareasofpolicy.

LordKerrofKinlochard:Iseethat,butwheredothesepeoplego?Ifwearebearingdown

onsocialhousingandwearebearingdownonhousingassociations,wherearethesepoor

familieswiththesechildrentogo?

ProfessorDannyDorling:TheyprogressivelymoveoutfrominnerLondontoouterLondon.

Thenthereisanincreasealongthecoast,andparticularlytheeastcoastofEngland,inthe

indexofdeprivation,whichissomekindofguessastowherethecontinuedmovehasbeen

heading. We know that the rate of moving is high. Often, they are at first moving to

somethingjust10milesawaythatisofalowerqualityandalowerrentwhentheycannot

payitanymore.Householdsaffectedbythebenefitcap,whichisnormallyahouseholdwith

adisabled child, areparticularly likely tobemoved. This very rapid rise inprivate renting

amongfamilieswithchildrenwasnotplanned,andtheriseinthefiguresisshockingtosee.

It could bemuchbetter effected by improving the tenancy conditions. Thatmight be the

short-termwaytodoit.Becausewehavesuchshort-termtenancycontracts,itisrelatively

easytochangethelaw.Youcanchangethelaw,butnotretrospectively,tosaythatallnew

shorthold tenancies now have to be of a new form without altering anybody’s existing

contractbecausethecontractonlylastsforaboutayear.Politically,itisverypossible.

LordKerrofKinlochard:Iseetheargumentforit,butthatisnotwhattheGovernmentare

tryingtodo.TheGovernmentaretryingtoreducetheincentivestobuytolet.

26

ProfessorDannyDorling:Yes.

LordKerrofKinlochard:Thatisgoingtohavepreciselytheeffectthatyoudonotwant.

ProfessorDannyDorling:No.Currentgovernmentpolicywillhavetheoppositeeffect,andit

will,onthemargin,helpprettyaffluentfirst-timebuyerstobuy.

ProfessorPaulCheshire:Theeffectisgoingtobeextremelymarginal.Iamnotgoingtoget

excited. The problem that has been discussed is a very real problem, but, again, it is a

symptomoftheunderlyingprobleminlackofaffordabilityofhousingandalackofprovision

of socialhousing for thosewhocannotgeton to thehousing ladder.Therealwayswillbe

peoplewhocannotgetontothehousingladder.Wearenotdoingagoodjobthere.Thereis

areallyseriousunderlyingproblemandnoneofthesechangesisgoingtomakethatmuch

difference.Iwouldnotchallengeyou,butmyjudgmentisthatwearebetweenarockanda

hardplace,thatnothingshortofradicalreformwillsolvetheproblem,butradicalreformis

politicallyunacceptable.Therealproblemisthat10yearsdownthelinewewillfindthatthe

whole systemcollapses and thatwehave something that is not reform.Whatweneed is

consideredreformthat isalsoradical ifwearegoingtosolvetheproblem.Otherwise,we

maygetdownthelineandhaveunconsideredreform.

BaronessBlackstone:On thesamepoint, ispartof theproblemthat theGovernmentare

overcommittedtohomeownershipattheexpenseofaffordablesocialrenting?

ProfessorPaulCheshire:Inanidealworld,mostsensiblepeoplewouldbetenure-neutral.It

doesnotmatter ifyouareahomeowneror ifyouarea renter. Itdependsonwhatsuits

your personal circumstances. Given that we have constructed a world where real house

27

pricesaredoublingeverydecade, it iscreatinghugeinequalitybetweenthehousinghaves

andthehousinghave-nots.Lastyearwasthefirstyeareverthatmoreowner-occupiersdid

nothavemortgagesthandidhavemortgages.Theproportionofunder-35swhoareowner-

occupiers has fallen from59% to 36% in 10 years. In itself, Iwould notmind. Ifwewere

living inGermanywhere real houseprices havenot changed for about a generation, that

would be fine, but we are not living in that world.What we are doing is engaging in an

unwitting,hugeredistributionawayfromthepoorandtheyoungtotheoldandtherich.

Q61 LordLamontofLerwick:JustgoingbacktotheHelptoBuy—Iunderstandthecriticism

made that anything inflating demand may prove counterproductive—are we being

completelyfairwhenwerememberthecircumstancesof2013andtheprecisetargetingof

thescheme,becausein2013itwasstillverydifficultforfirst-timebuyerstogetamortgage?

Mortgagelendingwasnotincreasingquickly,andtheemphasiswasonfirst-timebuyersand

new-buildhomes.Giventhatweareinasituationwhereweneedtocreateconfidencefor

theindustrytobuildhouses,thefirst-timebuyeris,surely,crucialandnew-buildhomesare

crucial. Did it not result in about 50,000 new-build homes being built? Although I would

normallyberatherscepticalofincreasingdemand,inthecircumstancesinwhichwefound

ourselvesin2013,maybeitwasimportanttogivethebuildingindustrythatconfidence.

