“The biggest barrier to social mobility and social progress is our broken housing market,” said Sajid Javid, while launching his long-awaited housing white paper last week. “Fixing it means taking on tough vested interests”. The Communities Secretary is right on both counts. But if this white paper is a genuine guide to future government action, it isn’t up to the job,
Over the last twenty years, amid soaring demand, we’ve built around two and a half million too few homes across the UK. This yawning supply-demand gap has made ownership evermore unaffordable. The average house today costs almost eight times average earnings – an all-time record, the ratio having doubled since 1997.
In the early 1990s, low- and middle-income workers needed to save, on average, 5pc of their wages for three years to build the deposit for a first-time property. Today, they’d need 24 years of such savings. Average house prices rose 6.5pc last year, wages grew less than 3pc. For many millions, home-ownership is an ever more distant dream.
Sky-high house prices are hitting young adults hard. Ten years ago, 65pc 25- to 34-year olds were owner-occupiers. Now it’s under 40pc. Over half those lucky enough to buy their first home in 2015 got help from the “Bank of Mum and Dad”. Across the South-East it was two-thirds. Once a source of social mobility, the UK housing market is now fuelling despair and resentment.
The UK needs around 250,000 new homes each year to keep up with population growth and start tackling years of under-supply. Over the last three years we’ve averaged less than 150,000. While council housing and housing associations have a role to play, it’s only once commercial house-builders start building more quickly that we can hope to address
The Housing White Paper headlines are largely about the greenbelt. That’s a diversion. What we really need is for the big house-builders, who dominate the market, to use planning permission they’ve already got. There’s now strong evidence of a deliberate building go-slow, to keep prices and unit profits unreasonably high.
The UK’s three biggest developers accounted for 43,000 homes in 2015. They have planning permission for another 201,000 and land-holdings for 278,000 more. Large developers also own and control countless additional plots through complex subsidiaries and private options agreements, giving them a huge say over how many homes get built, by whom and when.
Land-banking on this scale goes way beyond any need for “a supply pipeline”. A recent House of Lords report said our house-building industry “has all the characteristics of an oligopoly”. Internal government figures show a 28pc rise in planning permissions granted in 2014 and 2015, but just a 10pc rise in house-building. That’s one reason Javid publicly accused big developers of having “a stranglehold on the market” back in October 2015. Much-anticipated “use it or lose it” measures in the white paper, though, designed to make sure planning permission are converted into sellable homes, were full of legal loopholes. That’s why, on publication, the share price of the big developers soared.
When the UK last built 250,000 houses in a year, back in the 1980s, two-thirds were supplied by small-and medium-sized enterprises. Such SMEs – vital as they are incentivized to build quickly, and on smaller plots – today account for just a fifth of all new homes. The white paper talked of a £3bn fund to encourage SMEs back into the market. What they really need is for the state to sell some of its vast land-holdings, while reserving a large number of smaller plots for independently-owned smaller builders.
That would rapidly get Britain building – while energizing and up-skilling our still subdued construction sector. Every UK economic recovery over the last century has been associated with a housing construction boom, except the one since 2008. No wonder we’ve seen the slowest, most drawn-out recovery in our modern history.
The white paper contains some crumbs for “generation rent” – with plans to abolish rapacious letting agent fees, while encouraging the development of new private rental housing by institutional investors. But the vast majority of youngsters don’t want to be tenants, they want to buy, so every month they’re paying off a mortgage and building some wealth for themselves and their loved ones, not throwing up to half their incomes “down the drain” in rent.
There is plenty of “space” in Britain. Less than 10pc of our land has any kind of construction. We need to be bold – finally building more “new towns”. And we need to replace parts of the greenbelt, especially those close to transport links, with “set aside” land elsewhere, further away from where people need to work and want to live. Yes – the Nimbys are vocal. But housing construction is now a top priority for voters – with the latest British Social Attitudes Survey showing 56pc of people support new housing projects in their local area, up from just 28pc in 2010.
Our chronic housing shortage isn’t just causing misery for countless millions of youngsters. By tying up significant sums in unproductive assets, high house prices help explain low UK productivity. The homes we are building, on top of that, are often too small and miles from workplaces, leading to long, expensive commutes. That also hits productivity, while generating unhappiness and family tension.
Back in September 2015, the government pledged that a million homes would be built during this Parliament. The implication was an average of 200,000 a year – less than needed, but a big improvement. I thought this government understood that tackling our housing shortage meant bold measures were needed. Apparently not. In this weak and deeply disappointing white paper, though, the one million homes target is nowhere to be seen.
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