Dream homes

1945 gave us the welfare state. Covid-19 and the looming climate catastrophe could be our 1945 if we use our collective imagination in the search for radical solutions. Keith Clancy FRSA believes that the UK could have the most beautiful, most sustainable, most affordable housing in the world and that, given that we are the fifth richest country on the planet, we should aspire to be the foremost world-leaders in housing policy.

We are told by the economists, the financial specialists and those who know more than we do about money, that there are limited levers we can pull to adjust the housing market. Small adjustments might be possible, but housing markets are ultimately dog-eat-dog. But is that true?

Often economists present their views as if their discipline arises from a set of fixed laws akin to those of physics. Nothing could be further from the truth. How we organise ourselves depends not on fixed economic rules but on how kind we are to each other, how joyful and loving we want our society to be and how much beauty exists in our imagination for a better future. Long before the 2008 financial crisis, many of us could not understand the maths of house prices rising so fast above earnings. It was a recurring dinner party topic. How would the next generation ever get onto the housing ladder?  Who would buy these platinum-plated, exorbitant new homes? 

Then came shared ownership; a supposed step onto a ladder, which placed all the financial risk of property building on the individual mortgage and rent payer. Then came a rise in private rentals as landlords used tenants to fund second or third, fourth or fifth homes. Then came the crash and austerity and the rise of Generation Rent – thousands of adults in their 30s and even 40s – unable to leave the parental home as the prospect of them affording to rent even a single room faded away.

In the wake of the 2008 crash, the Queen visited the London School of Economics and asked the great thinkers there why it was that no one had predicted the catastrophic financial crisis. Six months later, a letter of reply signed by LSE Professor Tim Besley, a member of the Bank of England Monitory Policy committee, and the eminent historian of government Peter Hennessy, arrived at Buckingham Palace informing our monarch that the reason no-one had seen economic disaster coming was a collective failure of imagination.

We are still suffering from that collective failure of imagination. Imagination is neither childish nor the remit or artists alone. Imagination is the currency of scientists, mathematicians and engineers who use their creative ingenuity to solve unimaginably difficult problems. They investigate the origins of the universe, design spaceships that weave in and out of the rings of Saturn and create vaccines and medicines, which fight killer diseases. It is the will and imagination of scientists worldwide that will bring an end to the current tragedy of Covid-19; imagination must drive social science and economic policy in the same way.

What would our housing policy look like if economists, politicians and social scientists were to have an explosion of creativity? What if they were to look away from their computer screens, out of their windows, and envisage the most beautiful buildings, rising gracefully on every street and in every village of our country? Suppose, for a moment, in their collective mind’s eye, they were to see a country where everyone’s home was a source of pride? What if they could imagine that these homes were carbon neutral, or even carbon negative, and they were to see their children and grandchildren living in these stunning houses without the threat of eviction?  Can they imagine a world in which the cost of keeping a roof above one’s head was a minimal percentage of one’s earnings? The vision is utopian, but we can arrive at it if only we can imagine it.

Realised, this vision would lead to an explosion of kindness; an explosion of kindness that would dwarf the Change Makers spirit of the 2012 Olympics; an explosion of kindness that would match and surpass the many kind acts we see today as we collectively fight the coronavirus. This is already within our grasp.

The model of housing associations can be adapted. Not just to produce rental homes for those on low incomes or shared ownership properties for those struggling to get on the housing ladder, but also to finance the 300,000 new homes our country needs each year and the enormous problem of adapting existing homes to be energy efficient enough for us to meet our sustainability commitments.

The coalition government in 2010 introduced sweeping changes to how housing associations were funded. Grant for new homes allocated to housing associations from central government were reduced from 50% to 10%. To make matters worse, this new 10% allocation came with strict new conditions; housing associations were tasked to sweat their balance sheets to deliver far more homes far more efficiently. Private sector partnerships had to be ramped up, but private developers’ margins were going to be 30% and above. The result was size and quality took a hit. The country was in recession but with vast amounts of cheap money flowing to the sector, in some areas, notably London, land prices inevitably kept on rising as individual housing associations and their private developer partners competed against each other for territory. Social housing providers were out bidding each other forcing land prices to rocket. There had to be a better way of financing the nation’s housing needs.

In 2013, the economist Michael Kumhof (then of the IMF and, latterly, the Bank of England) gave a lecture at the London School of Economics entitled ‘The Chicago Plan revisited’. Kumhof’s motivations were noble; his ambitions were to put an end to global financial crashes once and for all. Kumhof explained precisely and with great clarity, where new money comes from, illustrating how new money can only be created in the private sector through debt. Kumhof explained how back in the 1930’s, an alternative banking system – the Chicago Plan – was widely discussed as a way of replacing the private sector debt banking model with a central bank lending model. It struck me that there was a new way to tackle housing finance.

Quantitative easing was destroying the chances of most young people getting on to the housing ladder as billions of printed sterling flowed from banks into the housing sector driving prices even further up. The solution was clear; we needed to stop funding housing through the private sector banking system and fund UK housing directly from the Bank of England using quantitative easing.

The vast majority of economists vehemently caution using printed money from central banks as theory tells us flooding the economy with new money causes unhealthy inflation.  They are right. The British quantitative easing bonanza post the financial crash caused huge inflation in the housing sector. But Retained Equity, where we print money and give it to housing associations as a grant to build magnificent, sustainable new homes reverses that system by 180 degrees. For Retained Equity comes with one condition; the resulting homes can never be sold.

The equity in such a property can never be converted into cash, therefore stifling any chance of printed money from the Bank of England flooding the economy with inflationary money supply. Think of it like this, you inherit a house worth one million pounds. You can enjoy living in it all your life on one condition; you cannot sell it to realise its cash value. At the end of your life, the house passes on free to someone new. Such an approach would reduce living costs and people would be free to invest what would have been spent on housing in whatever you please. Times that solution with a great deal of organising, good will, great design and a decades long plan and slowly but slowly the UK could create a more equitable housing system that prioritised good design and sustainability.

There are huge vested interests in the status quo. Inside the conventional housing world, mortgage sales and high house prices generate enormous sums of money. It is difficult to persuade many homeowners, that their stake in the growth story maybe good for them but not the wider country, which would fare better if house prices remained stable for a long time.

To gain traction, the Retained Equity idea needs a ground swell of support from the young who wish to have a family of their own but who are priced out. Such a solution can be adapted to aid privately owned homes upgrade to the highest sustainable standards. As long as grants invested are not monetised and instead, the asset locked into the property, we would see a huge carbon reduction, vastly improved privately owned homes and no economy distorting inflation.

Covid-19 has highlighted the inequities in our society as well as the kindness of strangers. Now is the time to be kind to ourselves and, more importantly, to imagine and work towards a kinder future for our children.

Keith Mortimer Clancy FRSA has spent more than 15 years on the Boards of large London housing Associations where he advocates for countrywide cooperation on revamping UK housing policy. He is author of Dignifying the Nation and Rebalancing the Economy (2016).