The Tories are agonising over Brexit. They should be more worried about housing.

The true test of leadership is strategic focus – trying to work their organisations into a favourable position over the long term, and then making tactical (short-term) choices accordingly. British politicians of all parties are very bad at this. Advisers who tout themselves as “political strategists” offer no more than tactical advice, on messaging or the use of social media, for example. Strategically the Conservatives have dug themselves into a hole. And I’m not talking about Brexit.

The current Tory predicament arises from their poor showing in June’s general election. This was despite what they thought was an unassailable tactical advantage – Labour appeared weak, and this was amply demonstrated in local election results. And yet that tactical strength covered a strategic weakness, which Labour was able to exploit. While Tories like to blame tactical ineptitude for their failure (and there was plenty on offer), those tactical failings were born of that strategic weakness.

What on earth am I talking about? The land, and who owns it – a theme that has dominated British politics for centuries. The Conservatives have a well-crafted appeal to people who own their own homes, and other assets too. This is what Mrs Thatcher grasped in the 1980s. She extended home ownership through the sale of council houses and loosening restrictions on mortgages. The latter had an important side-benefit: it pushed house prices up, and made home-owners feel wealthier, and more inclined to think that all was well with the world.

All Labour could do was copy the Tories. This Tony Blair did this brilliantly. But this was a triumph of tactics; Labour won three elections, but had nowhere to go after that. Collapse beckoned in 2015 as the party found that a vaguely left of centre appeal was neither fish nor foul. But, in 2017, the worm turned.

By now the scale of property prices has put ownership beyond the reach of most people who neither have property already, nor have an inheritance based on property wealth. There are two types of reason for this. First is that the building of houses where people want to live has not kept pace with demand. Politicians have guarded greenbelts ferociously, following the wishes of local electors. Little new social or public sector housing has been built. Commercial builders seem more anxious to profit from the purchase and sale of land than satisfy demand. Some economists look no further – but the ease with which people can borrow money must also have contributed. When I bought my first property in the 1980s, lenders restricted loans to 2.5 times salary and covered only 80% of the value. Restrictions are fewer now. Interest rates are also much lower. This has surely pushed prices up.

But whether or not you think that loose money or low house-building is the problem, there is an ever growing body of people who are forced to rent their homes, and are pessimistic about ever being able to buy them. The Conservatives, in the meantime, continue to lavish their attention on those who already own property. They were heading for a backlash, and this arrived in June. The Tories did especially badly in London and the South East, where property prices are highest.

Most Tories simply ignored this trend: David Cameron, their leader until last year, was especially bad at this. His only response was to try and subsidise first-time buyers, which just inflated property prices some more. He made no serious moves on social housing or on easing the lot of those forced to rent. But some Conservatives seem to have recognised the issue. One person who seemed to was George Osborne, Mr Cameron’s Chancellor of the Exchequer. His answer was to to see if he could stoke up property prices outside the south east, by strengthening the economy of north England in particular.

Mr Cameron’s successor, Theresa May, also has a sense of the problem. She proved stern on inherited wealth, and on tax-funded handouts to older people during the election. Whatever the strategic virtues of this, she made no attempt to woo younger voters with any real hope that she was on their side. She was simply attacking the Tory base. Meanwhile she has diluted Mr Osborne’s “Northern Powerhouse” strategy. It was an attempt to cover the party’s strategic weakness that led to the tactical error in the Conservative manifesto.

Meanwhile, Labour’s more stridently left wing appeal under Jeremy Corbyn  has turned out to be a good place from which to woo those forced to rent. Tory attacks on Labour were designed to motivate older voters, who have bad memories of left-wing politics – and they have passed younger voters by.

It will not be easy for the Conservatives to dig themselves out of this hole. They have started to grasp that more house building is needed, and that they can’t rely on private sector developers to accomplish this. But there is a problem. If houses are to become more affordable, then house prices will have to come down. The alternative prospect, of strong wage inflation alongside stable house prices looks implausible. But falling property prices will hurt their base, for whom the value of their property is a cornerstone of their wellbeing. This looks fatal – though if the party can find a way of boosting regional economies and drawing growth away from the south east, the evil day will be postponed.

It is much easier for Labour to take on what the country actually needs: more building of houses. The public sector will have to do the heavy lifting here – anathema to Tories. A large chunk of this new housing should surely be social housing, directly alleviating the worst social pressures. But public sector housing doesn’t have to be social housing – the government could take on strategic projects the private sector is unwilling to – and perhaps address builders’ abysmal productivity while they are at it. If it works, such building will reduce rents, and then the capital value  of land.

At the moment most political commentary centres on Brexit, and the pressures this is creating within both major parties. That is important enough – but housing may turn out to be more important still in the long run.

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One thought on “The Tories are agonising over Brexit. They should be more worried about housing.”

  1. Property prices are excessive because governments have for years over relied on monetary policy. If the economy needs a boost then interest rates are lowered to encourage extra private borrowing. Much of this is directed towards the property market.

    Low interest rates create a problem for savers so they look to ‘invest’ in an appreciating property market instead. The rents on property will give you a return of maybe 2-3% after expenses. Which is OK, but the buy-to-let market hasn’t boomed because of even the promise of 5%. It’s boomed because there’s an understanding that investing in property is a one-way bet.

    There’s a bubble. Govt will do what it can to keep the bubble from deflating but if/when it does it’s going to be catastrophic for the economy. Much worse that Brexit but Remainers will be pleased to know that Brexit will almost certainly get the blame.

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