The news is dominated by Covid-19 – and plans to lift lockdown. Northern Ireland and the Westminster lobbying scandal – plus Prince Philip’s funeral, of course – are also rightly generating reams of coverage.
Yet away from the bulletins, perennial policy issues remain unresolved, blighting the lives of millions. Perhaps the most pressing is housing.
The UK has a chronic housing shortage. We need around 250,000 new homes each year to meet population growth and household formation. Housebuilding hasn’t reached that level since the late 1970s.
The shortage of homes to both buy and rent means adults aged 25-45 now spend more on housing and are more likely to rent than any generation since the 1930s – as sky-high prices deny home ownership. And over the last decade, a dearth of social housing has seen overcrowding and homelessness escalate among low-income families.
Lockdown has highlighted the gulf between the comfortably housed and those in cramped conditions. An ongoing stamp duty holiday and now vaccine rollout has meanwhile sparked a buying frenzy, fuelling house prices even more – with the average home now costing eight times the average annual wage, double the long-term earnings multiple. And localities with a high share of sub-standard housing have seen far more Covid deaths.
As the ranks of “generation rent” swell, Boris Johnson often says he wants to “fix housing” – given the Conservatives’ long-term reliance on owner-occupying voters. Better social housing provision would also be popular in “red wall” Northern and Midlands seats the Tories hope to retain.
Last August, the Government proposed a “radical planning shake-up”, with ministers claiming “a lack of land with planning permissions” explains why we’ve built two to three million too few homes since the turn of the century. That’s nonsense, as this column has previously argued.
Four-fifths of residential planning applications are now accepted and permissions for over a million homes remain unused. The real problem is ever-lengthening delays between permissions being granted and homes being built.
That’s because the big, powerful developers who hoover up most permissions are staging a deliberate building go-slow. They make higher profits overall by producing fewer homes so prices keep rising. Unless ministers tackle this massive market failure, the lack of competition within a housebuilding sector dominated by a few large players, our chronic housing shortage will remain – as I detailed in my book Home Truths.
As such, I welcome a new study by Alex Morton, a former Downing Street adviser and noted housing policy specialist. His report “The Housing Guarantee” was published last week by the Centre for Policy Studies – arguably Westminster’s most influential thinktank, boasting senior staff who helped write last year’s Conservative election manifesto.
Planning reforms, resulting in councils granting more permissions, “haven’t fixed the problem of insufficient housing supply …. a decline in new homes that reaches back to the 1960s,” writes Morton. “The assumption was new permissions would axiomatically be turned into homes,” he observes. Yet despite various recent reforms that have seen permissions “soar” – from under 200,000 in 2010 to over 350,000 in 2019 – the number of homes built each year “has risen much more slowly”.
The problem, says Morton, is that planning permissions are “a one-way gift which boosts the value of the land from say £20,000 a hectare to £2-£3 million, in return for no obligation to do anything beyond breaking ground”. As a result, “housebuilding is largely in the hands of a few large builders and a cottage industry of land promoters, pushing up the value of land with permissions and meaning permissions don’t necessarily translate into homes”.
So the current system “incentivises large house builders to acquire and control land”, says Morton, with the six largest now holding over a million plots, 90pc controlled by the biggest three. No wonder a recent House of Lords report concluded our housebuilding industry “now has all the characteristics of an oligopoly”.
The big players’ grip has tightened significantly in recent years as once ubiquitous small and medium-sized enterprises (SMEs) have been wiped out. Countless such firms, which build-out quickly to aid cashflow, helping to keep the industry competitive, perished when their bank finance was withdrawn during the 2008 financial crisis. In the late 1980s, firms building fewer than 100 homes each year accounted for two-fifths of all new supply, reports Morton. Now it’s just one-tenth.
“The current major housebuilder model traps us in a slow build-out system,” concludes this CPS report. The Government’s proposed planning reforms – which include “planning zones” to reduce uncertainty – “have many positive elements”, says Morton. “But they don’t tackle the issue of ensuring supply by reforming how planning permissions operate.”
Morton wants “delivery contracts” so permissions come with legal obligations to build out within a certain timeframe – or the original applicant gives up land to other builders at a pre-set price. “This would force the existing model of housebuilding to focus more on delivery, not land speculation,” he says.
Councils should be set targets relating to houses actually built, not just making land available. And some public sector acreage should be sold off to SMEs, “at a pre-set price”, also with delivery targets, “to help level the playing field between smaller firms and large”.
This is an important report, in which a genuine government insider puts forward some radical ideas – many of which I proposed in Home Truths. But it doesn’t go far enough.
What’s needed is a reversal of the 1961 Land Compensation Act, so when land gets planning permission and valuations surge, often several-hundred-fold, this massive “planning uplift” is shared with local authorities – an idea backed by successive Parliamentary inquiries. That would dampen land speculation, making building plots – and ultimately housing – more affordable. It would also fund new infrastructure as new housing appears, revolutionising the local politics of planning.
On top of that, a full Competition and Market Authority inquiry is now vital. Powerful vested interests benefit mightily from this high-price-low-build gridlock. They make big political donations to protect the status quo.
But the harsh reality – hinted at in this CPS report, but not spelt out – is that our housebuilding industry is denying millions of hard-working people the chance to rent or buy a reasonably priced home. It’s time to shake it up.
Time for the big builders to lose their plots
As the ranks of “generation rent” swell it is vital we overcome the powerful vested interests responsible for this housebuilding gridlock