The best way to do this is through the tax system. First for consideration should be a property speculation tax (PST), as in Germany. This could be used to levy punitive rates on speculators, or those who own second homes and empty properties, encouraging them to invest their cash elsewhere.
Second, the government must manage speculative capital flows in and out of Britain by taxing them through a Tobin tax on global financial transactions. Corrupt politicians in the poorest countries and oligarchs in weak economies shift often-fraudulent cash into stable jurisdictions such as the UK. These mobile flows of capital inflate the price of Britain’s fixed supply of land.
Creating a managed fall in property prices through these sorts of measures would be good for young first-time buyers, and would help shrink the generation gap in property ownership.
And rising land values dampen productivity: money gets channelled towards speculative property investment, starving the real economy of the investment it needs to improve productivity and boost people’s wages.
So the government must use its firepower to increase property taxes and force a shift to a different sort of economic model. It should drive investment in capital and social infrastructure in order to generate an alternative source of growth: productive, skilled, better-paid employment.
A more affordable housing market will not be achieved by building more private housing, or by channelling more subsidies into propping up the property market. Deflating that bubble is something we must do urgently – before the bubble further deflates the British economy.