Building more homes
Introduction: Housing, a broken market?
“There is no single housing problem just as there is no single housing market. There is a collection of housing markets, separated by region, by type of ownership and by quality of building. No single policy can solve all their difficulties. But all of them are inevitably affected by the sheer physical shortage of homes, with the consequent impact upon prices … It is essential to have not only more houses, but more houses of the required type in the right place. There are technical difficulties which have to be overcome over land, financing and the organization of the building industry. But there is also the question of will. Housing has not yet achieved the place of priority in official policy that would be justified both by the social suffering involved and by the public concern that has been aroused.”5
The problems
1.The leader from The Times above rings as true today as it did in 1969. There are multiple problems with regards to housing in this country today; none of them are new.6 Whilst the quality of housing in particular in the social rented sector has improved, the failure of successive governments to resolve these problems, despite dozens of policy initiatives and hundreds of pages of legislation, has meant that house prices, already exceptionally high by international standards, are rising. These problems have been made more acute by the ever increasing demand for housing as a result of natural change, immigration and rising incomes.
2.We took evidence before the referendum on the UK’s membership of the European Union. Any short-term economic uncertainty created by the result will not affect the long-term problems described below. These will only be addressed by long-term solutions.
Construction of new homes
3.As Figure 1 demonstrates, the private sector has not replaced the supply that was once provided by local authorities.
Figure 1: Permanent dwellings completed in England by tenure, 1946 to 2015
Source: DCLG, ‘Live tables on house building, Table 244’: https://www.gov.uk/government/statistical-data-sets/live-tables-on-house-building [accessed June 2016]
4.The large private builders operate a business model which makes commercial sense for them but does not deliver an increase in the supply of new homes on the scale required. The market has oligopolistic characteristics: the eight largest builders build more than 50 per cent of new homes and smaller builders find it difficult to operate.
5.There has been a lack of innovation in housebuilding: modern methods of construction and self and custom build barely feature. There are too few homes being built that older people may wish to downsize into.
6.Local authorities who are keen to return to housebuilding have for many years been prevented from doing so by specific controls and tight limits on public borrowing. Housing associations are also willing to build more units but have been undermined recently by the Government’s decision to reduce social rents thereby depriving them of income.
The planning system
7.The system is slow, complex and costly to operate, particularly for smaller builders. This is exacerbated by planning departments that are under-resourced.
8.No new town has been successfully developed in the last 30 years and a third of homes that are granted planning permission do not go on to be built.
The existing housing stock
9.Increases in stamp duty appear to have been a factor behind reduced turnover in the housing market. This has made the market for existing homes less efficient; people who would wish to move home, perhaps in order to downsize, are being discouraged from doing so.
10.The favourable taxation of housing, such as capital gains tax relief on main residences, stimulates demand for owning houses but does little to stimulate supply. This has helped to encouraged investment in housing as a substitute for pension provision. The council tax is regressive and there has been no residential revaluation for 25 years.
Government focus on home ownership
11.Government schemes, such as Help to Buy, that promote home ownership do not tend to help the people most in need. Despite home ownership being a flagship policy objective of all governments, it has decreased over the last ten years, particularly amongst younger people.
12.The rented sector is also under growing stress, rents are rising in the private sector and waiting lists remain high in the social sector. Efforts to bring large institutional investors into the sector have so far achieved little. The Government’s recent increases to stamp duty in the buy-to-let sector, aimed at helping first time buyers, are likely to discourage smaller landlords. With a greater number of poorer tenants living in the private rented sector, the housing benefit bill has ballooned in recent years.
Wider Government policies
13.Constant tinkering by Government can cause volatility in the housing market, discouraging building by the private sector. Contradictions between actions of the Government and other policymakers have also contributed to uncertainty. To take a current example, the Government is seeking to encourage home ownership but forthcoming changes to capital requirements by the Basel Committee on Banking Supervision are likely to restrict the ability of smaller banks to provide mortgage finance.7
14.As the historic quotes in Box 1 demonstrate, these are longstanding problems. Fixing the housing market remains one of the biggest challenges facing this country.
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Construction of new homes [1983] “There is likely to be a critical lack of supply unless large-scale building programmes are undertaken immediately … too few homes are being built to satisfy the projected demand.”8 The planning system [1978] “The fact is that an adequate supply of building land depends on both private landowners and local authorities playing their part. Neither has much incentive to do so at present. Until this is recognized by the government, the prospect of a “land famine” in some areas will continue.”9 The existing housing stock [1975] “This country’s housing is in such a mess … because of the under-use of existing stock—both a cause and effect of low mobility—and it is here that political action needs to be taken”.10 Government focus on home ownership [1977] “The Conservatives have for some time favoured public assistance to those wishing to buy homes, but unable to stand on their own feet … there has been too much official action in the housing sphere that set out to help one category of householder, but turned out to cause new distortions in the wider pattern of housing provision … The general tendency of such policies has had the effect of assisting those who are already satisfactorily housed at the expense of those who are not.”11 Wider government policies [1977] “Housing has suffered more than most activities from successive lurches of Government policy in recent years.”12 |
5 ‘The Housing Anguish’, The Times, 22 December 1969
6 See Box 1
7 Changes to the standardised model which smaller banks are required to use will require them to hold substantially more capital against mortgage lending than is required at present.
8 Smith, B. (1983) ‘Crisis in housing ‘by 1986’’, The Times, 14 February.
9 Letter to The Times from Clifford Dann, Chairman of the Public Affairs Committee at The Royal Institution of Chartered Surveyors, 27 June 1978
10 Letter to The Times from Horace Cutler, Leader of the Opposition, Greater London Council, 11 August 1975
11 ‘Handouts for Home Buyers’, The Times, 4 November 1977
12 ‘Toward Agreed Housing Policies’, The Times, 24 October 1977