Thinking it through

The latest housebuilding figures, and especially the disastrously low figures for affordable homes and the virtual disappearance of new homes for social rent, have refocused attention on housebuilding.

In the run up to the Autumn Statement there has been some speculation that there will be a new Government housing initiative. Whether this will just be another doomed attempt to rejuvenate home ownership or something likely to be more effective, we will just have to wait and see.

One indicator that housebuilding really has risen high up the political agenda is the number of reports being issued by think tanks and others of all political persuasions. Thinking about and making recommendations about housing is in overdrive, and it is hard to keep up. So I thought I’d draw attention to a few reports I’ve looked at recently. (My apologies to those I have missed).

The Respublica think tank reported on ways in which the Government could finance the huge number of homes that the country needs. Its report, Going to Scale, proposes setting up a long-term National Housing Fund which would deliver 75,000 homes a year ‘and get the housing market to work for the many’ by dealing with the ‘fundamental problems of number, pace and scale’. The NHF would be a fully returnable £100 billion investment over 10 years with Government acting as a guaranteed buyer of new homes built by housing associations and small and medium sized builders, building up their capacity at the same time and reducing dependence on a few volume housebuilders. The report is critical of schemes to help people buy homes if there is insufficient action on the supply side to ensure the availability of new homes on the market. The homes would be let to economically active tenants who aspire to buy at a later date. Homes could be subsidised and targeted to specific groups such as key public sector workers. The scale would mean low borrowing costs and give builders the confidence to develop many more sites and faster. The report however has nothing to offer those on lower incomes who will never be able to buy.

An even more surprising report comes from Localis, much panned in these pages over the years for their sadly influential report calling for the end of social housing. Power Behind the Home makes the case for devolution as the key to building more homes, giving local authorities greater flexibility around finance and land. Their theory is that there isn’t one housing market in crisis but ‘hundreds in need of correction’, with each area needing a different prescription. After consulting key local government stakeholders, the report says that a better national housing strategy is still needed but it should set the political direction and be permissive in nature. For local authorities, the report proposes the lifting of the HRA debt cap, the setting up of combined authorities’ housing companies, the full retention of right to buy receipts locally and restrictions on the letting out of RTB properties, the levying of council tax on empty development sites, and ‘powers to freeze land values where there is a mayoral development corporation.

Also on the theme of devolution, the IPPR North think tank’s new report also calls for radical new powers to be devolved to new regional city mayors. Closer to Home sets out the challenges faced by the new metro mayors due to be elected in 2017, also using the argument that there is not one housing market, but many. It says the approach to devolution has been piecemeal and partial so far, with greater central control due to the National Planning Framework, Homes and Communities Agency conditions and prescriptive policies like Starter Homes and Right to Buy. In some areas it believes mayors should be able to determine issues such as building on green belts, the local retention of stamp duty receipts, and the release of public sector land, receive direct capital grant funding in return for raised housing targets, and have greater control over planning frameworks to co-ordinate housing and infrastructure.

Over towards the Labour Party, the report of the Redfern Review, commissioned by Labour’s Shadow Housing Minister John Healey MP, looks in detail at the reasons for the decline in home ownership over the past decade. The report says that home ownership has dropped from 71% to 64% since 2003 but for people aged 25-34 it has dropped from 59% to 37% – a huge drop. It accepts that house price growth is one contributor to this decline but not the biggest – which it says is the decline in access to mortgages (due to static or falling incomes as well as credit restrictions) especially since the financial crisis. It concludes that additional housing supply alone is unlikely to shift the homeownership rate in the near future because of the rate of household formation. Politically, the report calls for a long-term cross party non-partisan approach to housing that focuses on all tenures to create a fair market for all, with the establishment of an independent Housing Commission to own the national strategy. ‘What is needed is decades of consistent supply improvements, in both quantum and particularly location….  Longer term thinking and cross-party co-operation is needed so developers can safely invest in larger projects and in infrastructure.’

