Our housing market remains in crisis, yet the problems we have with it are neither new nor unique. Over 100 years ago there was also a familiar story of a private landlord dominated market, high rents, poor housing and rising land values. As local municipalities attempted to alleviate these problems through better infrastructure, it inevitably led to a rise in land values and rents. The main beneficiaries were the property and landowners who were able to capture this value and profit from it. It was recognised that a better model was needed.
Letchworth, first Garden City in the world
The most compelling response was Ebenezer Howard’s Garden City proposal, an idea not just to build better homes, but to build better communities through addressing the root causes of high rents and poor quality housing. The idea that he put into practice in Letchworth Garden City was assembling land at an agricultural value then keeping it in common ownership in perpetuity. As the town was built out, this ownership empowered use of the uplift in land values to finance the common infrastructure. This is how nearly every forward thinking urbanising municipality in the rest of the world behaves. By buying land in time, it can be there to be used when the population rises.
Letchworth has retained much of the financial and economic model that Howard designed — with a Heritage Foundation now holding assets of about £125m, which generates an annual income for the town of about £4.5m. Much of the housing stock is now in private hands; the original leasehold model having gone in 1970s (due to the Leasehold Reform Act), though Letchworth still works hard through its housing associations to keep the dream alive. Other Garden City type developments haven’t been so fortunate. Hampstead Garden Suburb cannot claim to be a beacon of affordability.
The Garden City model has however proved to be durable and it is known that it has influenced town planning world wide. Though too often the social goals of the garden city model got washed away in many of the places that were influenced by it, this isn’t the case everywhere.
The Germans learnt from the English experiment
Take Germany for instance, where lessons learned from the Garden City model have inspired over 2.000 active housing cooperatives with over 2.2 million dwellings. A good case in point is Hamburg, the second largest city in Germany. There the housing cooperatives have 130.000 dwellings, which is 20% of the whole stock. One example of note is the Wandsbek Gartenstadt house building cooperative. Founded in 1910, it was directly inspired by an exhibition about the English Garden City movement which took place the same year in Hamburg.
Picture copyright : Wohnungsbaugenossenschaft Gartenstadt Wandsbek eG
One way to judge how successful the co-operative housing model can be is simply to compare the cost to rent a one bed flat of 50 sqm in a Hamburg housing coop, on average 5.95 Euros per sq m per month, with the much higher Hamburg free market rents of 7.56 Euros per sq m. This all works without state input or other costs for the citizens of Hamburg or Germany.
Letchworth and Hamburg are successful emanations of the original garden city model, delivering both social and economic sustainability. Letchworth captures land values through rents on its commercial holdings, which it redistributes as grants and by providing various additional services in the town. Hamburg has used the money primarily to hold down rents to provide sustainable affordable housing.
But Letchworth is really the sole large example in the UK. Contrast with it histories like that of the Glasspool Trust which recently sold its estate to a developer who is now evicting the tenants. It is a poor story as it is the tenants who improved their neighbourhoods, with a result that the land values rose, who were then evicted from their homes entirely because of the value they helped to create.
Public investment increases land values and rents
Another example of how public investment increases land values is the extension of the Jubilee line in London, which cost the taxpayers around £3.5 billion Pound Sterling. In Southwark five new tube stations opened in 1999 — see here the growth of the house prices for Southwark:
Source: Land Registry Crown Copyright
The land values more than doubled within 4 years, attributed to the effect of the new tube line. TFL (Transport for London) issued a press release about the uplift in land value through the investment in the Jubilee Line. The main beneficiaries of such investment were the property owners, not the tenants. When their leases or tenancy agreements came to an end, the tenants’ rents rose.
Where do we start ?
How can we get housing and communities that are socially, economically and ecologically sustainable? How did it come about that we in the UK are trapped in a vicious circle of rising land values and rising rents?
There are different views on that topic, but one of the most obvious is that we don’t give enough attention to the basic economic mechanics of real estate investments.
- Why should a private landowner benefit disproportionately from the uplift in land value, which is brought about by public investment?
- and, how is it that the incoming citizens using the new development also bring value through their enterprise and activity, but this value uplift is also not recognised?
The German constitution under paragraph 14.2 has the following statement:
"Property entails obligations. Its use shall also serve the public good."
In Britain the closest thing we have is ………….????
It seems strange that Britain, the home of the garden city movement, has not learnt its own lessons from our history, leading many Europeans to ask:
- Why are UK councils selling their public land of to the highest bidder, thereby increasing unaffordability and hence increasing the housing benefit bills?
- Why is the central government still using taxpayers’ money to pay for infrastructure investments, when this could be paid for through capitalising the subsequent uplift in land values ?
So, what can we do ?
The Spanish philosopher George Santayana is often credited as saying ‘those who cannot remember the past are condemned to repeat it’ and in this case it seems to be true. However we should relearn those teachings from the turn of the 20th century and understand why Friendly Societies and cooperatives were founded in this country and what the Victorian mutual aid was all about.
Thomas-Emanuel Hoepfner is Co-founder and Managing Director of New Garden Cities Alliance.