Can the new government’s housing plans deliver?
3 Oct 2016
Today the new Chancellor and new Secretary of State for Communities and Local Government have starting to set out their housebuilding plans. We consider whether the plans are sufficient to build the affordable homes we desperately need.
Just below the inevitable din about Brexit, it’s been notable that housing has also been an important talking point at the Conservative Party’s conference. This shouldn’t be hugely surprising given that housing is still a top-five issue for voters: above education, crime and tax. Helping millions of people find a good home will be an important legacy issue for the new government.
In this context, Sajid Javid and Philip Hammond have announced a new package of measures to build more homes. It was particularly encouraging to hear the new Communities Secretary Sajid Javid make the moral case for building good homes for the next generation and Chancellor Philip Hammond say “making housing more affordable will be a vital part of building a country that works for everyone.”
To go with the encouraging words, they announced a house building package focused on small and medium (SME) developers, custom builders and the use of public land. While the detail will be set out in a forthcoming White Paper, it is set to include:
- A £3bn Home Builders Fund focused on SME developers. This is mostly recycled from other schemes and in the form of loans, but very much welcome.
- A (new) £2bn “accelerated construction” fund for building on public land. (I would guess that this funding is for enabling infrastructure, as public land is often complex to develop – think building above a car-park, school or train station.)
These are some of the right areas to focus on if we want to boost housebuilding. We recommended very similar ideas in our recent paper about how to build 1m new homes.
Crucially, this approach recognises that we cannot rely on the biggest “volume” housebuilders alone to achieve the number or affordability of homes we need. This is not their fault, but a function of the market they operate within. They compete with one another is to pay the most for sites, rather than competing for what consumers and communities want and need. In fact, because competition is so fierce to pay more for land, the quality and affordability of what is eventually built is forced down. Equally, once firms have competed to pay the most for land, they can only build at a speed which doesn’t risk their final sales price. This explains how the number of planning permissions has increased far faster than the rate of development itself.
By focusing on SME developers, custom builders and on public land partnerships the new government has shown it understands this important structural barrier to more building. To succeed, more homes need to be built outside the volume housebuilders’ model, which can only ever deliver an inadequate number of homes.
However there is still a lot of scope for the government to be more ambitious.
In particular, reforming and opening up the land market so that firms can compete for what people want – not on who can pay the most to a landowner. This can be achieved with greater transparency within the land market and reforms which reduce the cost of land within housing schemes, such as fairer values through the CPO process. When we’ve used this sort of approach in the past (as with the New Towns), land costs have been reduced to just 1% of the overall build cost. This made the developments self-financing, including all the necessary infrastructure and low rent housing.
There is also the question of “Rent to Buy”, which was heavily trailed at the start of the conference but has not yet been announced. The recent paper by Conservative pressure group Renewal made an excellent case [PDF] for building low rent homes to help low earners build up savings. After all, the biggest period of expansion in home ownership came after millions of families had lived in low rent housing, much of it built by Conservative governments. Recent research from the Money Advice Service found that 16m Brits have less than £100 in savings, hardly a base from which a new generation of homeowners can be built. These families need secure low rents and savings first, before they can start to think about schemes like shared ownership or Help to Buy.
We strongly hope that an announcement on Rent to Buy is still to come, and that it works for low earners – such as people on the National Living Wage. We’ll have to wait and see.
Overall though, this is a positive first step on housebuilding. We’re hopeful that much more can be achieved and that by the end of the Parliament housing will be seen as an issue which is moving in the right direction.