Off target

Originally posted on August 24 on Inside Edge 2, my blog for Inside Housing

A million new homes by 2020? The latest housebuilding statistics for England suggest little progress towards the government’s target or aspiration or ambition. I forget which it is this week.

There’s the usual mix of good news (starts up slightly on the previous quarter and last year) and bad (completions up on the previous quarter, down a bit on last year).

But is this graph shows there are few signs of a step change in output. After an uptick in 2013/14, starts have now been stuck on just over 140,000 for the last nine quarters. Completions have now caught up.

And this is before any real impact from the Brexit referendum. Projections by Capital Economics in a report by Shelter yesterday suggest that housebuilding will fall by 8% over the next year because of uncertainty following the vote and that output will be down 66,000 homes as a result.

So a year into that five-year non-target, it seems perfect timing for chancellor Philip Hammond to launch his much-touted fiscal stimulus in the Autumn.

However, what sort of stimulus will it be and who will benefit? Reports this week that the housebuilding element of the package will come in the form of guarantees and loans do not give me much cause for optimism (though there are indications this could be a reshuffling of existing schemes rather than somethng new).

Policy since 2010 has been based on the mistaken assumption that ‘what’s good for housebuilders is good for housebuilding’. As I’ve blogged repeatedly, the government has laid out a lot of quid without much quo.

The Shelter report calculates that government support for the private sector housebuilding totalled £32bn in grants, loans and guarantees between 2010 and 2015. Of this, £25bn was on the demand side and £24bn has come through various flavours of Help to Buy.

Private sector completions have risen from just under 90,000 when George Osborne announced the original Help to Buy in 2013 to just over 110,000 now. Around a third of the sales of major housebuilders are supported by the scheme, which suggests that there has been little if any improvement in non-Help to Buy output.

And Shelter’s calculation does not include further indirect subsidies that have come through the elimination of ‘red tape’ on housebuilders. Requirements on affordable homes and zero carbon homes and centrally imposed standards for homes on public land have all been relaxed while the definition of ‘affordable’ has been steadily watered down. Back in 2010 I estimated that these could be worth up to £60,000 per plot to the major housebuilders and red tape has been cut even more since then.

As an illustration of the impact, take the ease with which developers can get requirements for affordable housing reduced on appeal. Here’s one recent example: a developer got planning permission for 193 homes on a factory site in Essex on the basis that 58 of them would be affordable. The council rejected its application to reduce the affordable homes to nine but the developer appealed and will now only have to provide 16.

The planning inspector said it was ‘regrettable’ that the developer paid too much for the site given unexpected ‘abnormal costs’ including for site clearance. He ruled that rejecting the appeal would delay the development at a time when the government wanted more homes to be built. Here in miniature is how the housebuilding sector has persuaded the government to bail it out repeatedly.

A stimulus package consisting of more loans and guarantees with the lion’s share going to major developers risks being merely more of the same. As a former housebuilder himself, who an FT profile this week revealed was highly adept at playing the system, Philip Hammond should recognise this. Reports this week do at least suggest that the biggest beneficiaries will be small and medium sized builders and developers specialising in modular construction.

Shelter argues instead for a Housing Delivery Package including new investment and policy reform. This would include new borrowing for investment, a Help to Build package for small builders, loans to convert stalling schemes to build to rent, direct commissioning of new homes, a new strategy for skills and new construction methods, much smarter use of public land and greater use of public land.

Along with freedom for councils to borrow and build again, that sounds like the sort of package that would be needed to get to a million homes.

Except of course that the government has an opt-out if it wants to use it. It’s never specified exactly what a million homes means, even whether it just covers England. Shelter’s report assumes that it means housebuilding on the basis of today’s figures, in which case the shortfall last year already means we need 215,000 new homes a year for the rest of this parliament.

However, as I blogged in May, the government may well have different figures in mind: the net additional supply of homes. Once you include its higher figures for housebuilding and add conversions and change of use (but take off demolitions) there were 171,000 net additions in 2014/15. I suspect someone has looked at these figures, decided that a million by 2020 looked achievable and then the minister announced it. Either way, it seems a no-brainer that politicians will choose the most favourable number available.

If that is the case, they need to be called out for a non-target that is the opposite of ambitious: a million homes over four years is only 30,000 more than the last Labour government managed despite the financial crisis. That’s the Labour government that this one repeatedly attacks as presiding over the lowest housebuilding since the 1920s.

Shelter argues that with housing need running at 250,000 homes a year (1.25m over a parliament) it’s legitimate to use today’s housebuilding stats for the target. The House of Lords economic affairs committee went even further in a report last month that rejected 200,000 a year as not remotely enough and called for 300,000. Real ambition would also mean preparing the ground now to sustain growth beyond 2020.

Whichever way you look at it, if the government is serious about new homes it must act in the Autumn.