Q62

Professor Paul Cheshire: If Help to Buy had been only confined to new-build homes, and

originally therewere twoschemes,oneofwhichwasandoneofwhichwasnot, then,on

balance, Iwould not have been against it, so to speak. Again, it is one of thesemarginal

things,becauseyoumaybehelping thesepeople tobuybut thatmeans thatyouarenot

helpingthosepeopletobuy;and,becauseitwillhavetheeffectofpushinguphouseprices,

thosewhoarenothelpedbytheschemeareinaworsepositionthantheywouldotherwise

havebeen.Allthatisverymarginal.Idonotacceptthe50,000.

28

LordLamontofLerwick:Fiftythousandhousesarealotfromwherewestarted.

ProfessorPaulCheshire:Thisisabox-tickingnumber.Itisnotarealnumber.

Professor Danny Dorling: The Treasury released the Help to Buy figures on 9 December.

TheysaythatupuntilSeptemberofthisyear itsupported65,920mortgages,andmanyof

thosewillnotbenew-buildproperties.

LordLamontofLerwick:Halfweresupposedtobenewbuild.

ProfessorDannyDorling:Yes,buthalfof65,000isnot—

LordLamontofLerwick:No,halfof110,000.

ProfessorDannyDorling:Thekeythingisthattheaveragehousethathasbeenhelpedhas

onlygonefor£155,000.ThisishousinginthenorthofEngland.Ithasstoppedanynorthern

townseeingpricefalls.Theproblemwiththatisthatitmakesthepopulationthinkthatprice

fallsdonothappenbecauseHelptoBuyisbeingusedmostinthoseareaswherepriceshave

notbeengoingupmuch.Ifwedidhavepricesfallinginsomeplaceswheredemandwould

havebeen less,peoplewouldat leastbynowbebetter informedbecauseyouhavetobe

fairlyold to rememberwhenprices fellafter1989and1990. Iworry thatHelp toBuyhas

madethepopulation,asawhole,moreconfidentaboutthehousingmarket inawaythey

shouldnotbeas confidentabout thehousingmarket.The liability isnotgreat so far.The

liability is only something like£1.4billion tous, butHelp toBuy is going to rise to a40%

chunkofpropertypricesinLondonin2016.Weareputtingtaxpayers’moneyintohousing

tomakeloansthatbanksthemselvesthinkarenotsafetomake.

29

LordLamontofLerwick:Iagreewiththat.

ProfessorDannyDorling:Weareincreasingthescheme.Itwassupposedtotaperaway.

Q63 LordLayard:Iwantedtocomebacktowhatwecanlearnfromforeigncountries.Ifwe

acceptthatwehaveabiggerproblemthanmostotherEuropeancountries, includingones

thatareasdenselypopulatedasweare,andthisiscertainly,toanimportantextent,dueto

issuesofplanningandlandsupply,whatcanwelearnfromtheseothercountriesabouthow

to incentivise local authorities? It also comes back to the question that was asked here.

What canwe learnabouthow to incentivise thepeoplewhoareorganising the supplyof

landtoallowhousestobebuilt?

Q64

ProfessorPaulCheshire:Thetroubleisthatincentivesthatworkinoneinstitutionalandtax

regimedonotnecessarilyworkinanotherinstitutionalandtaxregime.TheGermansandthe

Swissbothhavebigtaxadvantagesinadecentralisedfiscalsystem,whichmeansthatthere

are fiscal incentives for local authorities, particularly in Switzerland, to accommodate

housing.

In theNetherlands, as youknow, youhavea system thathas grownoutof themunicipal

drainageof thedelta so that local authoritieshavea statutoryobligation toprovide land,

andtheybuyandhavedevelopedovertheyearsaninstitutionalstructuretosupportthem

indevelopingtheabilitytogetagricultural land,eithertoserviceitandsell itonandkeep

theprofit,ortosellitonunservicedbutwithdevelopmentrights.Theissueisthatthathas

grown out of the particular institutional and legal structure of the Netherlands’ local

authorities that have acquired this expertise, and they alsohaveborrowingpowers. Their

financialregulationsallowthemtodothis.

30

AsIsaidalongtimeago,developmentisaveryriskyprocess.Wedidtrysomethinglikethis

withtheCommunityLandAct1975,whichlastedfortwo-and-a-halfyearsandproduced150

acresoflandfordevelopment,becausethelocalauthoritiessimplydidnothaveeitherthe

financialcapacityorthecommercialcapacity,andtherulesgoverningtheirborrowingwere

such that they did not engage in the process. What works in the Netherlands does not

necessarilyworkhere.Ontheotherhand,thetaxincentivesthatonecouldseecomingout

of property taxes, with a significant proportion going to local authorities, on additional

housingthattheypermitted,whichwouldnotthenberevenue-equalisedacrossauthorities,

mighthaveabeneficialeffectontheirwillingnesstoallowdevelopment.

