Yesterday’s Budget: the good, the bad, the interesting
23 Nov 2017
Like several recent Budgets, yesterday’s was billed as ‘a housing budget’. In the end, the reality didn’t quite match up to the claim, although it did include some genuinely positive steps forward. Once again we’re faced with a variety of changes, big and small; some that are definitely positive; some that are just a bit ‘meh’; and some that are hard to read, but might be a signal of truly exciting changes to come.
As Kate’s blog sets out, the changes on welfare are welcome, and will make a real difference to some people struggling with the transition to Universal Credit and the gap between Local Housing Allowance (LHA) rates and actual rents.
The commitment to raise overall net housing supply to an average of 300,000 homes per year is a useful clarification, as there’s been a bit of confusion about which measure we’re using and what the target is. In practice, 300,000 on the net supply measure is pretty much the same as the 250,000 new completions we’ve used for years, because net supply also includes additional homes produced from conversions (breaking up bigger homes into flats) and change of use (turning industrial or office buildings into flats). But it’s good to see the chancellor making such an unambiguous commitment – and the reference to an average of 300,000 makes it clear that this is not a peak to hit once and forget about, but a level of supply that must be sustained.
The chancellor said there would be a total of £44 billion of public investment over five years to support house building. This sounds like a lot – and all investment is certainly very welcome. There are lots of relatively small pots of public cash to support infrastructure, land assembly, estate regeneration and construction training, for example. We particularly welcome the new funding for land assembly: this will go an awful lot further if combined with bold land market reform (see below).
The bigger amounts came in the form of loans and guarantees to support private builders, such as Help to Buy and backing for Build to Rent schemes, which should help towards total supply but may not do much to ensure that the homes built are genuinely affordable for people. There was also an intriguing reference to a new ‘geospatial data commission… to support economic growth’ – which is music to the ears of data transparency geeks like me.
While there was a modest increase in the amounts some local authorities will be allowed to borrow, this fell far short of the revolution in council housebuilding that we and others had hoped for. And there was no increase in the core Affordable Housing Programme budget.
This failure to boost affordable housing isn’t just a disappointment for those struggling to find a home or pay the rent. It also undermines the central objective of raising overall supply. As we’ve argued for ages, it is simply unrealistic to expect the private sector to sustain the high levels of housebuilding we need – we have to get the public sector back into the business of building homes again. The Office for Budget Responsibility’s (OBR) assessment (p53) forecasts no increase in housing supply as a result of the of the Budget.
The headline-grabbing reduction in Stamp Duty for first time buyers didn’t impress us much either. As the OBR notes, it’s likely to push up house prices, benefiting existing property owners rather than those trying to get on the ladder. And it will cost the government £3.19 billion over five and a half years – money which could have provided 40,000 new social rented homes.
For me, the most interesting aspects of the Budget were in some of the rhetoric, rather than the actual numbers.
The Chancellor promised to use New Town Development Corporations to build five new towns in the Oxford-Cambridge corridor – but didn’t specify where. This implies a willingness to address the problems of land value that we’ve been highlighting for ages. Without this action, public investment in new infrastructure like the Oxford-Cambridge rail link will simply push up land values and leave nothing for the quality or affordability of new homes.
So I’m encouraged by the intention to ‘strengthen the ability of the Homes and Communities Agency (to be renamed Homes England) to use investment and planning powers to intervene more actively in the land market’. We’ll need to see the details to know how meaningful this will be though. References to ‘greater support for the use of compulsory purchase powers for site assembly’ and ‘exploring options for the future beyond the Fund, including land value capture’ are reasons to be hopeful. Other bits are more cautious.
A lot of these questions may be addressed by a new review, to be led by Oliver Letwin MP, into build-out rates. It was very telling that the chancellor, despite framing this as a question of why completions don’t match the number of planning permissions granted, made it clear that the solutions could be radical:
“And if it finds that vitally needed land is being withheld from the market for commercial, rather than technical, reasons, we will intervene to change the incentives to ensure such land is brought forward for development. Using direct intervention compulsory purchase powers as necessary.”
This suggests a growing awareness of the problems in the land market that are the ultimate brake on housebuilding and affordability. It remains to be seen if the government is prepared to act on them.