Notes on an oligopoly: What did we learn from the Lords' report on the housing crisis?

The good old days. Image: Hulton Archive/Getty.

House of Lords select committee reports are not always the most the riveting of reads. Friday’s, however, from the economic affairs committee was the exception to the rule.

“Building more homes” is a truly devastating assault on recent Whitehall orthodoxy regarding housebuilding, and reveals in great detail much of what has been going wrong. Many of the points contained in the report have been made before – but not often with the authority and heft of a cross-party parliamentary committee.

It is also brilliantly timed (more luck than judgement, one supposes) given that we have a new prime minister and a new communities & local government secretary. If Theresa May and Sajid Javid want to finally get to grips with the endemic undersupply of new homes, they would do well to start with this report.

Here are some of the highlights:

England needs 300,000 homes a year – not 200,000

The government’s commitment to building 1m homes by 2020 (equivalent to 200,000 a year) will not be enough to meet future demand and tackle the backlog after years of undersupply. “To meet that demand and have a moderating effect on house prices, at least 300,000 homes a year need to be built for the foreseeable future,” the committee says. “Otherwise the average age of a first time buyer will continue to rise.”

Note too that the government is nowhere near hitting even 200,000 a year. Completions last year were just 155,000, just over half what is now recommended.

The large housebuilders restrict output to optimise profits

Private developers alone have neither the ability nor the motivation to build all of the homes we need. The housebuilding market is “oligopolistic”: its business model is to restrict the volume of housebuilding in order to maximise profits.

The government’s reliance on the private sector to meet its housebuilding targets is therefore misguided. “To achieve its target the government must recognise the inability of the private sector, as it is currently incentivised, to build the number of homes needed,” the peers say.


Land hoarding should be penalised to stimulate quicker building

There is also too big a gap between the number of planning permissions granted and the number of homes which are built. Councils should therefore be given the power to tax developments that are not completed within an agreed timeframe. 

“We recommend that local authorities are granted the power to levy council tax on developments that are not completed within a set time period,” the report argues. “This time period should be negotiated when planning consent is sought and be varied according to the size and complexity of a development.”

Local authorities should be allowed to borrow build social housing

The government is too fixated on home ownership at the expense of other tenures, and the current cap on council borrowing to invest in social housebuilding is “arbitrary” and should be scrapped.

The committee points to the government’s recent abandonment of its target to achieve a fiscal surplus in 2019-20 and the current low cost of borrowing. “There is no set limit on the amount a local authority can borrow to build a swimming pool,” it notes. “The same should apply to housing.”

Councils should also be encouraged to enter partnerships with housing associations, whose efforts to build more homes have been undermined by reductions in social rents.

Public land is not being released quickly enough

There is surplus public sector land enough in London for at least 130,000 homes – across England there could be enough for 2m. But the government’s efforts to release this for residential development have so far been “ineffective”.

The report recommends that a senior Cabinet minister should be put in charge of this process in future, and the National Infrastructure Commission given responsibility for keeping tabs on the number of homes that are actually built on it. Importantly, the requirement to achieve the best possible market price – often the cause of delay – should be “relaxed”, the committee says.

 

How likely is the government to adopt any of these ideas? On Monday, in her last speech before becoming prime minister, Theresa May spoke of the need to do “far more” to build more homes, which sounds like she may be amenable to a change of strategy. It is not difficult to imagine her getting much more tough on the release of public sector land. And there have been hints already that the new chancellor, Philip Hammond, might be prepared to borrow to invest in infrastructure.

The biggest challenge will come from the major housebuilders, and their many hangers on in the housing and planning industry, who will fiercely resist any effort to make them build faster than they are already. There are many interests vested in the status quo. Whether they are overcome may depend, in the end, on Mrs May’s level of determination.

Daniel Bentley is editorial director of the think tank Civitas and the author of “The Housing Question: Overcoming the shortage of homes”. He tweets @danielbentley

 
 
 
 

Two east London boroughs are planning to tax nightlife to fund the clean up. Will it work?

A Shoreditch rave, 2013. Image: Getty.

No-one likes cleaning up after a party, but someone’s got to do it. On a city-wide scale, that job falls to the local authority. But that still leaves the question: who pays?

In east London, the number of bars and clubs has increased dramatically in recent years. The thriving club scene has come with benefits – but also a price tag for the morning clean-up and cost of policing. The boroughs of Hackney and Tower Hamlets are now looking to nightlife venues to cover these costs.

Back in 2012, councils were given powers to introduce ‘late night levies’: essentially a tax on all the licensed venues that open between midnight and 6am. The amount venues are expected to pay is based on the premises’ rateable value. Seventy per cent of any money raised goes to the police and the council keeps the rest.

Few councils took up the offer. Four years after the legislation was introduced, only eight local authorities had introduced a levy, including Southampton, Nottingham, and Cheltenham. Three of the levies were in the capital, including Camden and Islington. The most lucrative was in the City of London, where £420,000 was raised in the 2015-16 financial year.

Even in places where levies have been introduced, they haven’t always had the desired effect. Nottingham adopted a late night levy in November 2014. Last year, it emerged that the tax had raised £150,000 less than expected in its first year. Only a few months before, Cheltenham scrapped its levy after it similarly failed to meet expectations.


Last year, the House of Lords committee published its review of the 2003 Licensing Act. The committee found that “hardly any respondents believed that late night levies were currently working as they should be” – and councils reported that the obligation to pass revenues from the levy to the police had made the tax unappealing. Concluding its findings on the late night levy, the committee said: “We believe on balance that it has failed to achieve its objectives, and should be abolished.”

As might be expected of a nightlife tax, late night levies are also vociferously opposed by the hospitality industry. Commenting on the proposed levy in Tower Hamlets, Brigid Simmonds, chief executive at the British Beer and Pub Association, said: “A levy would represent a damaging new tax – it is the wrong approach. The focus should be on partnership working, with the police and local business, to address any issues in the night time economy.”

Nevertheless, boroughs in east London are pressing ahead with their plans. Tower Hamlets was recently forced to restart a consultation on its late night levy after a first attempt was the subject of a successful legal challenge by the Association of Licensed Multiple Retailers (ALMR). Kate Nicholls, chief executive at the ALMR, said:

“We will continue to oppose these measures wherever they are considered in any part of the UK and will urge local authorities’ to work with businesses, not against them, to find solutions to any issues they may have.”

Meanwhile, Hackney council intends to introduce a levy after a consultation which revealed 52 per cents of respondents were in favour of the plans. Announcing the consultation in February, licensing chair Emma Plouviez said:

“With ever-shrinking budgets, we need to find a way to ensure the our nightlife can continue to operate safely, so we’re considering looking to these businesses for a contribution towards making sure their customers can enjoy a safe night out and their neighbours and surrounding community doesn’t suffer.”

With budgets stretched, it’s inevitable that councils will seek to take advantage of any source of income they can. Nevertheless, earlier examples of the late night levy suggest this nightlife tax is unlikely to prove as lucrative as is hoped. Even if it does, should we expect nightlife venues to plug the gap left by public sector cuts?