BaronessBlackstone: It is sometimes said that, for localauthorities, therearenovotes in

providinglotsmoreplanningpermissions.Aslongasthatisthesituation,whateveryoudoin

termsoffairlymarginalchangestotheplanningsystem,itwillmakeverylittledifference.

ProfessorPaulCheshire:Yes,and thathasgrownupoutof thesystemthatwehave. It is

partlythisinsider/outsiderproblemthattherearelocallosses,whichareverylocalised,that

bringpeopletogethertolobbyagainstadevelopmentportal,whereasthegainsarespread

outoverawholehousingmarket;ifyoubuilthousesanywhereinthewholeLondonregion,

therewouldbeasmallbenefitforeveryone.

ProfessorDannyDorling:Aplanneroncetoldmethatthemostpoliticallypowerfulgroupin

Britainarenimbies,thepeoplewhowillmostorganisewhensomethingisgoingtohappen.

Ifyoutalkaboutaddingahundredhousestotheedgeofasmallvillage,youwillseesignsup

saying“Nohouses”.

31

ProfessorPaulCheshire:Butareprocessingpowersthere?IntheNetherlandsorFrance,this

simplydoesnothappenbecauseyouhaveanagreedplan,whichhasbeenadopted,andit

allows this to be built here, that to be built there, and you do not have any gain from

lobbyingbecauseitwillnotaffecttheoutcome.

Professor Danny Dorling: All the effort goes into saying, “Do not build those hundred

houses”,whichmightwellmakesensebecausethevillagewillnotgetaprimaryschoolbutit

willjustaddatocongestion.However,nimbiesneversaywheretheywouldlikethehouses

otherwisebuilt.Weneedtointroducesomethingthatallowsthattohappenbecausepeople

themselves,whentheyopposehousing,donotorcannotorganise tosay,“Itwouldmake

muchmoresensetoadditontotheedgeofthecityratherthanputitintoourvillage”.

Professor Paul Cheshire: And the community gets no resources. An impact fee, which I

mentionedearlier,isonewayofgettingresourcestothelocalcommunitytosupportit,but

havingpropertytaxes,aproportionofwhichstayswiththelocalcommunity,isanotherway

ofgettingit.Youalsoneedtomakethechange.TheNationalPlanningPolicyFrameworkset

outtodosomethingmoderatelyradical,anditgot,essentially,stifledinthatprocess,soyou

endedupwithadocumentthathasjustasmuchrestrictiononwhereyoucanbuild,what

youcanbuildand,indeed,reinforcedsomerestrictionsinthesenseofincreasingdensitiesin

suburban areas and advising against it.We ended upwith this basic situationwhere you

havetosaythat,ifthereisnoenvironmentalvalueassociatedwithkeepingapieceofland

undeveloped,thenthereisapresumptioninfavourofallowingdevelopment.

LordLayard:Thisistheapproachthatputspressureonlocalauthoritiestogivepermission,

rather than giving theman incentive—thenotion that theyhave to givepermission if the

price differential is big enough. It seems that amore natural approachwould be to start

from wanting to give them a positive incentive. I do not know—you must have done

32

calculations—but I have just done a back-of-an-envelope calculation that planning

permissionisworthsomethinglike£5billionayear.Ifthelocalauthoritycouldcapturethe

value of the planning permission that it gives, it would have £5 billion to buy off the

opposition.Itseemstomethatweoughttobeabletofindsomewaytopilotthat,tohave

somelocalauthoritygiventhepowertodevelopinthewaythatitcapturesthelandvalue,

andseewhathappens.Surely,thereisacaseforthat.

ProfessorPaulCheshire:Yes.TheproposaltobuildanurbanextensiontoOxfordisquitean

interestingone.ThetroubleisthatOxfordCityisquiteinfavourofitbutitissurroundedby

localauthoritiesthathavenopotentialgainfromitatall.Idoubtifitwillhappen.Youhave

tohaveboth incentives,which impactfeesandpropertytaxretentionwouldprovide,plus

compensation,andyouhavetorecognisethat,likeitornot,weareallocatingbyfiatbutwe

arethenallocatingbymarketprice,andthatmarketpricereflectstheshortage.Wedonot

wanttocreateaworldas,forexample,theSouthKoreansuccesscreated,wherethereisan

incentiveforlocalauthoritiestorestrictsupplybecausetheygetmorevalueuplifts,someof

which they can capture.Wewant to think about housing as something that generates a

benefit,awelfare.Housingisimportanttopeople’slives.

