Housebuilders' shares are tanking. Now is the time for the government to build a million homes

A screen showing a crashing stock market. Admittedly, it's from Nanjing, in 2007; but we liked the picture, so. Image: Getty.

Among the biggest losers in the stock market turmoil that has followed last week’s Brexit vote have been Britain’s housebuilders. Persimmon fell by a staggering 40 per cent on Friday morning, and closed the day 27.6 per cent down.

The scale of the selling reflects the building industry’s acute sensitivity to market sentiment, and the fragility of its business model, which is dependent on already-high demand being maintained indefinitely.

With a period of house price stagnation and even decline now highly likely, builders are in trouble. Having purchased several years’ supply of land in a rising market, they are now going to struggle to turn as big a profit on new home sales as buyers revise down what they are prepared to pay – or hold off buying altogether.

That is going to happen almost immediately – there is already anecdotal evidence of buyers reducing their offer price or pulling out of sales – in response to the sudden sense of economic uncertainty. But it will be very much intensified if there is an economic downturn, wages are squeezed and, eventually, interest rates go up to combat inflation.

That house prices may fall is not in itself a bad thing: many people, including myself, have been willing this for quite some time. House prices have been racing away from wages for much too long now, benefiting existing homeowners at the expense of future generations, and a correction is well overdue.

The difficulty is what comes next, which by now we know well: housebuilding output will fall as developers turn off the taps. This has been the construction cycle that has repeated over and over since the 1970s. Builders only build on any scale in a rising market. As soon as demand falls, and prices drop, build-out rates plummet while developers wait for confidence (meaning: prices) to return. The long-run trajectory of house prices is only ever upwards.


It is this cycle that has led us into the housing disaster that we find ourselves in 2016, with a shortage of homes, high housing costs, declining levels of home ownership and the rise of the rentier landlord.

Now is the moment, if ever there was one, for this cycle to be broken, finally and completely. For the government to introduce a package of counter-cyclical support for housebuilding that floods the market and holds prices down in perpetuity. Without it, the government’s ambition of building a million new homes by 2020 – which was always improbable and in any case insufficient – is now dead in the water.

The new policy should consist of a public sector building programme which, as a minimum, guarantees the building of 100,000 homes a year over and above the output of private builders. It will probably need to involve local authorities taking over the sites that developers have in the pipeline but may now become economically unviable.

The big housebuilders will have to reset their expectations of future price growth and probably take a hit on the landbanks they have already built. This will be hard on them, but no investment is risk free and the public interest must come first.

The public sector homes could be either made available for social housing, and the building costs recouped over the coming decades in rent (Capital Economics has modelled such a scenario). A cheaper, and therefore more politically palatable approach, could be to sell them into owner-occupation, with most of the costs recouped immediately and reinvested year after year; I calculated in a recent report that this could be achieved with a single upfront investment of £15-20bn. Realistically, we need a combination of social rent and owner-occupied housing – and so some hybrid of these two scenarios would probably be most appropriate.

This approach would not only begin to make inroads into the country’s housing shortage; it would also provide what should be a welcome fiscal stimulus as the economy enters a rocky period. There are expectations of a further cut in interest rates in the short term and possibly a new round of quantitative easing. But the levers of monetary policy have been worked almost to their limits already and the cost of borrowing is at a record low – 10-year gilts hitting less than 1 per cent this morning. The Treasury should take advantage while it can.

The government has a lot to contemplate right now. A housebuilding programme should not be seen as peripheral to the challenge of the coming months, but central to it.

Daniel Bentley is editorial director at the think tank Civitas. He tweets @danielbentley.

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North central Melbourne is becoming a test bed for smart, integrated transport

A rainy Melbourne in 2014. Image: Getty.

Integrated transport has long been the holy grail of transport engineering. Now, a project set up north of Melbourne’s downtown aims to make it a reality.

