Shifting sands

Originally published on January 4 on Inside Edge 2, my blog for Inside Housing

So a New Year brings a ‘radical new policy shift’ for housing. Seven years after the crash and four years after its failed ‘radical and unashamedly ambitious’ housing strategy, the government now thinks it has what’s needed to boost housebuilding.

Hailed by David Cameron as ‘a huge shift in government policy’, today’s announcement that the government will directly commission 13,000 homes certainly seems to be a welcome admission that the market cannot fix housing on its own, that state intervention is required on a significant scale and that the major housebuilders alone will not deliver.

But what took so long? This much has been clear since 2008, when the Global Financial Crisis and credit crunch triggered a housebuilding slump and the Conservatives were drawing up their housing and planning policies in opposition.

Intervention like this then, or at any time in the next four years, could have taken advantage of falling land prices and maintained jobs and skills in the housebuilding industry. As I’ve argued on this blog several times before, even if it didn’t want to build social housing, the government could have funded the development of homes for rent that could by now have been converted for sale. That would have allowed time for the market to readjust.

Six years on, house prices and land prices are back up and much of the industry’s capacity has disappeared. Rather than direct intervention to build homes, the state has instead propped up house prices and existing owners rather than first-time buyers are the real beneficiaries of Help to Buy.

And what does direct commissioning actually mean? One interpretation might be that the government does everything apart from the construction of the homes, using contractors for that working to much lower margins than housebuilders. Elsewhere in Europe local authorities assemble land and offer serviced plots to builders, using the uplift in land values to fund infrastructure.

However, the new English model seems to be narrower than that with (of course) no role for local government. It seems to mean a better mechanism for releasing public sector land and pumping money into starter homes at the expense of other affordable housing. What’s new is that smaller builders will get preference in recognition of the problem of over-concentration in the housebuilding industry identified in Labour’s Lyons Review and which means half of new homes are delivered by just eight big firms.

That at least is welcome news but it comes in the wake of billions of pounds worth of subsidy in the for of Help to Buy loans and guarantees and relaxations of ‘red tape’. The effects on the profit margins and share prices of the volume housebuilders have been spectacular (in a poor year for the UK stock market, Taylor Wimpey and Barratt were the second and third best performers in the FTSE 100 in 2015). The results on housebuilding were much more modest.

And Cameron’s statement that ‘nothing like this has been done for three decades’ is also curious. He was referring to the establishment of the London Docklands Development Corporation in the early 1980s as an agency to take over planning powers from local authorities. He might have mentioned the Olympic Development Authority as a much more recent example of successful direct commissioning or Ebbsfleet as an example of the limitations of the private development corporation model.

Needless to say, a much earlier form of direct commissioning (council housing) looks set to be excluded from the model altogether. From the sketchy details available so far, it looks like starter homes will count as the affordable homes on the five sites, with potential implications for affordable rented homes already agreed. There will also be a £1.2bn fund to get homes build on brownfield sites, which sounds very much like the plan announced during the election campaign to be funded by the sale of high-value council homes.

Greg Clark sounded distinctly uncomfortable on the Today programme this morning (listen at about 7.30) when he was challenged on why all the emphasis is on homes for sale rather than rent. ‘These are subsidised homes for people who can afford a deposit, can afford a mortgage to meet a Tory manifesto promise,’ said Nick Robinson. ‘I ask you again why not simply build homes that are desperately need for people who can’t afford and who don’t want to buy them, want to rent them, and just get on with it.’

Clark had claimed to be ‘pulling out all the stops’ but his reply was hesitant and no wonder. ‘Well we are doing both. We are providing homes for rent as well as for purchase.’ As he well knows, the government all but withdrew support for homes for rent in the spending review to focus subsidy on home ownership instead.

The big question is of course whether the ‘huge shift’ can really meet on the government’s target of 200,000 new homes a year or a million by 2020. ‘Oh yes, absolutely,’ said Clark. We shall see.


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