Q65 LordLamontofLerwick:IwantedtoaskProfessorCheshireaboutsomethingheonce

wrote—I do not think you repeated it today, but itwas pretty remarkable—that twice as

manyhouseswerebuiltinDoncasterandBarnsleyinthefiveyearsto2013asinOxfordand

Cambridge.Thatstrikesmeasquiteextraordinarywhenyouthinkofwhat ishappening—I

do not know Oxford so well—in Cambridge, with a big expansion.With no disrespect to

BarnsleyandDoncaster,Idonotgettheimpressionthattheyareboominginthesameway.

IputthatalongsideanewspaperarticlethatIwasreadingattheweekend,whichreferredto

the fact that in some areas—it did notmention particularly Doncaster and Barnsley—the

costofnewbuildissoexpensivecomparedwiththepriceofanexistinghousethatthereisa

33

hugedisincentivetobuildhouses.Infact,Ireadthatinoneareathelandhadnegativevalue.

Puttingthatalongsidethefactyouhighlighted, itseemsmostextraordinary. Iwondered if

youcouldexpandonallthis.

Q66

ProfessorPaulCheshire:Oursystem,asitis,systematically,leadstoahigherprobabilityof

allowingbuildinginlessprosperousareasthaninmoreprosperousareas.Thatispartlywhat

underliesit.Itispartlythebrownfieldlandtarget.Thereisabundant,cheap-to-renovateand

cheap-to-build-onbrownfieldlandinmanyofthedecliningnorthernindustrialcities.Inthe

south-eastofEnglandwherethedemand—

LordLamontofLerwick:Doesithaveanegativeprice?

Professor Paul Cheshire: It ismore likely to have a negativeprice in parts of London, the

reasonbeingthatwehavebuiltonallthebrownfieldlandthatwaseasytobuildon,itdid

notrequireveryexpensiveremediation,etcetera,whereaswhereyouhavelargetractsof

brownfieldland,asyouhaveinmanyoftheformerindustrialcitiesofourheartland,thereis

an ample supply of brownfield land. Going back to the point Imade earlier, you need to

allowbuildingongreenfieldland,whichismuchcheapertobuildon,butwesimplydonot

have enough brownfield land. One of the interesting things that some people at the

University of Reading showedwas that it is, in planning terms,more difficult to build on

brownfieldlandthantobuildongreenfieldland.Theaveragewas43weeksgoingthrough

the whole system from beginning to end for greenfield land, and well over that for

brownfield land, because they tend to be small areas, they tend to require a lot of

remediationandtherearealotofsurroundingpropertyownerswhohaveinterestswhocan

lobbyandengageinactivities.Itisreallynotthecasethatbrownfieldlandisapanacea.One

34

oftheoutcomesisthatyougettwiceasmuchhousebuildinginDoncasterandBarnsleyas

youdoinOxfordorCambridge.

Q67 The Chairman: The Government have set out their objective of building a million

housesduringthisParliament.Howisittoachievethisobjective?Youaremakingthepoint

that it should be easier to build houses on greenfield or green belt land, however we

describeit,andyouhavemadethepowerfulpointthatthehousesthatarebeingbuiltare

notnecessarilyintherightplace.Youreferredearliertoabrokenbusinessmodel.Isuppose

oneexampleofthat—wehavereceivedevidence—isthatinLondonplanningconsentsgiven

each year far exceed the number of houses built. So there is a stock of unbuilt houses

already.Whatmeasuresdoyouthinkshouldbeputinplacetofix,orhelptofix,thebroken

model?Certainly, goingback toHaroldMacmillan’s time,when therewas rebuildingafter

thebombingoftheSecondWorldWar,localauthoritiestookthelead.Doyouenvisagelocal

authorities,maybeblessednowwithsomereceiptsfromtheplanninggain,whichtheycould

capture,playingarole?Ifnot,whoisgoingtobuildthesehouses?

Q68

ProfessorDannyDorling:Thatwilldeterminewhethertheactualbuildingisbeneficial.We

shouldnotforgetthatit isquitepossibletobuildalotofhousesandtostillendupwitha

very large proportion of the population very badly housed. As our income and wealth

inequalitieskeeponwidening,thereisnoguaranteethatjustbuildingflatsandhouseswill

makethesituationbetter.Oneofthereasonsforwantingtohaveadecentchunkofsocial

housing in there, local authority or housing association, is partly tomake sure that those

peoplewhoareworst-housedatthemomentbenefitfromanybuildinganditdoesnotend

up being used by peoplewho are already prettywell-housed or an increase in second or

thirdhomes,whichcanhappen.

