Britain's grasping housebuilders must be shaken to their foundations
An inquiry is long overdue into an industry that imposes “contrived scarcity” on homebuyers amid a distinct lack of competition.
Tony Pidgley, who died suddenly last month aged 72, was a housebuilding legend. A former Barnardo’s boy, later adopted by a gipsy family, he was the ultimate self-made man.
With nothing but shrewd judgment and hard work, Pidgley built the Berkeley Group into one of the UK’s leading housebuilders. He was a tough businessman – of course – but had a communitarian streak a mile wide.
I spent hours with Pidgley discussing the nub of the UK’s chronic housing shortage – our opaque, deeply dysfunctional land market. When residential permissions are granted, land values can rocket many hundred fold – with this vast “planning gain” going almost entirely to landowners, developers and intermediate “land agents”.
My view is that planning uplift should be significantly shared with local government, as in countless other countries across Europe, Asia and elsewhere.
That dampens speculative pressure, generating more reasonable land prices and, ultimately, more affordable homes. The “land value capture” receipts can also fund new schools, hospitals and other infrastructure – making local development more popular with existing residents.
Astonishingly, Pidgley agreed – even though large UK housebuilders make huge profits from optioning and “land-banking” acreage, pocketing vast planning uplift.
“We’re in the building game – that’s where we should be competing, not in trading land,” he told me last year. “As long as there’s room to make a decent margin on housebuilding, bring it on – our land market desperately needs reform”.
Boris Johnson’s new “build, build, build” strategy will boost infrastructure spending, particularly in “left-behind regions” – which makes enormous sense.
But the Prime Minister also promised “a radical planning system shake-up” to ensure more homes are built, “correcting this generational injustice that young people often can’t buy a home, as their parents did”.
Britain has built around three million too few homes over the last three decades. That’s why property prices have spiralled, with today’s young adults spending a higher share of their income on rent, and less likely to be owner-occupiers, than at any time since the 1930s.
Across much of the country, way beyond the South East, even professional youngsters are often “priced-out” – with the average home costing eight times average earnings, compared to just four times during the 1990s. The share of 25-34-year-old owner-occupiers has since plunged from 67pc to 38pc, with well over half a generation locked out of property ownership at this crucial family-forming age.
And lower down the income scale, an endemic shortage of social housing has driven a shocking rise in overcrowding and homelessness. Our planning system should indeed be simplified, not least as it is often a barrier to smaller builders. Britain’s drawn-out “case-by-case” system must give way, in areas where rapid development is needed, to more “zoning” – with clear and predictable residential building rules.
While some greenbelt is worth preserving, much of it is urban scrub. Far from being “concreted over”, the greenbelt has doubled in size since the 1970s – and now covers 13pc of England’s land mass. Housing, including gardens, accounts for just over 1pc. The idea there is “no space” to build is a myth.
And, while we’re at it, our housing shortage isn’t due to immigration either. Since 1970, France has seen higher population growth than Britain. Over the last half century, though, the French have built 17 million new homes, while we have built under nine million – so UK house prices have grown twice as fast and unaffordability is much worse.
And for those shouting “But France is bigger”, I refer again to my previous fact. Housing, including gardens, accounts for just over 1pc of land use in England. Our home shortage isn’t down to immigration. It’s because we haven’t built enough homes.
Since 2013, successive governments have responded to our chronic housing shortage with Help-to-Buy, stoking up house prices even more.
This has handed huge taxpayer-funded profits to large developers channelling young homebuyers into often sub-standard new-build homes.
Extending the £20bn-plus HTB programme would be deeply counterproductive. Radical reform is needed instead on the supply side.
The planning system needs work, but is not the main problem. Since 2017, looser rules mean 80pc of residential planning applications are now being granted. But the building of homes permitted is subject to longer and longer delays – which means there are now permissions for more than a million homes outstanding, that are not being used.
That’s because big, powerful developers are staging a deliberate go-slow, making higher profits overall by producing fewer homes so prices keep rising. We must inject competition into this once vibrant industry, helping small firms. Small builders now account for barely a tenth of all output, down from almost a third before the global financial crisis, which blew many of them away.
The top 10 developers now account for almost 70pc of new supply. That’s why a 2016 House of Lords inquiry concluded the UK housebuilding industry “has all the characteristics of an oligopoly”.
A full Competition and Markets Authority inquiry is long overdue into an industry that imposes “contrived scarcity” on homebuyers amid a distinct lack of competition.
Only bold action can break this deadlock, with hefty fines for unwarranted building delays and a system which splits planning gain 50-50 between developers and local authorities. A similar mechanism sparked the building boom during the late-40s and 50s.
But successive Conservative governments then pandered to powerful vested interests, passing various laws culminating in the 1961 Land Compensation Act, returning all uplift to existing landowners – a reversion to a near-feudal system that remains with us.
The result was rampant land price speculation – sparking the rise of Grenfell-style tower blocks in the mid-60s, as local authorities struggled to afford land for social housing.
And now we have plunging home ownership and chronic unaffordability.
“The local community, the whole of society should capture value on land – it’s about decency,” Tony Pidgley told me with a grin – and he was right. “Why does this need to be so difficult?
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