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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Here are all the names of London tube stations that we’ve just stopped noticing are weird

What the hell. Swiss Cottage. Image: Oxyman/Wikipedia Commons.

Angel

 “The next station is Gnome. Change here for Elf, Cherubim and Gnome.”

Arsenal

Would be a lot less weird if it wasn’t a good eight miles away from where they actually built the arsenal.

Bank

It’s like something from a kid’s picture book where everything is labelled incredibly literally. Was even sillier when the next station along was still called Post Office. (It’s St Paul’s now.)

Barking

Disappointing lack of doggos.

Barkingside

Same, also a surprisingly long way from Barking.

Bromley-by-Bow

But not by Bromley which, once again, is eight bloody miles awy.

Canada Water

No.

Chalk Farm

Chalk isn’t a plant, lads.

Cockfosters

...

Elephant & Castle

What.

Grange Hill.

Hainault

Hang on, that’s in Belgium isn’t it?

Hornchurch

There are literally horns no the church, to be fair.

Kentish Town

Actually in Middlesex, nowhere near Kent.

Knightsbridge

Not only no knights, but no bridge either.


Oval

Might as well have a station called “oblong” or “dodecahedon”.

Oxford Circus

Plenty of clowns though, amirite?

Perivale

Does any other London suburb promise such a vertiginous drop between name and reality?

Plaistow

To be honest the name’s fine, I just wish people knew how to pronounce it.

Roding Valley

The river’s more than 30 miles long, guys, this doesn’t narrow it down.

Seven Sisters

None that I’ve noticed.

Shepherd’s Bush

“Now where are those sheep hiding now?”

Shepherd’s Bush Market

Because one bush is never enough.

Southwark

1. That’s not how that combination of letters should sound. 2. That’s not where Southwark is. Other than that you’re fine.

Swiss Cottage

Sure, let’s name a station after a novelty drinking establishment, why the hell not.

Waterloo

Okay, this one is definitely in Belgium.

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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