Led by the School of Engineering at the University of Melbourne, the project will create a living laboratory for developing a highly integrated, smart, multimodal transport system. The goals are to make travel more efficient, safer, cleaner and more sustainable.

Integrated transport aims to combine various modes of travel to provide seamless door-to-door services. Reduced delays, increased safety and better health can all be achieved by sharing information between users, operators and network managers. This will optimise mobility and minimise costs for travellers.

The National Connected Multimodal Transport Test Bed includes arterial roads and local streets in an area of 4.5 square kilometres in Carlton, Fitzroy and Collingwood.

Bounded by Alexandra Parade and Victoria, Hoddle and Lygon streets, this busy inner-suburban area is a perfect location to test a new generation of connected transport systems. Our growing cities will need these systems to manage their increasing traffic.

How will the test bed work?

The test bed covers all modes of transport. Since April, it has been collecting data on vehicles, cyclists, public transport, pedestrians and traffic infrastructure, such as signals and parking. The area will be equipped with advanced sensors (for measuring emissions and noise levels) and communications infrastructure (such as wireless devices on vehicles and signals).

The test bed will collect data on all aspects of transport in the inner-suburban area covered by the project. Image: author provided.

The aim is to use all this data to allow the transport system to be more responsive to disruption and more user-focused.

This is a unique opportunity for key stakeholders to work together to build a range of core technologies for collecting, integrating and processing data. This data will be used to develop advanced information-based transport services.

The project has attracted strong support from government, industry and operators.

Government will benefit by having access to information on how an integrated transport system works. This can be used to develop policies and create business models, systems and technologies for integrated mobility options.

The test bed allows industry to create and test globally relevant solutions and products. Academics and research students at the University of Melbourne are working on cutting-edge experimental studies in collaboration with leading multinationals.

This will accelerate the deployment of this technology in the real world. It also creates enormous opportunities for participation in industry up-skilling, training and education.

What are the likely benefits?

Urban transport systems need to become more adaptable and better integrated to enhance mobility. Current systems have long suffered from being disjointed and mode-centric. They are also highly vulnerable to disruption. Public transport terminals can fail to provide seamless transfers and co-ordination between modes.

This project can help transport to break out of the traditional barriers between services. The knowledge gained can be used to provide users with an integrated and intelligent transport system.

It has been difficult, however, to trial new technologies in urban transport without strong involvement from key stakeholders. An environment and platform where travellers can experience the benefits in a real-world setting is needed. The test bed enables technologies to be adapted so vehicles and infrastructure can be more responsive to real-time demand and operational conditions.


Rapid advancements in sensing and communication technologies allow for a new generation of solutions to be developed. However, artificial environments and computer simulation models lack the realism to ensure new transport technologies can be properly designed and evaluated. The living lab provides this.

The test bed will allow governments and transport operators to share data using a common information platform. People and vehicles will be able to communicate with each other and the transport infrastructure to allow the whole system to operate more intelligently. The new active transport systems will lead to safety and health benefits.

The test bed allows impacts on safety in a connected environment to be investigated. Interactions between active transport modes such as walking and cycling with connected or autonomous vehicles can be examined to ensure safety is enhanced in complex urban environments. Researchers will study the effects of warning systems such as red light violation, pedestrian movements near crossings, and bus stops.

Low-carbon mobility solutions will also be evaluated to improve sustainability and cut transport emissions.

Environmental sensors combined with traffic-measurement devices will help researchers understand the effects of various types of vehicles and congestion levels. This includes the impacts of emerging disruptive technologies such as autonomous, on-demand, shared mobility systems.

A range of indoor and outdoor sensor networks, such as Wi-Fi, will be used to trial integrated public transport services at stations and terminals. The goal is to ensure seamless transfers between modes and optimised transit operations.The Conversation

Majid Sarvi is chair in transport engineering and the professor in transport for smart cities; Gary Liddle an enterprise professor, transport; and Russell G. Thompson, an associate professor in transport engineering at the University of Melbourne.

This article was originally published on The Conversation. Read the original article.