How to fix Britain’s housebuilding problem

The writer is author of ‘Home Truths: the UK’s chronic housing shortage’

The House of Lords Economic Affairs Committee is holding an inquiry into UK housebuilding. I gave evidence before the committee last week — and this is what I said.

The UK has built around 3m too few homes over the past 30 years. 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 in any decade since the 1930s.

From the North West to the Midlands, beyond London and the South East, even well-paid professionals are often “priced-out”. The average British home now costs eight times average earnings, compared to just four times during the 1990s. The share of 25-34-year-old owner-occupiers has plunged from 67 to 38 per cent, with well over half a generation now locked out of property ownership at this crucial family-forming age.

Overall UK owner-occupancy has fallen from 73 per cent in 2007 to just 63 per cent, below the EU average. And lower down the income scale, an endemic shortage of social housing is driving a shocking rise in overcrowding and homelessness.

Since 2013, successive governments have responded with Help to Buy, stoking demand even more, while handing huge profits to large developers channelling young homebuyers into often substandard new-build homes.

Radical reform is needed instead on the supply side — not least the over-mighty housebuilding industry. As local councils have lately granted more planning permissions, big developers have staged a deliberate go-slow, making higher profits overall by producing fewer homes so prices keep rising.

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We must inject competition into this once vibrant industry, helping small firms — which build out permissions quickly to aid cash flow. Builders producing less than 100 homes a year now account for barely a tenth of all output, down from almost a third before the global financial crisis, which blew so many of them away. The top 10 developers meanwhile build almost two-thirds of new supply. In July 2016, the Lords Economic Affairs committee concluded the UK housebuilding industry “has all the characteristics of an oligopoly”. Peers should now call for a full Competition Commission inquiry.

The nub of the problem is our opaque, 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”.

It should instead be significantly shared with local authorities — dampening price speculation, resulting in cheaper land and, therefore, more affordable homes, while generating funds to build schools, hospitals and other infrastructure. That would make new homes more popular with existing locals, transforming the fraught local politics of planning.

Existing “Section 106” provisions help the state “claw back” some planning gain — but, again, reinforce the status quo. Powerful developers negotiate away their obligations to build communal assets and affordable housing — threatening councils, under pressure from Whitehall to deliver homes, with further delays. Small builders lack such power, so are forced to fulfil their community obligations — often up front, making small developments unviable.

Official “new dwellings” numbers are up — but this is due to a spate of often shoddy one-off conversions of office buildings and shops. Big builders are producing far fewer homes than before the financial crisis, despite gorging on Help-to-Buy taxpayers’ cash.

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Some argue that ultra-low interest rates and quantitative easing have pushed up house prices. They have — a bit. But we’ve seen low rates and massive monetary expansion in many countries and Britain has a uniquely bad affordability problem.

Much of the greenbelt is urban scrub long overdue for development. Far from being “concreted over”, it has more than doubled in size since the 1970s — and now covers 13 per cent of England’s landmass. Housing, including gardens, accounts for just over 1 per cent. The idea that there is “no space” to build is a myth. There is, though, a shortage of land, with planning permission, controlled by those incentivised to build quickly.

Only bold action can break this deadlock. I propose a transparent system that splits planning gain 50-50 between developers and local authorities. Planning gain is shared in this way, and channelled into infrastructure spending, across much of the world — the UK is an outlier.

The government is floating vague ideas about first-time-buyer discounts and a spiteful “mansion tax”. Boris Johnson, the prime minister, should instead tackle the vested interests preventing a nationwide building boom that would get the British economy moving.



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