George's big day

November 25, 2015 11:19 AM

Today is George Osborne’s big day at the despatch box as he steps forward to give, what is in effect, his fourth budget address in twelve months. It has been mooted in many of the papers (The Daily Mirror, Financial Times, The Telegraph, the Guardian and even on the BBC website) that Osborne is going to use the housing benefit pot to find the savings originally meant to come out from tax credits.

The Chancellor does not need any encouragement to borrow TPA policies. However, if he is short of any last minute inspiration, he would do well to check out our fully costed Spending Plan : -

Spending Plan policy 10 – “Flattening housing benefit rates by reducing the number of ‘broad rental market areas’ (BRMAs) could significantly reduce housing benefit expenditure, particularly in London and the South East. There are over 150 BRMAs in England alone, and areas of high rent have disproportionately large numbers of housing benefit claimants. By determining rates over a wider rental market area, there would be lower benefit expenditure and less pressure in high-cost areas within regions.

Housing benefit rates should be flattened across the UK in order to reduce expenditure by 10 per cent. People who have to pay for their own housing frequently have to broaden their geographical sights to find somewhere suitable within their price range so it is not unreasonable for benefit claimants to be asked to do the same. Many of those who work in London are forced by high prices to look outside the city and commute. Housing benefit claimants should not be immune from this reality of life.”

Spending Plan policy 12“The town planning system is dysfunctional and is imposing substantial costs onto property markets (discussed in section 2.1.4 of the Spending Plan). In turn, this is causing problems for businesses, whose operations are distorted by excessive commercial property costs leading to lower productivity and growth. But just as substantially, it is responsible for the substantial proportion of the housing affordability crisis. Green belt policies constricting London and other cities are warping their development and preventing the market from responding to demand from England’s rising population. The effect on prices and rents of this restriction might not be so powerful if developers could respond to rising demand by building taller buildings. But this, too, is largely prohibited.

Planning policies make tall buildings impossible in most locations and even effectively prohibit buildings just one or two floors higher than their neighbours in almost all locations, due to concerns about issues like oversight and disrupting the existing pattern of development or being out of keeping with neighbours. In some places, demand for space frustrated by restrictions on building “out” or “up” has turned to “down” into basements or “in” through filling in gaps between buildings and on large gardens back gardens between homes. Inevitably, these too have been prohibited (in the case of “garden grabbing” by the Mayor of London) or are being (in the case of basement excavations by some central London councils).

All this has predictable and disastrous effects on prices. And that in turn means on the housing benefit bill. We have estimated that a substantial relaxation of height restrictions and the green belt, if implemented in 2015–16, would save taxpayers £3.8 billion by 2019–20. We calculated this by applying Hilber and Vermeulen’s 35 per cent estimate of the house price fall that would occur after the complete removal of additional planning restrictiveness since 1974 to the housing benefit. This would mean a fully-realised saving of £9.4 billion but we assumed that it would take 10 years for the effects to manifest into a new equilibrium. For this reason, we assumed only 40 per cent of the saving would be available after four years.

The government should, at the least, adopt Professor Paul Cheshire’s suggestion to declassify from the green belt any land within 800 metres of a station. It should also amend national policy to prevent councils from refusing permission for buildings on account of their height if the proposed building is no more than two storeys taller than the neighbours, with the exception of conservation areas and areas of outstanding natural beauty.”

All eyes will be on the Chancellor as he works his way out of this self-inflicted tight spot.

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