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“Silver bullet housing policy could make homeowners millions”

Lola emailed me a link to this regurgitation of the press release:

New modelling shows that the average homeowner who did take up the scheme could make hundreds of thousands, or even millions of pounds, depending on where they live – after building costs and costs of finance. One worked example in the paper shows how a post war cul de sac in Barnet could voluntarily decide to uplift. This would transform the 26 bungalows worth £14 million in total, to be given an additional £54 million in uplift, £10 million of which goes to the council, £44m of which goes to the homeowners (£1.7 million each).

Economist Sam Bowman tells Guido that the policy could solve the housing crisis by unusually making everyone a winner:

“This is the silver bullet that could solve the housing crisis – unlike almost all other proposals, this one works by enriching existing homeowners when they allow more homes to be built. The solution to this decades-long problem is to make it a win/win for people who own their own homes and people who want to. If the government goes ahead with these plans it could make Thatcher’s right-to-buy look like a drop in the ocean in terms of increasing homeownership in Britain.”

This superficially sounds like the grey market in air rights in Manhattan or some Home-Owner-Ist Ponzi scheme. So I followed the links to the actual proposal in order to see if it really was that dumb.

It isn’t actually. What it boils down to is that under current rules, one person on a street puts in a planning application to significantly extend his home, and all his neighbours oppose it. Under their cunning plan, those on a street who want to extend come up with a planning application for the whole street which gives every owner the same right to extend, and they all take a vote. If a majority agrees, then everybody can extend up to the new maximum.

Those who are opposed will vote against. Those who aren’t bothered either way have to make a calculation – being surrounded by larger/higher buildings depresses the current rental value of a home, but the automatic right to extend it by a certain amount increases its potential selling price. If it’s a net uplift, then it makes sense to vote in favour and bank the uplift.

So actually it’s quite a sensible suggestion. In theory, it pushes the balance towards densification rather than sprawl, which is believed to be A Good Thing. But clearly, it will make very little difference to anything. I can only see it taking off on streets where all homes are similar, so everybody’s uplift is the same.

And as per usual, it just funnels money/value towards people in high value areas. In an average residential area with averagely spaced semi-detached houses worth £200,000, the ones with a third storey are worth (say) £50,000 more, but the third storey costs £50,000 to build. In an expensive area where an average semi-detached costs £600,000, the extra storey might increase the value by £150,000 for a build cost of £50,000, so that’s a straight profit of £100,000 for just ticking the “yes” box.
As ever, this is a job for Land-Value-Tax-Man.

For a start, existing buildings would be used more efficiently so there’s less need for new construction.

Councils can also be more generous with the right to extend. Every time a home is extended (or improved), the average rental value of all homes in that area goes up ever so slightly, so everybody’s LVT goes up slightly. The first ones to extend (or improve) are getting a good deal, because they are only paying for a small fraction of the extra rental value.

When enough people have extended (or improved), the last few who haven’t might as well extend (or improve) as well (or sell on to somebody who will) to catch up – there is no point paying for something (i.e. planning permission) which you aren’t using. This is a very gradual thing, but it sorts itself out in line with market forces. If it’s a low demand area, few will extend (or improve) so there’s not much impact. Even if the council in a low demand area gave everybody permission to extend by two-storeys, very few would bother – it would be cheaper to just move to a bigger house. In high value areas, it will be a more rapid race to the top.