George Osborne, the Conservative Chancellor, sees solving it as central to his ‘Fixing the Foundations’ programme to boost British productivity. Jeremy Corbyn, Labour’s leader, has reintroduced ‘Council Houses’ into the political lexicon as a means of increasing supply.
Both views will shortly collide in the parliamentary debate on the Housing Bill. The Conservative Government will introduce measures to promote a greater supply of homes. These will include automatic permissions for building on brown field sites and forcing, or enabling, Councils to make land available for development. Labour will, as usual, bemoan ‘cash starved councils’ deprived of the means to provide housing for the poor.
The Housing Crisis means that Britain’s homes are in short supply and in the wrong place. Poor housing denies families both the security they need to thrive and a stake in wider society. In economic terms it makes the work force less mobile, particularly amongst the young. In the 1980’s just 8 per cent of the population moved house in any one year. Most of these movers are students and younger professionals who will provide the skills for our future work force. That figure is now 12 per cent.
The Government has therefore set an ambitious target of building one million new homes throughout this Parliament. So far this year housing starts at 140,500, and completions at 125,110 show an increase on last year but are still chronically short of the 240,000 needed.
The cause of this shortfall is not lack of demand. Although the Starter Homes Initiative and extending rights to buy housing association stockwere applauded at the recent Conservative Party Conference, they may only have a peripheral effect. Demand for housing is high as demonstrated by increased recent mortgage approvals at 71,000 in July – the highest level since 2008. Furthermore, financial institutions are crowding into the private rented sector market in order to cater for those who want to rent. This is now 37 per cent of the population against just 30 per cent a decade ago.
The Obstacles and How to Overcome them:
The real problem is that this pent up demand is strangled by artificial restrictions on the supply of new homes. Under these conditions basic economics teaches that prices, whether to buy or to rent, will rise. For too long building new homes has been hobbled by the almost schizophrenic contradictions in successive governments’ policy.
First, Land supply. This must be forthcoming in areas where people actually want to live rather than where the Government thinks they ought to. The previous Coalition government’s ‘localism’ agenda has too often stymied this as has the totemic political status given to the green belt, however grubby or haphazardly developed it is. This has prevented land being designated for housing on the fringes of cities in precisely those areas where the middle class most want to live.
Next, the planning process. Probably the greatest restraint on the supply of new housing is the planning process itself. Despite the Coalition government’s attempts at ‘simplification’, planning approval for new housing now takes longer than ever before; probably two or three times as long as it did 10 years ago.
To overcome these obstacles smaller areas of peripheral low quality Green Belt land must be released for development. These could be partly sited in expanded village envelopes which would restore the traditional vitality- the convenience store, pub and even the primary school – of our rural settlements. It is ironic that countryside campaigners should both bewail the depopulation of villages whilst at the same time resisting precisely the careful house building which could reverse this. Sensible connected social housing could allow younger people to remain in the villages where they grew up.
Second, Lack of skills. The appalling shortage of apprentices has been exacerbated by successive governments’ obsession with a 50 per cent higher education target and by incompetent, understaffed and at times positively hostile schools careers departments. It is small wonder that many sites display their safety notices in Polish!
Vocational training for the post 16s in designated specialist schools /centres should be combined with part time apprenticeships with accredited employers in the trade. This model works well in countries such as Switzerland, Germany and France.
Third, Cash. Banks have been extremely reluctant to lend to small and medium size house builders for speculative development. Indeed just 25 per cent of new housing starts are made by firms building less than 500 units a year. This is the lowest for 30 years. Smaller builders cannot compete against their equity financed larger rivals in acquiring that land with planning potential but as yet no permission – the banks refuse to finance this. As a result bigger builders can hoard land, building is concentrated on larger and potentially less sympathetic sites, and some argue design and quality of new home buildings is thereby reduced.
There is no silver bullet to solve our banks’ purblind attitude to financing smaller scale house building. The Prudential Regulation Authority could take steps to reduce the asset weighting of loans for this purpose. A speedier planning process would reduce uncertainty for lenders and costs for borrowers. More devolved decision making to local bank units might better reflect smaller builders’ knowledge of their local markets and the kind of dwellings attractive to them. Lastly, more successful development by small and medium sized builders will over time gradually give even the most bureaucratic and hidebound bank credit committee the confidence to loosen their purse strings.
Fourth, the obstacles caused by the Government’s own ‘green’ agenda. The planning process has too often been hijacked by special interest groups who insist on specialist environmental, waste disposal, transport, education and sustainability reports for even the most straightforward house building applications.
To achieve one million new homes in this parliament we must simplify and streamline the whole planning process – with a clearer, more realistic set of measures which are proportionate to the scale, and therefore potential impact, of the proposed development.
Finally, the impact of ‘affordable housing agenda’. Worst of all has been the social engineering, complexity and delay caused by an ‘affordable housing agenda.’ This ironically has both reduced the supply of housing and restricted choice, as well as actually making housing less affordable. By insisting that up to 50 per cent of new housing starts be reserved for ‘social rent’ or ‘shared ownership’ through the Section 106 process, councils and developers have become locked in interminable arguments about ‘viability’ preventing developments getting out of the ground. This means that councils, developers and their well paid consultants now all try to second guess the market on selling prices, building costs, infrastructure costs and even the make-up of open market (i.e. non affordable) housing on virtually every significant development. Faced with this prospect many builders just simply walk away and concentrate on re-furbishment rather than the new housing we desperately need. This Gordian knot now strangling housing supply cannot be unravelled.
We must therefore once again separate our focus on the number of dwellings to be built from the status of those who will occupy them. This can be done by freeing builders from any obligation to provide affordable housing either on or off site. Instead, their obligations would be met by their paying a simple up front ‘social housing levy’ based on the gross development value of their proposed scheme. The levy would then be directed to those ‘cash strapped councils’ to provide separate affordable housing in conjunction with housing associations.
By overcoming these obstacles, the planning process would thus be simplified, shortened and made more certain. In taxing the value created by a freed residential building market and by not trying to interfere in the market itself, economic efficiency and productivity would increase whilst provision for social housing would still be made. The benign hand of the market, freed of political influence, will be at work. George Osborne’s boast of the Conservative Government as the nation’s builders would happily come to pass.