A new report from the Centre for Regional Economic and Social Research at Sheffield Hallam University by Tom Archer and Ian Cole takes a more critical look at the volume housebuilders. Profits before Volume points out that their performance over the last few years has seen a sharp increase in their level of profits and a much more modest increase in their output. Reasonably they point out that the business model applied by these developers over the past few years has escaped much scrutiny compared to the endless analysis of the faults of the planning system and other factors. These firms guard against volatility by controlling the release of land from their landbanks, which strengthens their negotiating position on individual sites. Consolidation in the sector has reduced the number of small and medium sized companies, putting the big companies in an even stronger position. Their strategies are understandable in that they are still working through the implications of the 2008 crash and especially by rewarding shareholders who were deprived of dividends then. Their conclusion is that these large builders are likely to continue to fail increase output to help supply meet demand.

I suspect that the sensible conclusion looking at all of these reports and others is that there is no single silver bullet but a wide range of new policies and funding are needed to make a difference. The common thread through all of the reports is the need for long-term thinking and the need to create long-term confidence that development will be supported in a variety of ways.

housing-supply-neal-hudson

However, given that the worst housing performance since 2010 has been the number of genuinely affordable homes (see chart sourced from Neal Hudson @resi_analyst on Twitter) I would also like a much stronger focus on the policies that will deliver decent homes to people on the lowest incomes who will depend on rented homes for as far ahead as anyone can see. In a month which has seen a resurgence in interest in the rising crisis of homelessness, the policies we need are not just those that will build more homes generally but those that will build homes which are genuinely affordable to everyone on the income distribution.

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3 Responses to Thinking it through

  1. Brian Lund says:

    The Elephant in the Room

    The Redfern Review seriously underestimates — indeed ignores — the role of private landlords in the decline of homeownership. The rise in private landlordism and the fall in homeownership are two sides of the same coin. Private landlords compete in the same market as first-time buyers and people who want to move up a rung on the housing ladder but with landlords having substantial advantages including ready cash, tax concessions and, until recently, fewer restrictions on access to mortgage finance. Halting the growth in private landlordism will promote homeownership. There are a number of ways to do this: ‘classic’ rent control — the most effective low-cost homeownership scheme ever devised and responsible for the transfer of over 4.5 million dwellings from private renting to owner-occupation between the 1920s and 1980s — a Right to Buy for private tenants (see Peter Saunders, 2016 Restoring a Nation of Home Owners: What went wrong with home ownership in Britain, and how to start putting it right, London: Civitas) and increasing the Land Stamp Duty Tax levy on second home transfer from 3% to, let’s say, 10%. And why should private landlords pocket £9.1 billion per annum in Housing Benefit payments projected, on current trends as generation rent moves into old age, to reach £197.3 billion by 2065/6 with households in the private rented sector accounting for 63 per cent of the total, compared to 37 per cent today? (See Chaloner, J. Dreisin, A. and Pragnell, M. [2015] Building New Social Rent Homes, London: National Federation of ALMOs). Why not pay Housing Benefit to working low-income homeowners? At least this ends when the mortgage is paid.

    Brian Lund

  2. Fair comment Ed, although my main purpose here was to help people understand who is saying what about new housing rather then to do a detailed critique. Since the post was first published I have added a summary of the report by Sheffield Hallam on the volume hosuebuilders, which takes a critical look at their business model and why their approach works against increasing output – called Profits before Volume.

    Anyone who has read other reports on the issue is welcome to post a comment here.

  3. Ed says:

    Thank you for this helpful re-cap/critique. But you let them off lightly for all sharing the supply-side fetish in various ways. Yes the nature of the housing crisis varies between cities and regions but the shift towards a more commodified, more financialised, system is a causal thread everywhere and policies to reverse that trend would produce faster relief of crisis conditions than policies to augment supply (tho’ that’s important for the long run, providing it’s the right sort of supply, as you say in your conclusions).

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