Few people really wanted an intergenerational war, but somehow, with the growing gap between the incomes of young and old, and in particular the cost of housing, we have something which looks much like one. When the Intergenerational Foundation was established in 2011, we were often criticised for discussing this conflict, but today it seems generally accepted. So perhaps we are now ready to plan for a peaceful intergenerational future. And, as after the actual wars of the last century, planning for housing will be an important part of the settlement.
The ground rules
Conference delegates must accept that there are not enough houses where young people want to live, and that this is why their housing costs are too high. There are shades of opinion which can be added, such as identifying institutional barriers to the better use of existing housing, and wealth inequality meaning the rich choose to use property inefficiently. Both aggravate the problem, but addressing them can only be part of a peace plan.
We have to plan properly for what sort of houses to build and the details of where, even though the general location is clear from the market signals – where housing is over-priced. It’s good that housing has returned as an electoral issue, but we don’t want a return to rushed promises, resulting in poorly planned and located housing. Such housing will become a dumping ground for those society wants to ignore, and will do nothing to bring down housing costs in more attractive areas.
Getting land use planning right
We also need to accept that our post-war planning system has been part of the problem. Town planners never meant it, but the system has been a weapon in what, from our current perspective, seems like an intergenerational war. The system needs to be reformed, so that it responds to excessive house pricing by allowing an increase in supply. Targets should be formulated for local housing costs relative to incomes, but with “local” covering a wide enough area to prevent small groups of older property owners, who dominate many local councils, doing what they can to keep prices up where they live.
This means local democracy needs to be refocused on areas of more general economic significance. Such areas – London and Greater Manchester, rather than their constituent boroughs, and our university towns but including their surrounding districts – are also the natural focus for young, not only economically, but for political engagement. The vision of this year’s Wolfson Prize winner was encouraging here – essentially for a planned growth centred on Oxford, lightly fictionalised, rather than a new town disconnected from an existing economic hub.
Financial planning for an end of property speculation
The peace will also have financial consequences. A declared and effective capping of costs for tenants and buyers will remove much of the speculative element from investment in housing. If this is significant, there could be a sharp move down in prices, destabilising parts of the financial system, and causing electoral pain. This happens when financial bubbles are burst, but our banks are better financed than pre-crash, while sentiment has now moved to accepting that housing is too expensive. We can face these consequences, but planning for them will also help.
A related medium-term problem is that there is no longer any significant return from safe financial assets, thanks to artificially low interest rates. In consequence, many investors, large and small, have moved into the buy-to-let sector. Excessive house prices are therefore part of this larger picture, and they are likely to come down when financial markets return to normal. The Bank of England will indeed be a major participant at the conference.
Planning for tenure type
There will also be consequences from the longer-term decisions about building, buying, renting, or investing to rent. If it is understood that buying a house is no longer the best financial advice anyone can get, young people will be more prepared to rent, so developers will need to sell more of the required increased supply of housing to well capitalised investors, whose returns will come from rents rather than increased asset prices.
This may be the hardest part of the peace settlement to get right, because of cultural resistance to renting, in both private or social sectors, and uncertainty about who these well capitalised investors might be. The best placed are our large housing associations, given their experience of commissioning and managing rental properties, but expansion for them may be financially risky. There is no reason to doubt the good intent of social housing professionals, but the move from being mutual organisations, meeting a more purely social need, to being major participants in the housing market will not be easy.
If we cannot rely on housing associations to fulfil this need, we will need a system for the regulation of the private sector which not only controls the excesses of today’s letting agents, but also encourages tenants to stay as long as they want and encourages a new breed of landlords for the long term. Current proposals, such as argued for by Shelter, for “second generation rent controls”, which would give tenants the security they need are part of the solution, but it also requires somehow accepting private sector landlords equally as part of the solution, rather than part of the problem.