The government has to take the heat out of the UK’s pressure-cooker housing market

The runaway house prices boom is causing agitation. For evidence, you only need to look at the picturesque Devon town of Salcombe, where the Conservative-controlled council unanimously agreed an amendment to the town’s neighbourhood plan to ensure all newly built homes are used only as a primary residence.

They are not alone: St Ives, Fowey and Mevagissey in Cornwall had already taken similar steps, while two Welsh authorities have taken advantage of the power to double council tax on second homes – with one party even calling for a 500 per cent increase.

Nor is it a UK “thing”. Next month Berlin is due to hold a referendum that, if passed, would force the largest private landlords to sell their properties to the city government at a “fair” price.

Communities across the west are becoming aggrieved that their own children are being priced out of their local housing market as wealthy second-homers push up prices.

While this might seem like nimbyism, it is a response to two powerful forces – one long term and one short term. During the last four decades, the housing market has been sustained by strong demand on the back of population growth, increased access to finance, and government incentives.

This is bolstered by a long-term undersupply of new homes and the lack of a large volume of rented homes, itself exacerbated by the sale of council homes without using the proceeds to build new properties. As a result, a home has become a much sought-after asset as well as a shelter.

Since March 2020 the impact of Covid-19 has accelerated these trends. Central banks pumped further liquidity into the market, pushing down borrowing costs. City-based office workers bought larger properties in the countryside to work from home.

Fearful of a Covid-induced shock, the chancellor, Rishi Sunak, last year announced a stamp duty holiday on property purchases up to £500,000, saving buyers up to £12,500. It was subsequently extended to June and a tapered rate is now in place until the end of next month.

As with other recent incentives – such as former chancellor George Osborne’s Help to Buy scheme – the measure makes it cheaper for existing or new buyers to purchase a home, rather than doing anything directly to increase supply.

The inevitable impact has been documented by analysts at HSBC bank. Its analysts found that while the retraction of the subsidy has cooled activity a bit, the market was still running hot. The number of mortgages approvals were still higher in July than in any month between 2009 and 2019, while Google property searches remain above 2019 levels. According to research of property surveyors’ views, the stock of properties on the market is close to a record low, while buyers’ interest is outpacing sellers’.

Meanwhile official figures show housing construction lies below pre-pandemic levels, particularly in the public sector. Prices will inevitably continue to rise. Inequalities fomented by years of failure in housing policy – to build enough affordable homes, to release land for housing, to intervene carefully in the housing market – threaten to leave the next generation locked out. More than 1.1 million people are on the social housing waiting list despite the private rental market doubling in size in the last 20 years, according to the government’s Social Mobility Commission (SMC).

The Intergenerational Foundation has come up with good ideas to help those locked out of the housing market: reform the planning system to give voice to the homeless; encourage older people to downsize with tax incentives and by building more retirement homes. It also wants 100,000 social rent homes built a year – trumped by the SMC’s call for 3 million social homes over the next 20 years.

The good news is the government has published a planning white paper and will publish legislation in the autumn with a target to increase homebuilding – from social to luxury – to 300,000 a year from 240,000. The bad news is this is in danger of running into the sand. The initial assessment got caught up in another mutant algorithm that cut targets for homebuilding in the north and ratcheted them up in the home countries – managing to anger the red wall and blue wall at the same time.

The government has already moved to redress the imbalance. But rather than look to Whitehall – or even to Salcombe or Berlin – the government could look to Edinburgh.

The Scottish Land Commission, an adviser to the SNP administration, has proposed a new model where the public sector takes a leading role in the market to create “places people want to live at prices they can afford”.

The UK has relied for too long on an exclusively market-led model of housing delivery. It is time for an approach that puts the public interest first