Tom Tugendhat on British economic stagnation

Second, and even more detrimental to younger generations, is a set of policies that have artificially created a highly damaging cult of housing. For many decades, too few houses have been built in the UK. Thanks in part to the tax system, housing has been transformed from a place to live and raise a family into a de facto tax free retirement fund that excludes the young. More than 56 per cent of the UK’s total housing wealth is owned by those over 60, while home ownership among those under 35 has collapsed to just 6 per cent. This has had profound social and economic consequences as fewer people marry and have children, further impairing long-term demographic regeneration. The result? More than 80 per cent of the growth in real per capita wealth over the past 30 years has come from appreciation of real estate, not from the financial investment that powers the economy.

Michael Tory, co-founder of Ondra Partners, has argued that this capital misallocation has created a self-reinforcing cycle, weakening our national and economic security. Without productive capital, we are wholly dependent on foreign investment and imported labour, straining housing supply and public services. These distortions can only be corrected through a rebalancing of our national capital allocation that puts long-term national interest above narrow electoral calculation. That means levelling the investment playing field to reduce the taxes on those whose long-term savings and investments in Britain’s future actually employ people and generate growth. Along with building more houses and stricter migration controls, this would bring home ownership into reach for younger generations.

British pension funds should invest more in British businesses as well.  Here is more from the FT.