6 Sep 2012
Fresh ideas but is it enough?
We’ve been waiting for the government’s big housing announcement ever since one was apparently pulled from the budget for not being bold enough. What finally emerged this morning certainly had some boldness in it, if not the radicalism that some had expected.
There was nothing on weakening green belt restrictions, and some stuff about allowing homeowners to build extensions without planning permission which may raise a few hackles – but there was new money for additional affordable home building, and a potentially very useful move to use government guarantees to support private investment. There was also help for first time buyers – but happily this came in the form of the quite good FirstBuy programme rather than the underwhelming NewBuy.
Admittedly, the new money isn’t much given the overwhelming scale of the need – £300 million doesn’t build a lot of affordable homes, especially in the context of the £4bn cut in the 2011-14 spending round. But it is at least genuinely new money sourced from departmental underspends, which signals a welcome recognition that housing deserves to be at the front of the queue for whatever goodies might be available.
The £10 billion figure for the new guarantee mechanism is much more impressive, though it’s just an ‘up to’ figure – which could mean an awful lot less than £10 billion in practice. Nonetheless, getting government to guarantee investment by others could be a really useful new tool in the box – and one that is well suited to times like these when the private sector is sitting on piles of cash but is reluctant to invest, and the government’s credit line remains strong.
A big worry is the watering down of S106 commitments – the deals developers do with councils over the amount of affordable housing they build in new schemes. On this issue the house builders seem to be making all the running, having convinced the Treasury that commitments to build affordable homes are a key barrier to getting stalled sites going.
A case can be made – and is made, repeatedly – that sites bought at pre-crunch land prices are no longer viable at post-crunch sales values. But this is a problem regardless of the amount of affordable housing that is required, the result of a horribly volatile development industry driven by speculative pressures. Reducing the cost on developers by retrospectively dropping S106 obligations might boost profits in the short term, but can only fuel the speculative bubble cycle that created the problem in the first place. Real reform should reshape the development industry so that doesn’t rely on bubbles and overblown profit margins. In that vein I hope today’s announcement is followed by measures to increase competition by helping small-medium firms, new entrants and self-builders – as we said when we wrote to the PM a few weeks ago.
It’s also worth asking why developers signed up to these S106 agreements in the first place if they immediately kill the development – after all, these are voluntary agreements between local planners and private companies. And as planning permissions don’t last forever, almost all of the stalled schemes out there must have been agreed after the crunch. There’s a real danger that the owners of stalled schemes will simply bank the new permissions with less affordable housing, boosting their asset values and pushing up the market price of land, without even building any more homes. After all, the more honest of them are happy to admit that they’re still ‘prioritising margin over volume’ – i.e. building less and selling for more.
Today’s measures could be an important step towards delivering more homes, but there remains a need for innovative thinking if we are to build the homes we desperately need and prevent more people’s lives being held back by housing. The large developers have got pretty much all that they wanted. So it’s now up to them and the government to start delivering, and fast. If this latest plan doesn’t work some serious questions will have to be asked about whether our house building system is fit for purpose.