35

Therearealsopracticalities.TheGuardianisreleasingareporttomorrowaboutthenumber

ofbricksandbrick factories inBritain. If you reallydidwant tobuildamillionhouses this

fast,youhavetoworryaboutthefactthatwecannotmakeenoughbricksinenoughtime.

Thenitty-grittyofitrequiressomelookingatit.Thenlaterclaimingthatyouneverrealised

wehad lost our capacity tomakeenoughbricks shouldnotbe a goodenoughexcuse for

failing.Iwouldemphasisethatitisimportantthatwethinkaboutbuildingfromthepointof

viewofwhomost needs thehousing.Wemust remember about helpingpeoplewho are

rattlingaroundahousethatistoolargeforthem,helpingthemtohavesomewheretomove

outto.Justbecausethereisnotthedemandatthemoment,becausethereisanincentive

fortheelderlytostayintheirhome,itdoesnotmeanthatweshouldallowprivatebuildings

nottobuildretirementapartments,becausewecantellthatwearegoingtoneedthem,but

thatrequiresplanning.Themarketwillnotdeliveritbecause,intheshortterm,itdoesnot

looklikeitisgoingtomakeaprofit.

ProfessorPaulCheshire:Iamafraid—thisismyjudgment—thatthereissimplynowaythat

wewillbuildamillionhousesby2020.My recommendationwouldbe thatweshould set

someverymodesttargetof750,000housesby2020,perhaps,andagreethat,ifwehavenot

met thatmodest target,we should set up a serious commission to review fundamentally

howwegoaboutplanningandincentivisingthebuildingofhousesinthiscountry.Ijustdo

not think it is going to happen. I am sorry. There is noway that the present system can

deliverthatnumberofhouses.

LordKerrofKinlochard:WhatdidHaroldMacmillando?

ProfessorPaulCheshire:Hestartedoffinaworldwheretherewaslotsoflandbecausefrom

1947 up to 1955, whenwe first established these green belt boundaries, we established

roomforgrowthaswell,albeitonthebasisofpopulationgrowthratherthanunderstanding

36

thattherewasincomegrowththatwasalsoimportantinthatprocess.Wealsohadawhole

programme of building new towns, which were on separate land that was available for

housing,soyouweredealingwithacompletelydifferentworld.Wewerealsodealingwitha

worldwherelocalauthoritieshadthecapacitytobuild,andtheydid.Ontheotherhand,we

managed quite well. In London, the GLA area, between the two world wars, the peak

buildingwas80,000housesayear.Webuilt70,000overseveralyearsinthatperiodthrough

theprivatesector,almostentirelywithalmostnosocialhousing,becausewehadanample

supplyof landandwewere investing in transport systems to service that land. Thereare

manyworlds,butittakestimetogetthere.Itisliketurningasuper-tankerround,whichis

whyIam,sadly,confidentthatwewillnotbuildamillionhouses,becauseyouonlybuilda

smallnumberofhouses.Wehavecreatedaworldwherebywehavealmostmonopolised

thedevelopmentindustrybecauseitissocomplicatedtooperatethesystemthatitisareal

barriertoentry.Wesupplyrelativelylittlelandbecauseofvalueuplift,andthatgeneratesa

financialincentivenottobuildoutrapidly.Ifyoucouldchangeexpectationssothatpeople

reallythoughtthatthepricesweregoingtobestableoverthenext20years,becauseyou

werereallygoingto increasesupply, thentheywouldhavean incentivetobuildoutmore

quickly.

Q69 LordMonks: Justtochangetacka little,assumingthatwereallydidmakean impact

with thekindof ideas thatweare talkingaboutat themoment inboosting the supplyof

houses,istheconstructionindustryuptoit?

Q70

ProfessorPaulCheshire:Notatthemoment.Itwouldtakealongtime.Wewouldneedto

buildmorebricks,havemoretrainingandhavemoresmalldevelopment firms.Wewould

have tohaveentry into thewholeprocess. Ithas takenus50or60years toget into this

mess,soitisgoingtotakeusagood10to15yearstogetoutofit.

37

ProfessorDannyDorling:Evenifweplanforthatnow,youwillnotgetit.Macmillanhadthe

great advantage that just beforeMacmillan the Labour Governmentwere producing very

neartothis,andallhedidwasslightly‘up’therate.Weareinaverydifferentsituation.The

numberofmediumandsmall-sizedbuilders thatwentbust in thecrashmeans that those

skillshavegone.

TheChairman: You say that those skills have gone, but if hewas a carpenter in 2007, he

wouldstillbeacarpenterin2015.Wherehavethoseskillsgone?

