To tackle the housing crisis, ministers must end their dependence on the big builders

Part of the problem. Image: Getty.

The housing market is in desperate need of reform. As both the government and the opposition have rightly acknowledged, Britain needs to build more, better quality homes. The political will is clear to see – but in order to address the supply shortage, politicians must take on the handful of big developers which dominate the market.

Currently, there are a very small number ‘volume builders’, such as Barratt, Taylor Wimpey and Persimmon, which the government relies on to deliver the bulk of new homes in England. These companies are typically financed by private equity, which essentially means money is only raised for developments on the promise of very good returns to investors; these have averaged out at around 20 per cent of late.

While this model works well in stable economic times, it naturally faces two problems. First and fundamentally, it is very sensitive to cyclical changes in the economy. Any uncertainty in the political and economic outlook can hit firms’ share prices and reduce investment, and thus cut output sharply. Immediately after the EU referendum result, for example, the share price of the three largest housebuilders plummeted 40 per cent. 

Analysis by Homes for the North, the alliance of the biggest housing associations in the North of England, reveals that in every recession the UK has seen an immediate lost of investment in volume building, and by extension, a sudden drop in housing numbers. In the recession of 2008-10, for example, output by the volume builders fell a staggering 59 per cent.  

The second problem is that these operators tend to focus on relatively high-value properties in desirable areas, in order to get the quick-buck returns investors want. There is a real lack of building in less well-off areas, even where demand is high. This quite simply damages the government’s plans to boost construction and growth across the country, especially in regions outside London, where it is needed most. 

The present economic and political outlook creates real challenges on these fronts. Not only do we have the political instability inherent in a hung parliament, but we are entering uncharted political territory in terms of Brexit, which has, in the eyes of many commentators, heightened the risk outlook. The Office of Budgetary Responsibility’s latest Fiscal Risk Report, published in July, predicts the risk of recession to now be as high as 50 per cent.

Faced with this, it is essential that the government implements a countercyclical strategy to ensure housing numbers are not negatively impacted by any future downturn.

Housing associations can play a vital role in this new approach, as the sector is remarkably resilient to economic cycles. When the volume builders’ numbers fell 59 per cent in the last recession, housing association output fell only 3 per cent. The reason is a different business model based not on equity and the need for quick returns, but a debt-financed, longer-term approach to building homes where they are needed. This model delivers consistently, reliably, and crucially, counter-cyclically. 

The 19 member organisations of Homes for the North, for example, already expect to deliver nearly 15,000 new homes over the next 3 years. But that figure – and the building plans of other housing associations – could expand radically if the policy framework was right.  

One of the biggest issues reflects the fact that housing associations are not regular market developers, and are bound by quite strict regulations, including what rents they charge. Government says it will review the situation in 2020 – but this is too late and uncertain. The most efficient housing associations must be allowed to strike flexible rent agreements now in order to raise finance for building new homes.

Then there are other measures that could help bring the sector into the market, such as using some of the £3bn Home Building Fund to address market failure in regions outside the South East, where housing is desperately needed, but developers shun because high returns on equity are not available. We should also have regional build targets, not just a national one, which will focus the minds of metro mayors and other decision-makers on the job of encouraging a diversity of developers to meet those targets. 

If politicians shy away from this, recent history suggests the target to see 1.5m new homes built by 2022 will fall seriously short. That means older people struggle to downsize. First time buyers will not get a foot on the property ladder. Not enough private rented accommodation will come onto the market to meet increasing demand. The consequences are worrying indeed.

Mark Henderson is chair of Homes for the North.

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Is Britain’s housing crisis a myth?

Council housing in Lambeth, south London. Image: Getty.

I’ve been banging on about the need for Britain to build more houses for so long that I can no longer remember how or when it started. But at some point over the last few years, the need to build more homes has become My Thing. People ask me to speak at housing events, or @ me into arguments they’re having on Twitter on a Sunday morning in the hope I’ll help them out. You can even buy a me-inspired “Build More Bloody Houses” t-shirt.

It’s thus with trepidation about the damage I’m about to do to my #personal #brand that I ask:

Does Britain actually have enough houses? Is it possible I’ve been wrong all this time?

