Dishonesty, Appeasement, Vested Interests – yes, it’s that bad!
When the latest Housing secretary was appointed (replacing Angela Rayner), the industry magazine Housing Today asked a question ‘What does the appointment of Steve Reed as new Housing Secretary mean for the sector?’
Had the magazine been brutally honest it would have said ‘not a lot’. Whether it is Angela Rayner or Steve Reed or earlier incumbents such as the Conservatives’ Jenrick or Gove, no party or minister has made much impact beyond sanctioning convoluted, expensive and in some cases downright harmful schemes to incentivise housing delivery, and in the process doing little more than boosting house builder profits.
A target of 1.5M new houses (300k per annum) would, said Labour, enable the nation to build its way out of the country’s housing market failure. There hiding in plain sight is the real answer, ‘market failure’ compounded by reality failure on the part of Labour in thinking they could simply command the market to build. Two years into their term and Labour are hopelessly bogged down.
To blame the Labour government is a bit unfair. They are saddled with the effects of two decades of smoke & mirrors policy, dead-end initiatives and of allowing the tail to wag the dog. However, the same vested interests (major landowners, developers, house builders and the finance sector) are continuing to call the shots. Labour needs to get a grip.
Blaming market failure suggests the market can be made to work. The solution we are constantly told is to increase supply to push prices down. But there is zero evidence that building more houses does anything to shift the dial on house prices and affordability. Reality does not support a simple supply-and-demand theorem.
For a start, interest rates have more influence than has demand from a rising population. This points to investment as a major influence. It also begs the question: why would developers and builders increase supply to reduce the price of their product and thereby reduce their profit? It is counter-intuitive.
The rate of housebuilding in the UK peaked in the 1960s; but we are still building new homes faster than the population is growing. We have more homes per capita now than we did 50 years ago. In 1971 the ratio of dwellings to population was 1 to 3. Today, there is one dwelling for roughly every 2.25 people. This ratio is reflected in many parts of the EU where housing is nowhere near as costly.
The key issue is affordability. The house price-to-income ratio has skyrocketed. In the 1970s, according to Nationwide the average house price was around 3.5 times the average salary, while today it’s closer to 9.7 times, and the average deposit required by house buyers has increased from around 13% to 75% of annual income.
The remedy it would seem is to isolate a chunk of housing supply from the market. Not by the convoluted schemes dreamt up by Homes England cosplaying at affordable housing, but by creating municipal development corporations to buy land and to deliver houses that do not carry today’s weight of profit expectation. It worked very well in the 1950s. It was called council housing.
Ask yourself this simple question: Which is more harmful, millions of young people deprived of a decent home and the impact this has on society, employment, health and family wellbeing? Or ignoring the siren call that everything must be exposed to market forces?
Barefaced dishonesty
In a statement by Housing Secretary Reed last summer, he branded the planning approval figures for housing as “unacceptable.” It was clearly a dig at local planning authorities.
To point a finger at local councils is dishonest and deflecting blame. Councils cannot magic up applications for housing development. The responsibility for housing supply was long ago removed from councils and handed to the private sector. It is developers who have reduced the flow of planning applications in reaction to market conditions.
The number one objective of house builders is to make the highest profit possible. They are not serving the public good and they are not interested in squandering valuable plots of land when the market stalls. They would rather wait.
That rapacious drive for profit is a prime reason why the Labour Party and the Conservatives before them adhere to big housing targets. It maintains an illusion of action while keeping up the pressure to build, thereby juicing one of the biggest sectors of the UK economy.
Look back 65 years
A lot is written and talked about the value of land when sold for development and its impact on the cost of housing. To understand why this is so contentious requires delving into a 65-year-old act of parliament passed by the Conservative government of Harold Macmillan.
As the name suggests, the 1961 Land Compensation Act defined the basis on which land would be valued when compulsorily purchased (CPO). The preceding years had seen a boom in new towns on land compulsorily purchased by municipal development corporations. The expectation was there would be increasing demand for land.
The Tory government of the day was pressured by its land-owning supporters to protect their interests. This was stretched to include a mechanism by which compensation should reflect not just the land’s current use but its potential future value when targeted for development. What came to be known as ‘hope value’. Fast forward to present time and marvel at how an acre of agricultural land can increase by more than 11,500% from around £23,000 per hectare to £2.67 million when planning consent is obtained for residential development.