ProfessorDannyDorling:Thoseskillshavegoneas thecarpenter isnowworkingasa taxi

driver,forexampleandhehaveagreatlyincreasednumbersoftaxidriverstodayintheUK.

Theycouldbecomecarpentersagain,butthefirmshavebeendissipated.Peoplehavegone

andfoundthemselvesotheremploymentwhentheyweremadeunemployedbythesmall

builders.Asforthebuilders,thepersoninchargewasoftenanelderlymanwhohastaken

earlyretirement,sotheyoungerpeopleinvolvedwillstillbearoundbutaredoingdifferent

jobs.Youcan turnall thisaroundbutyoucannot justwish it tohappensuddenly.Youdo

haveafewverylargebuildingfirmsthatdohaveaninterestinthisnothappening,inthere

notbeingcompetition frommanymediumandsmallbuilders, in slowingbuildingoutand

maximisingprofit,soitisnothappening.

The Chairman: What measures could the Government take to improve the competitive

environmentinthehousebuildingmarket?

Professor Paul Cheshire: It could release five times as much land, so you had actual

competitioninthelandmarket.

38

BaronessBlackstone:Iamsorry,butmayIinterrupt?Yousaythat,butifthereisnocapacity

intheconstructionindustry,howevermuchlandyourelease,youhaveaproblem.

ProfessorPaulCheshire:AsIsaid,itwilltake10to15years.Weneedtotrainpeople.

BaronessBlackstone:Wehave to comeback to furthereducationand trainingwhere the

Government are slashing the provision of further education, which is themain source of

skillsforpeoplewhoworkintheconstructionindustry.Ifthosecourseswerereinstatedand

youngpeoplewereencouragedtotakethosecourses,youwouldthenbebuildingupanew

supplyofappropriatelyqualifiedskilledlabour.

Professor Danny Dorling: I like that. That is definitely worth doing. The other thing to

remember is theopposite to “AufWiedersehen, Pet”. There is a veryquickway to get in

buildersatthemoment.

BaronessBlackstone:How?

Professor Paul Cheshire: By skilled migrants. It has taken two generations to get to the

positionweare inandwecannotgetoutof itquickly.Weclearlyneedtohavetraining in

skills. We need to have a market that encourages new brick manufacturers, new tile

manufacturers,newarchitects,andnewentrepreneurstosetupsmallbuildingcompanies,

becausethewholeprocessofdevelopmenthasbecomemoreandmoremonopolisedinthis

country.

Professor Danny Dorling: In Germany, there are a huge number of building companies. I

think about one-third of property is built by the owner working with a small building

company.ThereisincrediblecompetitioninbuildinginGermanyasopposedtohere,which

39

alsomeansthatyougetamuchnicervarietyofhousing,asopposedtoanestatebuiltby

oneofthebigbuilders.

Q71 LordGriffithsofFforestfach:Ihavetwoquestions.Thefirstisthatsomeonesaidthat

bricks are outdated technology. My impression is that certainly some housebuilders are

looking at building houses in amanufacturing plant and then taking them towhere they

needtobeplacedratherthanhavingbricksfromtheLondonBrickCompanyandexpanding

tobrick-buildinginBedfordshireorsomewhere.Ijustwonderifwearenotlivinginthe20th

centuryratherthanthe21stcenturyfromthepointofviewofinnovationinhousebuilding.

Q72

ProfessorPaulCheshire:This iswhatRichardCrossmanwasarguing in the1960s—system

building, industrialising building, to solve the problem. Yes. I was using bricks partly as a

symbolofbuildingmaterialsthatweneedtohaveabuildingmaterials industry.Thereare

manywaysofbuildinghouses,obviously.Wedoseemtohaveanattachmenttobrick-built

housesinthiscountry,andinEuropegenerally.Theproblemisthatsomuchofthecostofa

houseisnowembodiedinthelandbecausewehavemadelandsoexpensive.

ProfessorDannyDorling:LetmesaythattheLILACprojectinLeedsisthebiggestcommunal

self-developmentprojectofhousing,andtheyhavebuiltitallwithstrawbalefilledwalls.It

isbeautifulbutitisslightlymoreexpensivethanbrick,butveryenvironmentallysound.

LordGriffithsofFforestfach:ComingbacktothequestionIaskedonmigration,Iamstillnot

clear.Iamnotinfavour,necessarily,ofrestrictingmigration.Itseemstomethat,ifyouhave

300,000peoplewhocomeintothiscountry,theymay,inProfessorCheshire’smodel,notbe

significantintermsofdemand,butintermsofahousingneedtheyhavetolivesomewhere.

