Since the publication of the Barker report in 2004, there has been a growing recognition among policymakers that the UK needs substantially to increase its housing supply. Almost 10 years on, we are nowhere near to achieving the required levels of homebuilding. There have been over 1 million ‘unbuilt homes’ in that decade – at current building rates, we are set to clock up another million undelivered homes every seven years.
There not many signs of the hard thinking and planning needed to bridge this gap. Unless party policymakers are being secretly supported by embedded teams of real estate experts, the post-2015 blueprints for housing from all parties look like settlements for varying degrees of supply failure. The recent 2015/16 spending review has just added the fiscal cement to this policy brick wall.
The following graph from an important new Shelter report shows the scale of the challenge. (Although even this graph flatters to deceive, with a peak in affordable housing due to backloading by the current government in 2015 and post 2015 affordable housing supply based on some heroic assumptions within current spending plans of the capacity of housing associations to borrow more.)
Figure 1: Even on an optimistic scenario, current plans won’t deliver enough homes
What thoughts should this report prompt in those thinking about how to construct a viable post-2015 plan to build more homes?
First, we can’t rely on existing housebuilders alone to deliver the numbers needed. There is a touching naivety to successive governments’ approaches to the major housebuilders, matched by a generosity of spirit that has become detached from hard results. Shelter calculates that between 2008 and 2013 the major housebuilders have received £4.5 billion in direct subsidies, benefited from £16.5 billion in government guarantees and gained large windfalls from the removal of government regulations. Yet the past four years have seen the worst four years of private housebuilding completions since 1955.
There is no reason to expect housebuilders to deliver the socially optimal level of housebuilding, and it is unfair as well as unwise to load so many expectations upon them. They are constrained by the risks of the planning system and they lack serious market competition. In the words of Taylor Wimpey, in their 2012 annual report, they will ‘continue to prioritise both short and long term margin performance ahead of volume growth’.
Interestingly, Shelter confirms a prediction made by IPPR that the recession would see a further sharp consolidation in the housebuilding industry (see the graph below). This has happened in spades, and the UK housebuilding industry is now the most concentrated it has ever been.
Figure 2: Percentage of UK housing output by size of housing building firm, 1994–2012
The most important goal is therefore not to focus on wringing spurts of significant output from the few remaining players but to encourage growth from new players.
Second, government investment is necessary but insufficient. Government spending has a vital role to play – some 40 per cent of current new-build is supported by government grants – and major government investment has always been part of previous housing supply peaks. But the numbers look daunting for future investment: to meet housing need would require investing 0.5 per cent of GDP each year in social and affordable housing, depending on the investment model you use. This is more than six times the rate of current government investment – so it is a big ask. Nonetheless, a major increase in capital investment, via borrowing and a gradual shift from housing benefit to bricks and mortar spending should be a core goal of the next government.
Local authorities could play a much bigger role, as Vince Cable pointed out over the weekend. The very unfashionableness (and low debt profiles) of local authorities over the past 30 years has put them in pole position for any additional countercyclical investment borrowing. At the local level there also seems to be a surprising degree of cross-party consensus for such a move.
Third, further reform of the mainstream planning system looks like a dead end. The lesson of the National Planning Policy Framework is that a further push to deregulate planning would come with a high political cost and generate marginal returns. Telling local authorities to build more homes via reform to central government planning guidance is bound to mobilise a public counter-reaction. The future planning minister might as well just hand out free sticks to the Daily Telegraph at their first press conference.
Moreover, any new land released via the planning route is going to be in the control of existing big players and remain pretty expensive. This is a bad route to take if we want to diversify our development industry and push the costs of land down.
We therefore need to be radical about parallel interventions in the land market. As Shelter points out, if housebuilders and the Treasury aren’t going to deliver, only additional interventions will be able to bring housing supply up to the level needed. Of these, variants of land market intervention are by far the most promising: put simply, getting cheap land into the hands of new builders.
Land interventions directly tackle two key problems. The first, in an age of fiscal constraint, is that land purchase – which represents a large and growing cost of new homes – offers a way to drive down costs for government as well as open up opportunities for ‘pre-distribution’. It also offers an asset base on which to secure future borrowing for those who build.
The second is that it offers the ability to break open a land market that is effectively sewn up by a very small number of existing housebuilders. As well as producing more market diversity, it offers the politically attractive opportunity to win over reluctant communities through new models such as self-build, mutuals or community land trusts.
The Shelter report provides a menu of options for land interventions, each with their own ideological flavour and balance of costs and benefits. Greenbelt swaps, for example, look attractive in terms of delivering quantity – with just 1 per cent of re-designated greenbelt producing enough land for half a million homes with gardens – but are very hard to sell politically, for obvious reasons.
A more promising route is to apply the lesson of the new towns: use strategic compulsory purchase more readily and vest delivery power in institutions or organisations capable of master-planning major developments. The term ‘new town’ has become unpopular by association with particular styles of post-war architectural development, but the lived experience of most has been good. The last of the planned new towns was Milton Keynes, which has thrived economically and socially. The other two incontestably well-loved developments were the pre-war garden cities of Letchworth (population 32,000) and Welwyn Garden City (population 40,000).
There are numerous examples from across the channel too. Nearly all post-war development in the Netherlands has taken place on local-authority-controlled development land, using methods similar to the new towns model; in Germany, municipalities assemble land and share the increase in post-development value with landowners, after accounting for associated infrastructure provision.
These options still offer any government considerable obstacles: organisation and planning, likely local opposition, legal challenges to any muscular approach to land acquisition, and timelines that don’t fit well into the pressures of electoral cycles. Fortunately there are growing signs that those local authorities who are experiencing the greatest housing pressures (notably the big English cities) are increasingly prepared to be radical. Labour needs to use the precious remaining pre-election period to test-run ideas and think how local radicalism can best be supported and rolled out.
As Shelter points out, by far the most dangerous option is to do nothing. That would lock us into an ever more volatile and socially divisive housing market that would pose overwhelming risks to any party’s future economic and social agendas.