Where Ed Balls is right on building homes - and where he is wrong

Last week I went to see Shadow Chancellor Ed Balls set out Labour’s plans on the economy and public spending in the hope that he would commit to substantial new funding for affordable homes. I’ll give him 7 out of 10.

Mr Balls said that over the coming year it was likely that:

“the balance of advantage will shift from temporary tax cuts to long term capital investment”.

In other words, building homes and investing in infrastructure trumps a temporary VAT cut as the best way to get the economy moving.

He also said that if he were Chancellor now, he’d be bringing forward billions of investment to build 400,000 homes. Given that he’s not the Chancellor now, this is a way to signal intent rather than commit to new spending. Still, the omens are good. A boost of 400,000 new affordable homes over a spending review period would be significant. We’re currently building a total (mostly private market) of around 100,000 homes per year in England.  

Labour’s recognition that new investment for homes is a priority makes sense to us (and the CBI) – but it also shows an understanding that doing nothing to tackle the housing shortage is the worst option of all, driving up social security spending and pricing the next generation out of home ownership.

On Sunday though, munching on my cereals, I saw Ed Balls interrogated on the BBC’s Sunday Politics about his plans. He was asked about how his ambitions for house building can be squared with a commitment to localism. How can he ensure homes are built when he’s in favour of local control over planning which slows this down? This is an important question that all politicians must face – but I was surprised by Mr Balls’ answer:

“…the house-builders are saying we only want to build four and five bedroom homes on green-field land on the edge of towns.” … “The real demand for homes is in the centre of towns” and therefore, he said, the answer was to increase the density of affordable homes in urban areas.

It is absolutely true that the balance of development has shifted to larger homes as Mr Balls suggests, indeed the trend since the recession is stark (see below). This is due a collapse in building, with a larger collapse in city centre development.

 

However, to build thousands of genuinely affordable homes in city centres you need to understand why they aren’t being built now. It’s partly a question of a collapse in investment, but it’s more than that.

Building genuinely affordable homes in the centre of cities is hard under our current system. Before the crash Ken Livingstone had a target of 50% affordable homes in every new private development in London. Since the crash, this has proved an impossible target with some high-profile developments now getting through planning with less than 3% social rented.

The fundamental reason for this is that land prices (especially for those who bought land before the crash) make private schemes with a large affordable element unviable for developers. This is not to say it can’t be done – with smart planning, will and investment it absolutely can, just see the Olympic Park. However we need that kind of strategic intervention to tackle land costs and infrastructure, otherwise investment will be sucked into land prices.

Also, ‘Labour sources’ were telling the Telegraph yesterday that the party plans a whole-sale shake up of the planning system, scrapping the Coalition’s system which has only just come into force. The last thing we need now is more uncertainty which will impact on house building.

Labour’s early plans for investing in housing are to be welcomed – but of course we need to make sure that these vague commitments become manifesto lines.  We also need to think about fixing our broken land market to ensure that price swings don’t suck up all the investment and prevent the homes built from being genuinely affordable. Labour should also drop the commitment to uncertainty from planning reform that will reduce the number of homes built and focus on the practical changes that will really make a difference.

 

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