Oxley Woods: Cheap but Stylish Housing – and Very Expensive Land
In 2004, John Prescott had one of his better ideas. Which wouldn’t be hard, to be frank.
But this idea was a new scheme to build low cost homes. Mr Prescott challenged the building industry to find ways to build houses for a construction cost of £60,000.
His suggestions included using more modern building methods, like pre-fabricated construction.
The crucial part of his plan, though, was that the land would not be included, but leased from the government. Therefore buyers would simply pay the £60,000 to buy themselves a house, and then pay some kind of lease charge to the government.
We own the land; it’s a valuable public asset. We don’t need to sell it off. We can keep it in trust and we can lease it for essential housing.
The BBC has been reviewing where the scheme got to.
Apparently ten developments were approved, and eight have gone ahead.
The BBC takes the example of a development in Milton Keynes. The developers did not quite manage to meet Mr Prescott’s target of a £60,000 construction cost. The construction cost came out at £85,000, according to the government agency responsible. But still, a far cry from the normal price of a house in that area.
But crucially the land was never separated from the buildings. This means that the average selling price of the homes in that development was a stonking £231,000.
The BBC takes the example of a first time buyer who bought a property in the development for £210,000. She was forced to borrow some money from her parents to fund her “deposit” (sic). That allowed her to get the mortgage she needed – but it still wasn’t enough. She went to the government’s Homebuy scheme, which gave her yet another loan to cover the shortfall.
The BBC does not quote how much cash that buyer had before borrowing from her parents, the bank and the government. But if it was 10%, or £21,000, then she had the money for a quarter of the construction cost of the house.
Instead of borrowing £64,000, as Mr Prescott’s scheme would have envisaged, she ended up borrowing £189,000.
£125,000 of her borrowing was simply to buy the land on which her house was built. The capital repayments alone for her house will cost her £630 a month for the next 25 years – and that’s before you even start on interest.
Once again: of the very large loan payments that she will be forking out to the bank, two thirds will be to cover the cost of the land.
So who benefits?
Did that buyer benefit? Did she heck. Although she is apparently very happy with her house, she will be a debt slave for the next 25 years to pay for it. She will be skimping and scraping, and spending as little as possible on other things, so she can pay the ransome to the bank.
What was that again about high house prices being good for the economy?
The BBC quotes a spokesman for Shelter as saying
Unless we release more land and are careful about how house prices rise, and then we start to build enough homes in the right places and the right kind of homes, none of these schemes will make up for that fundamental lack in government policy.
Well, I agree with that. Milton Keynes is not a place where building land supply is contrained by the physical amount of land (like in central London for example). In Milton Keynes, the building land supply is contrained by planning laws.
Just to save Mark W the trouble, I’ll write his comment for him:
“Or you could introduce a Land Value Tax.”
And I don’t agree with that. But at least surely to God any sensible person ought to agree that we really have to stop all that madness about loving rising house prices?