Peer review

Originally published on July 15 on Inside Edge 2, my blog for Inside Housing

Take your pick: targets for new homes are much too low; the private sector cannot deliver them; and policy is too focussed on home ownership.

A report published on Friday by the all-party economic affairs select committee of the House of Lords does not so much criticise the government’s approach to building more homes as skewer it.

And one of the clearest explanations I’ve yet read of why current policy cannot, and will not, work does not come from just any old committee. The group of Conservative, Labour, Lib Dem and Crossbench peers includes two former chancellors of the exchequer (Lords Lamont and Darling) and two former permanent secretaries of the Treasury (Lord Burns and Lord Turnbull) with more cabinet ministers, senior mandarins, special advisors and business people also in the mix. They are drawing on decades of experience of previous failures in housing policy.

The report is also brilliantly timed, just at the point when Theresa May’s new government is getting down to work and preparing for life after the referendum and George Osborne’s budget surplus targets.

Here’s a quick flavor of the recommendations in Building More Homes:

• England needs 300,000 new homes a year for the foreseeable future – not the 200,000 implied by its non-target of a million by 2020. That’s what’s needed to meet current demand, the backlog of past unmet demand and have a moderating effect on house prices. Otherwise the average age of a first-time buyer will continue to rise.
• To meet that target, the government needs to recognise cannot deliver as currently incentivised. Local authorities and housing associations need to make a greater contribution too but are hampered by arbitrary restrictions and tinkering.
• Local authorities should be able to borrow to build social housing in the same way as they can to build swimming pools and market homes. The committee does not go along with calls for the public borrowing rules to be changed but does recommend the extension of the prudential borrowing regime to cover all types of housing.
• The government needs to get a grip on the release of public land (the fiasco I blogged about last year) with a senior Cabinet minister to co-ordinate the programme, the National Infrastructure Commission overseeing how many homes get build and the relaxation of the rule that sales have to achieve best market value to encourage more low-cost homes and help smaller builders return to the market.
• The ‘regressive’ council tax should be changed so that owners of more expensive properties pay proportionately more than owners of cheaper ones. Local authorities should also get the power to levy council tax on developments that are not completed within a set time.

Much of the analysis is familiar from previous reports but put it together and it’s a devastating critique of the status quo. The ‘oligopolistic’ housebuilding industry is dominated by the eight largest firms with little innovation. The planning system is slow, complex and costly and a third of homes granted permission don’t get built.

Taxation makes things worse. Stamp duty reduces turnover and discourages people from downsizing. Capital gains tax on main homes stimulates demand but not supply. The council tax is based on 25-year-old property valuations. One witness called it ‘the craziest system imaginable’ while another noted that if he was living in Princeton, New Jersey rather than Oxford he’d be paying four times more in property tax.

Home ownership has fallen, especially among young people, despite it being a flagship policy of all governments. The rented sector is also under stress but government tinkering (like the ‘short sighted’ social sector rent cut and stamp duty increases) is discouraging investment.

While the government hails its achievement of 170,000 net additions to the housing stock last year, the committee heard that the French built 350,000.

The report argues that:

‘The Government cannot rely on the private sector alone to build the homes the country needs. The gap between what can realistically be expected and what is needed is simply too large.’

While the construction of homes is affected by macroeconomic policy:

‘A robust programme of continuing, uninterrupted development by local authorities, housing associations and private investors in the rental sector would provide a more stable output of new homes across the economic cycle.’

And the million homes non-target looks less and less ambitious the more you read and there were some telling admissions from within government. Witnesses from the Treasury said that even if it is achieved by 2020 house prices will still rise by 5 to 6 per cent a year. Brandon Lewis told the committee that ‘an awful lot of existing home owners will be very pleased’ and it concludes that:

‘The Government’s aim is not to stop house prices rising, rather their priority is to encourage home ownership without cost to existing owners.’

And its scepticism about current initiatives is tangible. Starter homes are meant to account for 200,000 of the million homes but none have yet been built.

A third of the million homes are meant to be built on public land but until last year the government wasn’t even counting completions. The National Audit Office found this week that ten months into the programme to dispose of land for 160,000 homes by 2020 only enough for 8,580 had been sold.

Meanwhile local authorities that want to build social housing are held back by ‘arbitrary and anomalous’ restrictions on their borrowing. In contrast they can build homes for private ownership or rent under the same prudential rules that cover other borrowing.

That’s inevitably just a flavour of a report that really is recommended reading if you care about building more homes. Not everyone will agree with all the recommendations, and many witnesses wanted to go further, but the overall message from this heavyweight committee is clear: business as usual is not good enough.

Is the new government listening?