Intermsofahousingcrisis,itseemstomethat,ifourpopulationisgoingtogrowinthenext

40

20yearsbywhatispredictedbygovernmentstatisticians,thatisaseriousissue.Onecansay

it all depends on income and not population—you quoted London and you said that the

populationofLondonincreasedover50yearsbyaverysmallamount—butifyoulookedat

thepopulationofHertfordshire,BedfordshireandNorthamptonshire, I suspect youwould

finditwasverydifferentfrom5%.Finally,thereismoreinissueherethansayingthereisan

economic demand function in relation to price, income and other factors,which I do not

thinkwearereallygettingtotheheartof.

ProfessorPaulCheshire:ThepopulationofthewholeLondonregionhascertainlyincreased

morerapidlythanthepopulationoftheGLAareaoverthelast50years.Ofcourse,overthe

past10to15years,thepopulationintheGLAareahasincreased,sopeoplearelookingat

thisrecentincreaseinthepopulationoftheGLAareaandsayingthatthisisthecauseofthe

problem,but it isnot.Youcan lookat the long-term increase inrealhousepricesandthe

long-termincreaseinpopulationintheGLAarea,andtheincrease,asyousay,isverysmall.

Population is not irrelevant. I amnot trying to say that population is irrelevant. Providing

socialhousingforpeoplewhowould,inanyworld,beunabletogetintodecenthousing,is

something that, as a society, is a perfectly sensible obligation to take on. But the real

underlying problem is thatwe simplymade housing unaffordable for everybody, and this

questionof incomeelasticityofdemand is farmore important in termsof the increase in

house prices and, therefore, it is reduction in affordability rather than it is population

change,andPolishbuilderscanhelpusbuildhouses.

LordKerrofKinlochard: Iamcompletelyunwrungbythishorrorstoryaboutnobricks,no

brickies and big evil companies crushing little companies that might otherwise build

houses—

41

ProfessorDannyDorling: They did not crush them. Itwas just that little companieswent

bustbecauseoftherecession,andthebigcompaniescouldsurvive.

LordKerrofKinlochard:Itseemstomethatthatisexactlywhatitis.Itistheconsequences

ofthestateofthehousingmarket,notthecausesofthestateofthehousingmarket.Ifwe

aregoingtotryandthinkofsolutions,surelyLordLayardisrightthatweneedtobethinking

about giving an incentive for a more rapid planning system. Where a person sits on

permitted land—that is, land where housing construction has been approved but is not

happening—heshouldsurelybepayingahigherprice.Sowecomebothtotheincentiveand

totheprice.Weneedsomesortof landtax,ataxon landpermittedfordevelopment.Do

youbothagreewiththat?IthinkIknowthatProfessorCheshireagreeswiththat.Idonot

knowifProfessorDorlingdoes.

BaronessBlackstone:CouldI justaskwhetherthe landtaxshouldonlybeon landalready

agreedfordevelopmentorwhetheritshouldnotalsobeonlandthatisundevelopedandno

agreementhasbeenmadeaboutit?

ProfessorDannyDorling:Yes,butthedangerofjustdoingitonlandwithapermitisthatit

putspeopleoffgettingpermissionbecausetheythenknowthattheywillbetaxed,butifyou

weretobegintointroduceit,again,slowlyonallland,thenitgivesyouanincentivetoget

on with something that you were thinking of doing, now. Suppose you are an Oxbridge

college,youhappentoownafewacresandyouarethinkingthatatsomepointyoumight

buildsomehousingonthat.Youwouldhaveanincentivetodoitnowandnotlosemoney,

butpeople reallydoneed these incentivesbecause it iseasy toput thesedecisionsoff. It

needstobeonallland,notjustonlandwithapermit,otherwiseitputspeopleoffgetting

thepermission.

42

Professor Paul Cheshire: Iwould agreebroadlywith that. There is an argument for a site

value tax thatwouldapply toall landwhetherdevelopedornot,which isabetterwayof

taxing property than the council tax and the business rates, because it encourages the

redevelopmentoflandasbetterusescomeforward.SoyoubuildCrossrail,etcetera.

LordKerrofKinlochard:Iagree.Thankyou.

LordLamontofLerwick:Letmeputacontraryview,whichwasputbyKateBarker,whosaid

that, if landwastaxedfromthedateofpermissionbeinggiven,therearealmostcertainly

delaysinstartingduetomeetingplanningconditions.Itwouldalsoincreasedevelopers’risk

“andthecostofthatwillgetbornesomewhereelse…orifyoudidittodayofcourse,people

wouldbuildoutmorequickly,buttheywouldbealotmorecautiousaboutthenextsetof

planning permissions they applied for, so actually it might make the future market less

elastic”.

