Press Story

The Government's housing strategy is offering a lot to big builders while asking for too little in return, according to the think tank IPPR.

IPPR says the country's major developers will do well from the £400m 'Get Britain Building Fund' announced today for shovel-ready house-building projects, as well as from the 'Build Now, Pay Later' scheme of discounted public land release. But IPPR argues that major questions remain as to whether the development industry, once it has the money and the land, will actually develop at the scale required to see the 250,000 new homes IPPR calculates that we need each year.

IPPR argues the Government needs to come up with a programme of radical change within the building sector itself if it is to succeed in spurring growth through house-building. IPPR will publish a paper next month analysing the sector's problems and suggesting ways to shake it up.

Nick Pearce, IPPR Director, said:

"We are still suffering from an economic crisis that arose in large part because of the bursting of housing market bubbles around the world. To start subsidising access to mortgages again is to forget all the lessons of that crisis. It is not the way to pump-primp sustainable growth in housing supply.

"The housing strategy sets out ways to get land and money to developers but it does not ask enough of them by way of quid pro quo. It seems unlikely that the development industry will respond to these subsidies and build enough houses.

"The past two British house-building recessions, starting in 1972 and 1990, both resulted in 'lost decades' for housing output. With the lowest house-building levels since World War Two the danger is that we are now on course for another lost decade in British house-building.

"Today's government intervention makes another lost decade of market stagnation more likely. There is a real danger that existing UK house-builders will merely use building on public land with public money to displace activity from less viable market sites - leading to no net increase in output. The housebuilding sector in the UK needs greater competition and structural reform if it is to deliver high quality homes at lower cost."

IPPR argues that rather than 'leveraging up' Government investment, the current approach 'deleverages down' the impact of Government subsidy by allowing it to cushion financial weakness among existing larger players at the cost of under-performance. IPPR says larger firms benefit from being seen as 'too big to fail', but smaller firms and possible new market entrants have become increasingly frozen out of access to credit and government support packages.

Notes to Editors

IPPR's report - 'Build now or pay later' - is available from http://bit.ly/IPPR8116

IPPR's report - 'Forever blowing bubbles? Housing's Role in the UK Economy' - is available from: http://bit.ly/ufoDBS

IPPR's report -The good, the bad and the ugly: Housing demand 2025' - is available from: http://bit.ly/tpdd0d

IPPR's reports argue for:

Establishment of a National Investment Bank to finance developers and reform the development industry to increase competitive pressures, lower the barriers to new entrants and find ways to compel developers to develop the land they hold.
Mortgages capped at 90 per cent of property values and at a maximum of three-and-a-half times household income.
Investment from local government pension funds (valued at £150bn).
Release of local government held land (51 per cent of all publically held, developable land).

IPPR's reports shows the UK has had the highest loan-to-value ratio of any OECD country before the crisis other than the Netherlands and says this was one of the main causes of the credit crunch. The report argues that the UK's "addiction to house price inflation" is bad for the economy and that a central plank of government economic policy should be to ensure that there is greater stability in house prices.

IPPR's reports identifies loose mortgage lending as the primary cause of Britain's recent house price boom. The report argues that although the UK has a long term undersupply of houses, and needs to build more homes at a much higher rate, the availability of cheap credit exacerbated the damaging volatility in the housing market.

IPPR says the Government and regulators should hold firm against lobbying by the financial services sector, and that the Financial Services Authority (FSA) should recommend 'loan to value' and 'loan to income' caps in its current Mortgage Market Review.

Contacts

Richard Darlington, 07525481602, r.darlington@ippr.org

Tim Finch, 07595 920899, t.finch@ippr.org