Following the 2008 crisis in banking and finance, one of the solutions taken was to separate out the toxic assets such as sub-prime mortgages and place them in a new ‘bad’ bank, leaving the existing banks cleansed and able to continue functioning.
The UK housing market is in failure, not least because it is over-valued. So, similar to the banking sector, maybe the housing market should be split into two markets. The first market would be for the over-valued homes which are not selling and will continue to slowly reduce in seller asking prices until the market starts to function properly again. The second market would include new building for rent and purchase at affordable levels, and it would function straight away. The risk is that this second affordable market would overheat because of the first over-valued market, because of the potential for hoarding and for intoxification.
Intoxification, and its super-profits, can be dampened by taxation. For example, any affordable home sold for more than three-times average earnings could have the excess charged as capital gains tax or repaid through covenants. Hoarding is harder to counteract. In the housing market there are laws which deal with hoarding, such as compulsory purchase and indirectly planning permission, but these are not straight-forward to apply. An extra rate (such as Council Tax) on hoarding empty buildings or land is easier to apply on a large scale.
The politics of ‘the art of the possible’ means that canvassing candidates don’t want to knock on doors asking for someone’s vote and then say, ‘of course, you know this house is only worth £160,000’. But when the number of voters excluded from the housing market starts to match or exceed the number currently included, then tenants rights and affordable housing become big enough vote winners to provide a platform for gainning power.
The ‘bad’, over-valued, detox market will then be in effect ring-fenced, slowly correcting itself over the years as more sellers slowly adjust their prices back towards more affordable levels. The danger is of waiting too long so that a future rise in interest rates will precipitate a further crisis in what is still an over-valued and over-mortgaged housing market.