ProfessorPaulCheshire:Yes,exceptvirtuallyeverythingiscapitalisedintolandprices.Thisis

whyyoucouldmakebrownfield land,which isnotverycostly to redevelop,non-viableby

increasingtheriskpremium.Thatisoneoftheconsequencesofhavingasystemthatdoes

notmakeclear-cutdecisions,whicharenon-gamable,sotospeak.Ifyouweretoputaland

taxonit,allthatwouldhappenisthatpeoplewouldpaylessforthelandinthefirstplace.It

would get capitalised into land prices, just as impact fees are capitalised into land prices.

Theycomeoutofthelandowner’stakeratherthanthedeveloper’sprofit.

LordGriffithsofFforestfach:IfyouthinkoftheimpactthatUberishavingonblackcabsin

London and other cities, my impression—it is only an impression—is that an increasing

numberofpeopleinLondon,particularlyyoungprofessionals,arelookingtorentoutaroom

forpeoplewhomightcometoworkinLondonfromMondaytoFriday,andmoreandmore

43

ofthisishappeninganywhere,butparticularlyinLondon.Ifyouownahouseandyourent

outoneroom,imagineifyoupaidnotaxontherentyougetfromoneroom.Doyouthink

that thatwouldhaveaneffecton increasing the supplyof accommodation?TheTreasury

mightbehorrifiedbyit.

TheChairman:Airbnbdoesjustthat.

ProfessorPaulCheshire:Ithaschangedthesupplyofroomspace.Ifyouthinkofeachroom,

Airbnbhaschangedthesupply.

ProfessorDannyDorling:But,intheory,youshoulddeclareyourincome.MyworryisthatI

suspect a huge number of people do not declare the income they get from the informal

agreementofsomebodytostayinthespareroom.

Q73 TheChairman:Leavingasidepeople’staxplanningarrangements,whichisbeyondthe

scopeofourinquiry,Airbnb—the“sharingeconomy”,letuscallit—offerstheopportunityof

addressing one of the problems that you have identified, which is the amount of spare

space,onaveryflexiblebasis.

Q74

ProfessorDannyDorling: It does, but it isworse thanour current shorthold tenantswho

havenotenancyagreements.Youhavenorightsatall.Youcanendupasaresidentbyusing

Airbnb continuously. Maybe you get squatting rights—I do not know—without having a

tenancyagreement.

Q75 Baroness Blackstone: I have a specific question about current government policy. In

the Budget, the Chancellor announced that social rents were to be reduced by 1% per

44

annumoverthenextfiveyears.Doyouhaveaviewaboutwhetherthatwastherightthing

todo,particularlyfromaperspectiveofhousebuildingbyhousingassociations?

Q76

ProfessorPaulCheshire:Itwillreducehousebuildingbyhousingassociationsbecauseitwill

reducethevalueoftheirbalancesheetsandmakeitmoredifficulttofinancebuilding,and

sincetheyaccountfor20%ofnewconstruction,thatisprobablynon-marginal,butitwillbe

small.

Professor Danny Dorling: However, one reason for doing it was that there is no point in

introducing a so-called living wage and not controlling rents. You need to do something

about rents, otherwise a livingwagebecomesmeaninglessbecause your rents go sohigh

thatitisnolongeralivingwage.Icanseewhytheyareworriedaboutit,butthereareother

waysofgettingourhousingcostsdown.Ourhousingcostsareveryhighasaproportionof

our incomeinthiscountryasopposedtohousingcosts inFranceandGermany.Youcould

improvethestandardoflivingofthevastmajorityofpeopleinBritainbyreducingthecost

ofourrentsandmortgages.Youneedtoaskwhytheyaresohighandwhatyoucando.

Professor Paul Cheshire: The answer to that is a long-run shortage of supply. We have

underbuiltbymorethan2millionhousesduringthelast20or30years.Ofthehouseswe

havebuilt,theyhavenottendedtobeoftherighttypeintherightplacestosatisfydemand.

Itisnotsurprisingthathousingisasexpensiveandascrampedasitis.

ProfessorDannyDorling:Wehavealsoincreasedinequality.

ProfessorPaulCheshire:Yes.Onthatbasis,wehaveincreasedinequality.

45

ProfessorDannyDorling:Wehadmoreroomsperpersonin2011thanin2001.Iagreethat

wehavethesmallestroomsinEurope,andwewantmoreroomsthanwehave.Butwehave

beenbuildingroomsontohousing.Wehaveslightlymorehousingthanwehaveeverhad.

TheproblemisthedistributionofwhoiscrampedinsomepartsofLondonandwhoissitting

inhousingthatismostlyemptyrooms.Thatinequalityisgettingwideraswell.Itisgoingto

getmuchworsebecauseofthisdemographicageingboomthatwegoingthrough–the1946

bornbaby-boomgenerationwillbeaged70nextyear.

The Chairman: Gentlemen, thank you very much for an interesting and wide-ranging

discussion.