“My message today is very clear – it’s time to get building”. So said Sajid Javid, from the platform of last month’s Conservative party conference.
Mindful that high house prices frustrate numerous voters trying to get on the property ladder, leading politicians have long been calling for more house building. But, in front of the Tory party faithful in Birmingham in early October, the Communities Secretary’s rhetoric then went further – way further – than any cabinet minister before him.
“The big developers must release their stranglehold on supply,” he said, tearing into UK’s all-powerful housing industry. “It’s time to stop sitting on land-banks and stop delaying build-out – the homebuyers must come first”.
With these words – accusing the house-builders and developers of deliberately restricting supply, to keep prices high and so boost profits – Javid transformed a notion long-dismissed as a conspiracy theory into the official view of the government.
Using terms like “strange-hold” and “land-banks”, the cabinet heavyweight set in train what looks likely to be a political showdown between the government and the UK’s housing giants.
“If you’re afraid of controversy then you shouldn’t be in politics – you have to say what’s right and get things done,” he now says. “We can’t have a market that’s dominated by the big suppliers – our housing shortage is a very, very serious problem”.
For decades, UK house-building has fallen short of the 250,000 new homes needed each year to meet our natural growth of population and household formation. During the Thatcher years, as fewer council houses were built, an average of 220,404 houses and flats were constructed annually. That steadily dropped under every Prime Minister from John Major onwards, falling to an average of just 141,132 under David Cameron.
In 2013, just 133,00 new homes were built across the UK – the lowest peacetime total since the 1926 general strike. The latest data shows annual house building at 152,520 – still very low by historic standards. Over the last 20 years, Britain has built around 2.3m too few homes, according to Professor Paul Cheshire, a housing expert at the London School of Economics and advisor to successive governments.
This widening supply gap over the last few years, combined in recent years with the impact of quantitative easing, has seen houses become more and more unaffordable. In the early-1990s, low-and middle-income workers needed to save 5pc of their wages for 3 years, on average, to build a deposit for a first-time property. Today, they need 24 years of such savings. That’s why home ownership has dropped sharply, not least among youngsters – fuelling widespread resentment. Survey evidence suggests that last year over half of first-time buyers needed assistance from “the bank of Mum & Dad”, rising to two-thirds in London and the South East.
Acutely aware of this, Javid wants to tackle the UK’s home-shortage head-on, pointing the finger at a housing industry dominated by big players widely suspected of manufacturing a deliberate supply go-slow to keep prices and profits high.
“Average house prices in London are almost 15 times average income – and, in 40pc of local authorities, the average price for first time buyers is 10 times’ average income,” he says. “This is clearly unaffordable and I will do something about it – we need think of the next generation”.
Javid contests the view – often cited by the biggest housing developers – that the UK’s bureaucratic planning system, and a lack of planning permission, is the reason behind slow house-building. He highlights “an almost 60pc increase” in the annual number of new homes granted planning permission since 2010. The rate of new home-building, over the same period, is 12pc up on the official data. “The sharp rise in permissions is great news, but people can’t live in a planning permission,” he says. “What we need to do is find ways to incentivize developers to use planning permissions”.
What does Javid think about the current concentration of the UK’s housing-building industry? The three biggest players build more than a quarter of all new homes. The top eight account for a half. A little-noticed House of Lords report, published last summer, said the industry “has all the characteristics of an oligopoly”.
Persimmon’s latest figures show £638m in annual profits, up 34pc on the year before. Taylor Wimpey made 604m, also up 34pc, while Barratt Homes made £682m – a 45pc rise. “It’s not for me or others to look at the profits of any company and say whether they’re too big or too small,” he says. “What matters is that you have a competitive, well diversified market – and our market is not diversified enough”.
Back in the 1980s, when the UK last built 250,000 houses in a year, small- and medium-sized builders, often adept at turning projects around quickly and making use of smaller plots the big developers won’t touch, provided more than two thirds of them. Now such firms account for less than a quarter of all new homes.
The Department of Communities and Local Government is next month due to publish a white paper – containing proposals designed to speed up house building. Measures are expected to boost the role of smaller builders, so many of which were wiped out during the financial crisis.
“I recognize the big developers are hugely important in providing supply and I want them to do more of that,” says Javid. “But we also need more smaller builders in the market and, sadly, many have left in recent years”.
At party conference, Javid announced “a £5bn package” aimed at helping small and medium-sized developers. “We’re going to start building much faster on government-owned land, making available far more of the plots with space for 50-100 homes to smaller developers”.
Javid talks of the need for “far more competition” across the housing industry. “As well and more small-builders, we need to follow the example of countries that use factory-build and custom-build houses – above all, we need to make sure we provide the right incentives to diversify”.
Across England alone, there’s now planning permission available for 476,000 homes that remain unbuilt – a record high. The annual reports of the three biggest developers show that while they between them completed 44,360 new homes across the UK last year, they had planning permission for 200,823 more. The same three companies own “strategic land holdings”, without planning permission, with space for another 278,6000 homes.
“I’m a former business person, I know how businesses work,” says Javid. “The model of the big developers is that they have financial resources to buy up land and try to provide certainty for themselves – and I understand that. But I also know how to disrupt business models and change things and that’s the sort of experience I’m going to bring to bear down on this”.
So what is Javid talking about? Fines on developers who take too long to build? “There will certainly be action,” he says. “Carrots and sticks – that’s exactly what I’m looking at. I’m determined we really get a grip on this and do something that’s will last for the long term and make a difference”.
The UK’s house-building industry is a mighty powerful lobby. Can Javid face it down? “The people are the most powerful lobby in this country and they’ve made it absolutely clear enough is enough,” he says. “This is my number one priority”.
Liam Halligan’s Dispatches – “Britain’s home-building scandal” – is on Channel 4 tonight at 8pm