Spain's political crisis shows why there are no quick fixes for housing

Across Europe, governments face expensive problems but have little money to solve them. Pressure to increase spending on defence, boost public services and tackle housing affordability is pushing administrations to breaking point with increasing regularity.

Spanish Prime Minister Pedro Sánchez called a snap election for 29th November this week following weeks of protests over housing. Images of an 87-year-old woman being evicted from her home in Madrid following a sharp increase in rent were the trigger, but failure to pass emergency legislation aimed at tackling the housing crisis was the final straw for a PM lacking the parliamentary majority to push his agenda through.

Sanchez's proposals included suspending the evictions of vulnerable tenants until 2030 while giving tenants the ability to renew residential leases automatically – effectively preventing landlords from resetting rents in-line with the wider market. The latter point proved most controversial. The centre-right People's Party argued that “housing doesn’t get cheaper with decrees, it gets cheaper with more homes,” which gets to the nub of the trade-off facing governments across western Europe, including the UK.

Plausible alternatives

Rents have surged as house prices have climbed faster than incomes, locking many people out of home ownership. This pattern has only grown worse amid rising mortgage rates and surging build costs. The temptation to seek a quick fix by controlling rents is understandable, despite research and recent examples showing it hampers the delivery of new homes, exacerbating the problem it's supposed to solve. The impulse to deploy the state's muscle is understandable. A substantial rise in council housebuilding, as Andy Burnham promises, would ease affordability pressures. So would an equal rise in private housebuilding, at far lower cost to the taxpayer.

Incentivising developers and investors is politically difficult, rising supply can mean rising corporate profits, but few plausible alternatives can deliver homes at the required scale. The UK government has broadly acknowledged this via the promised introduction of Your First Home, though more could be done to address viability pressures and planning uncertainty in the build-to-rent sector.

Spain illustrates the political difficulty of that bargain. Voters want relief now, but increasing housing supply takes years and often relies on tailwinds outside of government control. Officials across Europe want to believe that intervening in the market may be easier than fixing the shortage, but ultimately there is no escaping the need to build more homes.

Optimistic projections

Looking for the quietest part of the office to take a call? Try nipping down to the cycle storage.

More than three quarters of existing cycle parking spaces are unused during peak, mid-week periods, according to new figures from industry body The London Property Alliance (LPA). In newer buildings – those designed to the current London Plan – the figure rises to 84%. The study covers more than 10.7m sq ft across 21 modern office buildings in central London.

This is largely due to a well-meaning policy underpinned by optimistic projections. The current London Plan assumes that 19% of employees cycle to work, while the new draft adjusts the figure to 10%. The LPA study suggests the real figure is 6.5%. As Flora Harley has noted previously, unnecessary "basements and storage facilities... add to the cost of development, potentially limiting viability, and increasing embodied carbon unnecessarily."

The likes of Lime, which saw trips into the Square Mile using its service climb by nearly 50 per cent last year, has argued that allowing developers "to count shared e-bike parking on private land against their existing requirement... could have a major impact towards a common good."

The consultation for the draft London Plan closes next week. 

Shrinking headroom

The government's fiscal headroom has more than halved to £11.3bn since the onset of the conflict in the Middle East, according to economists at EY. The group attributes most of that to higher bond yields and the subsequent debt servicing costs.

This steady erosion could make the Budget a defining moment for Andy Burnham's government. Former Bank of England chief economist Andy Haldane, who is now president of the British Chambers of Commerce, told an event that the government is “skating on pretty thin ice” unless it shows that “it’s able and willing to take the knife to public spending”.

Haldane said there was a “real sense” in the private sector that they were “taxed out” – the current speculation over banking taxes has drawn warnings from the likes of JPMorgan CEO Jamie Dimon, who told Bloomberg News that "the UK already has “the highest tax rate for banks probably in the world."

Haldane's assessment that taxation has reached its limits is being borne out by the data. Bloomberg uses its Billionaires Index to gauge capital flight resulting from various changes to wealth taxation. It puts the total wealth represented by individuals who have loosened their ties with the UK, or cut them entirely, just in the past two years, at US$160bn. That now surpasses the amount held by UK individuals in the Billionaires Index who still call Britain home.

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