This question has been niggling away at me for some time. As far back as 2015, certain right-wing economists were publishing blogs claiming that the housing crisis was actually a myth. Generally the people who wrote those have taken similarly reality-resistant positions on all sorts of other things, so I wasn’t too worried.

But then, similar arguments started to appear from more credible sources. And today, the Financial Times published an excellent essay on the subject under the headline: “Hammond’s housebuilding budget fix will not repair market”.

All these articles draw on the data to make similar arguments: that the number of new homes built has consistently been larger than the number of new households; that focusing on new home numbers alone is misleading, and we should look at net supply; and that the real villain of the piece is the financialisation of housing, in which the old and rich have poured capital into housing for investment reasons, thus bidding up prices.

In other words, the data seems to suggest we don’t need to build vast numbers of houses at all. Have I been living a lie?

Well, the people who’ve been making this argument are by and large very clever economists trawling through the data, whereas I, by contrast, am a jumped-up internet troll with a blog. And I’m not dismissing the argument that the housing crisis is not entirely about supply of homes, but also about supply of money: it feels pretty clear to me that financialisation is a big factor in getting us into this mess.

Nonetheless, for three reasons, I stand by my belief that there is housing crisis, that it is in large part one of supply, and consequently that building more houses is still a big part of the solution.

Firstly I’m not sold on some of the data – or rather, on the interpretation of it. “There is no housing crisis!” takes tend to go big on household formation figures, and the fact they’ve consistently run behind dwelling numbers. Well, they would, wouldn’t they? By definition you can’t form a household if you don’t have a house.

So “a household” is not a useful measure. It doesn’t tell you if everyone can afford their own space, or whether they are being forced to bunk up with friends or family. In the latter situation, there is still a housing crisis, whatever the household formation figures say. And there is plenty of anecdotal evidence to suggest that’s the one we’re living in.

In the same way I’m not quite convinced that average rents is a useful number. Sure, it’s reassuring – and surprising – to know they have grown slower than general prices (although not in London). But all that figure tells you is the price being paid: it doesn’t tell you what is being purchased for that payment. A world in which renters each have their own property may have higher rents than one in which everyone gets one room in an over-crowded shared flat. It’s still the latter which better fits the label “housing crisis”.

Secondly, I’m entirely prepared to believe we’ve been building enough homes in this country to meet housing demand in the aggregate: there are parts of the country where housing is still strikingly affordable.

But that’s no use, because we don’t live in an aggregate UK: we live and work in specific places. Housing demand from one city can be met by building in another, because commuting is a thing – but that’s not always great for quality of life, and more to the point there are limits on how far we can realistically take it. It’s little comfort that Barnsley is building more than enough homes, when the shortage is most acute in Oxford.

So: perhaps there is no national housing crisis. That doesn’t mean there is not a housing crisis, in the sense that large numbers of people cannot access affordable housing in a place convenient for their place of work. National targets are not always helpful.

Thirdly, at risk of going all “anecdote trumps data”, the argument that there is no housing crisis – that, even if young people are priced out of buying by low interest rates, we have enough homes, and rents are reasonable – just doesn’t seem to fit with the lived experience reported by basically every millennial I’ve ever met. Witness the gentrification of previously unfashionable areas, or the gradual takeover of council estates by private renters in their 20s. 

A growing share of the population aren’t just whining about being priced out of ownership: they actively feel that housing costs are crushing them. Perhaps that’s because rents have risen relative to wages; perhaps it’s because there’s something that the data isn’t capturing. But either way, that, to me, sounds like a housing crisis.

To come back to our original question – will building more houses make this better?

Well, it depends where. National targets met by building vast numbers of homes in cities that don’t need them probably won’t make a dent in the places where the crisis is felt. But I still struggle to see how building more homes in, say, Oxford wouldn’t improve the lot of those at the sharp end there: either bringing rents down, or meaning you get more for your money.

There is a housing crisis. It is not a myth. Building more houses may not be sufficient to solve it – but that doesn’t meant it isn’t necessary.

Jonn Elledge is the editor of CityMetric. He is on Twitter as @jonnelledge and also has a Facebook page now for some reason. 

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