We’ve finally had the chance to have a look at the government’s long awaited housing White Paper, covering housebuilding and private renting. Below is some important context and our thoughts on the mix of proposals.
Why don’t we build enough homes?
In order to judge the White Paper properly, it’s important to understand the reasons behind the under-supply of new homes. The fundamental reason is simple: private housebuilding is overly dependent on a handful of big developers whose very business model is reliant on house prices remaining high.
Why? It’s not because they are corrupt or evil. It’s because they are forced to compete with other developers to pay crazy sums for land to build on. In this feeding frenzy, the developer that offers the most to the landowner is the developer that makes the craziest assumption about how much they can go on to sell the home for. Having done that, in order to make their profit, they can’t build at rates that bring prices down, so they slow the pace of building.
That’s why we grant 250,000 planning permissions every year but only build around 150,000 homes.
It’s also why the level of affordable housing on developments is often so low – and why the quality of new build is so poor too. Big developers look to cut these costs so they can offer more money to the landowner. It’s hardly surprising that new developments prove so unpopular with local communities: the developer that wins the bid for the land is de facto the developer that offers the worst deal for the consumer.
Until we take action to get land values falling, every other policy response will fall short. Wishing SMEs into the market with yet another small pot of money is pointless if they just end up facing the same incentives as the big developers.
In this context, we in the housing sector should probably lose our fondness for saying ‘there is no silver bullet’ to fixing private housebuilding. There is: it’s called fixing the land market, and breaking the stranglehold that major developers have on it.
As a major report we have lined up on this will make clear, the most politically feasible way of doing this (outside of abolishing the planning system) is reviving something called ‘Civic Housebuilding’. At its heart this means government giving local authorities (or development corporations) the power to intervene in the land market and directly buy up private land at cheaper prices. The authority then auctions the land off, not to the highest bidder, but to the developer who who wants to build the most number of good quality, affordable homes in the most timely fashion. But more of that next month…
So how does the White Paper measure up to the challenge?
The White Paper makes clear that the government has started to grapple with the above problem. It notes, for instance, “concern that it may be in the interest of speculators and developers to snap up land for housing and then sit back for a while as prices continue to rise”. This is really welcome and a notable shift from where things were a few years ago.
But what about the solutions?
Well, they are not the big bold leap we would like, but in the mix are some genuinely positive steps in the right direction. These include:
- Build out rates. The paper looks to tackle the slow build out rates, caused by high land prices. Encouragingly, it opens the door to councils being able to more regularly use powers of compulsory purchase to take land off developers who are land banking. This will be vital if this policy is to have real teeth and feed through into lower land prices.
- Land transparency. There is some really promising suggestions around making data more widely available. Part of the reason land is so expensive is because of how difficult it is to get hold of clear information on it. We’d like to see the government ditch prohibitive fees facing those wanting to access data.
- Public land. At the moment councils are forced to sell public land to the highest bidder, meaning development ends up mimicking dysfunction seen on private land. The paper proposes loosening these restrictions which could allow for more and better development.
- Delivery. Allowing local areas to set up development corporations to create new settlements like garden villages. Powerful new bodies like these will be necessary if we’re going to get cheaper land into the hands of those that want to build.
We’d like to have seen more here – for instance a stronger commitment to strengthening of Compulsory Purchase Order (CPO) law to enable land to be brought in to development cheaper, but the above proposals represent a good start.
The rest of the paper focuses on battles with local authorities over planning targets which, as Toby has said, we largely think are a bit of a red herring, but they may help at the margins. Energy perhaps better spent elsewhere, but not actively harmful.
What about renting?
Longer term tenancies will be encouraged in Build to Rent schemes. Again, this is a small step in the right direction – though nothing more at this stage, and probably not worth the attention they received. In reality only a tiny fraction of private renters live in Build to Rent properties, or will do any time soon, and they tend to be at the better off end of the market. In time, we would hope to see the government build on this and make 5 year tenancies the norm for all private rented sector tenants, not just the small number who live in Build to Rent properties.
What about affordable housing?
Buried in the paper is some really good news for affordable housing. The paper rolls back the Cameron government’s commitment to Starter Homes. As you may remember this was going to force councils to ensure that 20% of all homes on major developments were Starter Homes. In effect, this would have meant councils being forced to cut the provision of genuinely affordable homes like social housing in order to build expensive Starter Homes for the well off.
Pleasingly, the White Paper walks this commitment back. Instead, the target will be dropped to 10% of homes on all sites and, crucially, other forms of affordable housing more within reach of typical earners (such as shared ownership and Rent to Buy) will count towards that target. The government deserve credit for listening here, especially given it became such a partisan issue. This is a sensible, pragmatic compromise that means affordable housing will be able to be delivered for those on low incomes as well as priced out middle earners, not either/or.
Funding for Affordable Rent homes, though imperfect (the rents are often high), will also help more ordinary people than ownership products alone. As a next step, we’d like to see funding reintroduced for genuinely affordable homes at social rent levels to really help those on low incomes.
Overall, the shift in emphasis – towards tackling big developers and dysfunctions in the land market, towards making renting more stable, and delivering more affordable homes – is really welcome, and there are some good first steps to making them a reality. In reality more will be needed to deliver upon these lofty ambitions in full, which we will spell out on these pages in coming months. But today is a good start.