Something to build on?

John Stewart, former Director of Economic Affairs, Home Builders Federation

Most of Britain’s house builders no doubt see themselves as free-market entrepreneurs. Yet the market in which they operate is dominated by state intervention, from building regulations, through the planning system, affordable housing provision, various schemes to provide funding for infrastructure and development, to the highly successful Help to Buy Equity Loan scheme (HtB).

Yet the outcome of this large-scale intervention has been a decades-long undersupply of new housing. The most immediate consequence of this undersupply has been to push up house prices in relation to incomes, creating an affordability crisis in many areas of the country. In 2015, the median house price in England was 7.63 times median earnings. In the late 1990s the ratio was less than 4.

Undersupply and stretched affordability have far-reaching social and economic consequences, with young people being particularly hard hit. For example, home ownership among the 25-34 age group has fallen from 59% a decade ago to 37% today. The coalition government from 2010-15 acknowledged the crisis in supply and introduced a raft of policies. By far the two most effective were the National Planning Policy Framework (NPPF) on the supply side and HtB Equity Loan on the demand side.

The NPPF has significantly eased the supply of land. Perhaps the best indicator of this is that there have been no major take-overs since the crash of 2008, whereas the decade to 2007 saw large scale consolidation: of the top 30 companies in 1995, half had disappeared by 2007. Because there is a ready supply of land at reasonable margins, there is no need to buy a competitor for its land bank.

[pull_quote]HtB accounts for around 45% of the sales of companies operating the scheme. A study for the Department of Communities and Local Government (DCLG) estimated that around 43% of HtB units were truly additional – i.e. would not otherwise have taken place. This suggests around a fifth of private sector new homes are constructed because of HtB.[/pull_quote]

From the day Theresa May became Prime Minister, housing has been a high priority for the current Government. The long-awaited White Paper, Fixing our broken housing market, provides a comprehensive analysis of the current crisis and puts forward a multitude of policy remedies. One obvious omission is taxation policy (SDLT, council tax, capital gains tax). But this is Treasury territory and so well outside DCLG’s remit.

The White Paper has received a lot of criticism for not being up to the scale of the crisis. I believe much of this criticism has been misguided. There is no silver bullet to solve the housing crisis. If there were we would have implemented it years ago. There may be much more radical ‘solutions’ than those proposed in the White Paper.

For example we could abolish our highly restrictive plan-led system. But the message from house builders is that they don’t want radical policies. They are enormously disruptive and take years to bed down, even if they work. Rather we should build on what we have in place already: identify gaps or weaknesses in current systems and address them, and look for new ways to boost house building numbers and the speed of delivery. This is exactly what the White Paper does.

[color_quote]The White Paper contains so many policies it is difficult to summarise them. However I shall pick out a few that seem likely to be particularly effective. All local authorities will be obliged to have an up-to-date local plan. It is bizarre that the Government should have to mention this, given that our plan-led system was introduced in 1991. The planmaking process is to be simplified and there is to be a standard methodology for working out each local authority’s objectively assessed need for housing.[/color_quote]

The introduction of strong measures to prioritise brownfield land, including a brownfield presumption – the local authority must have a very good reason to refuse a brownfield application – will be very welcome to house builders, especially smaller companies who rely on such sites.

Planning fees are to be increased. While house builders have always said they are willing to pay higher fees, this must be accompanied by increased planning department resources and speedier processing of applications. Lack of local authority planning resources has been one of the biggest obstacles to increased house building. The Government wants to see greater coordination between infrastructure and housing provision, and the utilities need to up their game, especially the water companies. In addition, house builders are expected to speed up the delivery of new homes.

The White Paper puts a lot of emphasis on increasing the contribution of small and medium sized house builders. Numbers have collapsed over the last three decades and delivery has become unhealthily dependent on a limited number of large companies. The Government also wants to see non-house builders, such as contractors, getting involved in housing delivery, with increased roles for housing associations and local authorities.

As I have already observed, there is no silver bullet to solve our housing crisis. But the White Paper is an excellent attempt to build on the successes of the last seven years. However we must be patient. A crisis that was two and a half decades in the making is going to take many years to solve.