Public & private

If you're hoping the Barker review of housing supply will lead to effective government action, you're likely to be disappointed. Reducing planning constraints and delays may increase the supply of housing, but it won't make it more affordable.

Although the review notes that "the level of affordable housing is largely determined by the extent to which government chooses to provide subsidy", most commentators have chosen to ignore this. This is surprising, as the fall in the UK's housing completions – currently at the lowest peacetime level since 1924 – is largely the consequence of a long-term decline in public sector construction projects.

Local authority building, which peaked at nearly 250,000 units in 1953, has all but disappeared: registered social landlords have never come close to filling the gap. Completions by RSLs are more than one-third below their 1994 peak of 36,000 units.

This appears to indicate a reduction in government investment but the reality is more complicated. The government's recent focus has been on improving the quality as well as the quantity of social housing, as indicated by the decent homes standard. It has recognised that much of the UK's public housing has always been – or has become – sub-standard.

On the revenue side of the accounts, the government is enjoying explosive growth in income from capital taxes on housing. Stamp duty from residential property rose from £830m in 1997/8 to £3.6bn in 2002/3. Inheritance tax raised £1.7bn in 1997/8 and £2.4bn in 2002/3. Accountant Pricewaterhouse Coopers estimates that this will increase to £8bn by the end of the decade.

The proportion of this cash that comes from housing has increased from perhaps half in 1997/8 to two-thirds now: it will be at least three-quarters by the end of the decade. Capital gains tax on residential property raised £1.2bn in 2000/1 and is probably rising in line with the meteoric increases in house prices.

The chancellor sees housing as a cash cow to be milked for other priorities

This means receipts from capital taxes on housing have grown from perhaps £2.5bn in 1997/8 to £6.5bn in 2002/3, and will continue to increase rapidly.

This is the context against which any extra capital spending on housing should be judged.

If planning gain was included, the receipts would be higher still. Moreover, the requirement for private sector developers to include an increasing proportion of affordable homes in their schemes is not a free lunch. It reduces the rate of return on each scheme, raises the threshold at which a scheme becomes economic, and so reduces industry output. This worsens the housing shortage.

Finding out what the government spends on housing is complicated. It is hard to reconcile Treasury, ODPM and Office of National Statistics figures, which treat current, capital and revenue expenditure differently. More money is going into housing – the Housing Corporation's approved development grant has risen from £823.2m in 2002 to £1.03bn in 2003 and there is extra Communities Plan cash – but it seems likely that annual income from housing outstrips expenditure.

Although one branch of government appears concerned about the housing shortage, chancellor Gordon Brown sees the sector in much the same way as he sees the motorist: as a cash cow to be milked for other priorities.