Will the Budget finally begin to fix the broken housing market?

Published: by Toby Lloyd

I don’t want to jinx it, but we’re increasingly excited about the prospects of a major housing announcement in the Budget later this month. The government has repeatedly signalled that fixing the housing crisis is the top domestic priority – and much of the pre-Budget jockeying and kite-flying has been around how to do that. Inevitably, some of the ideas being floated are better than others, so here’s a quick round-up.

What to expect

In the short run, low-income families have to be able to pay the rent. But as private rents rise, the ongoing freeze on Local Housing Allowance (LHA) means over a million households are at risk of homelessness. Over 30 homelessness charities, faith groups, MPs and landlord bodies have backed our call to the chancellor to end the freeze.

Everyone accepts that really fixing the broken market means building more homes ordinary families can afford, and there’s lots the budget could do here. First up, closing the viability loophole. It’s outrageous that the planning rules currently allow – and even oblige – developers to cut back the amount of affordable housing they provide if a ‘viability assessment’ can show that their profits might not be quite as high as they’d like. Of course developers need to make a profit – but the loophole introduced in 2012 has driven a race to the bottom as developers who plan to exploit it have outbid developers who don’t in the market for building sites.

Our research shows we missed out on 2,500 affordable homes in just 11 local authorities last year alone, on development schemes that used viability assessments. And it’s not just us: small house builders’ trade body, Home Builders Association (HBA), agrees with us. Housing minister Alok Sharma recently agreed that the ‘system as it is does not work’ and the government is consulting on how to change it.

Closing the viability loophole would be a very welcome step, but it won’t transform the housing system. For that, more radical intervention will be needed – and real money too. Sajid Javid has already called for £50 billion in new government borrowing to invest in housing and infrastructure, which would be very welcome – although the chancellor swiftly rejected that idea on the grounds that the national debt is already too high. The economic and moral arguments around austerity vs borrowing are pretty well-worn by now, but there are signs that the debate might finally be moving on from the entrenched sterility of recent years. Overall national debt may be high, but all debt is not the same. A hundred thousand pound-mortgage debt might not be considered a problem, whereas the same amount on a credit card almost certainly would, because borrowing to acquire an asset that generates income and/or goes up in value is very different from borrowing to fund day-to-day expenses. Amazingly, our national accounting rules don’t recognise this.

The simplest way out of the political corner the Chancellor finds himself in would be to change these outdated accounting rules and count capital investment separately. If that’s too politically difficult, the Resolution Foundation have suggested simply exempting housing from the national borrowing constraints. That could allow local authorities to borrow sensibly to build more council housing – which the Local Government Association thinks is on the cards for the Budget.

Future of the green belt

No pre-Budget media frenzy would be complete without some wild speculation on the future of the green belt. This is less promising, because ‘tearing up the green belt’ simply wouldn’t work the way that its proponents imagine. And in any case, it won’t happen because it’s politically toxic. There is a perfectly sensible way through the green belt dilemma – one that could preserve the countryside and limit urban sprawl, while supporting high-quality, affordable development. The green belt debate is so heated and polarised, sensible rarely gets a look in, I’m not holding my breath, but just in case the Chancellor is reading this, here goes…

Some parts of the green belt are ideally suited for release – like brownfield land in the green belt, or monocultural fields next to tube stations. Where the local community is asked to give up green belt land, it’s only right that it should get the absolute best possible outcomes from that development. Not just some overpriced homes and additional strain on their local services, but improved access to open spaces, homes that are genuinely affordable for local people, in beautiful and well-serviced neighbourhoods. Fortunately, the very existence of green belts makes that perfectly achievable – because green belt status itself has kept land values down. (Incidentally, this is another reason why tearing up all green belt status would be disastrous: it would trigger a frenzy of speculative land trading, and all that value would be lost.)

Where green belt land is released it should therefore go straight into Green Belt Community Trusts, which would hold it in perpetuity for the benefit of the local community. The Trusts would then be able to work with local people to plan and develop truly exemplary neighbourhoods, knowing that value created would go to support the provision of infrastructure and affordable homes. It would be up to local people, but I’d argue that the first thing Trusts should do is open up new country parks, so that local people get more access to open green space, not less.

Of course, this model relies on being able to acquire that land at a reasonable price – one that reflects the true market value of a quality development, not the wildest fantasy of some speculative land trader. And that does mean changing the law. As Civitas explains in an excellent new report, the rules on land purchase by local authorities have become horribly confused by years of legal disputes and poorly written legislation. The result is that landowners can demand huge sums for their land, even if makes building affordable homes practically impossible. We need to reform these rules to allow inflated land prices to get back to their true market value – as both Labour and Conservative manifestos promised to do. This is the single biggest thing the government could do to fix the broken housing market. And it wouldn’t even cost a penny.