Adam Smith Institute

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Power Lunch with Grant Shapps

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Grant Shapps MP, the shadow housing minister, was our guest at a Power Lunch in Westminster yesterday. He seems in no doubt that much of the rise in house prices over the last few years is down to a fake boom engineered by Gordon Brown, with some help from the US politicians and financial authorities too. 

And certainly, Brown make the Bank of England focus on an inflation measure that stripped out housing costs. So while house prices doubled, they had to sit back and ignore the fact.

House prices will undoubtedly fall a lot further as Brown's inflationary boom works itself out. So what is housing going to look like then? Like me, Shapps would like it to be a sector that is driven far more by local market returns and incentives, rather than on clunky top-down decisions by ministers to build three million homes, or politicians sticking pins in a map and declaring them the sites for new eco-towns, whether local people want them or not.

We need a system in which local people get the benefits of development, and not just their costs. At present, builders face the so-called 'Section 106' process, in which they have to agree to make a third (in London, Ken Livingstone wanted it to be a half ) of what they build 'affordable'. But that just raises the cost of the rest, and it doesn't help people who are already resident there. If builders are going to face this sort of development tax, it should go to purposes that the local community actually wants – tidying up the high street, for example, or upgrading the general infrastructure, or even reducing the council tax. Then local councillors and residents would see gains from new development, instead of just resisting it.