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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Five ways in which the rest of the world can avoid the homelessness crisis plaguing the US

Housing for all. Image: Nicobobinus/Flickr/creative commons.

Homelessness is a growing problem in the UK, where the number of people sleeping rough has doubled since 2010, yet it is dwarfed by the scale of the issue in the US. More than 500,000 homeless were found across the US during just one night, compared to the UK’s 2017 count of 4,751. Changes in the definition of homelessness and flawed methodologies suggest that the true number for the US could be anywhere from 2.5 to 10.2 times greater.

Millions more live in overcrowded or slum housing, forced to choose between the damage that poor conditions do to their physical and mental health, and the street. All of the US’s housing issues – from foreclosures to evictions to poor conditions – hit communities of colour the hardest.

This is due to a legacy of discrimination, which continues to undercut any commitment to safe and decent housing for all residents, whether in the private or public sector. In my recent book, City of Segregation, I explain how the long, violent history of creating spaces for the white and privileged classes is embedded in a number of practices, which continue in US cities to this day.

Exporting inequality

As private developers and investors seek out urban land in major cities around the world to secure their fortunes, real estate patterns and practices developed within the US are increasingly being observed elsewhere.

In cities as diverse as London, Sydney and Durban, community groups which have been working for decades to improve their neighbourhoods languish with little public or private resource. Meanwhile, developers create spaces for foreign investors and new residents, who anticipate certain protections and privileges such as greater security, high quality amenities and neighbours with similar interests and backgrounds.

This is a driving force behind rising evictions and the criminalisation of homelessness, alongside gated communities, hostile architecture, “broken windows” policing with its focus on prosecuting activities such as graffiti or jaywalking and the growing privatisation of public spaces through regeneration.

But there is still time for other countries to choose a different path. The UK, in particular, can build on the legacies of the post-war political consensus that all residents should have access to quality housing, and its acknowledgement of institutional racism and some history of government anti-racist campaigning.

Both legacies should be improved, but a renewed commitment to a programme of housing and anti-racism are central to increasing equality, prosperity and well-being for all. Based on my research, I’ve come up with five steps which the UK and countries like it can follow, to ensure that future development reduces – rather than drives – homelessness and inequality.


1. Build social housing

Unlike the US, the UK acknowledges a right to a home, and within living memory provided it for a huge swathe of British society. Social housing – whether in the form of traditional council flats, cooperatives or community land trusts – provides a variety of housing types and keeps rents from rising too far beyond wages.

When social housing is widely available, it makes a huge difference to people who – for one reason or another, and often through no fault of their own – become homeless. With social housing to fall back on, homelessness is a temporary condition which can be safely resolved. Without it, homelessness can become a life-destroying downwards spiral.

2. Preserve and expand community assets

Severe segregation in the US stripped entire communities of access to quality food, jobs, education, green spaces, services, banks and loans. Poverty is endemic, and can easily tip into homelessness. While far from perfect, the UK’s post-war commitment to universal provision of services, such as education and health care, and building social housing across all neighbourhoods underpinned a surge in upward mobility.

This achievement should be salvaged from the damage done by Right To Buy – a policy which sold off social housing without replacing it – and austerity, which has prompted a sell-off of public assets and land, as well as the closure of childrens’ services, libraries and community centres.

3. Decommodify housing

A market geared towards building apartment blocks for the portfolios of investors who will never live in them cannot produce the kind of housing and neighbourhoods which residents need, much less at a price they can afford.

While London has been badly affected for some time, this trend is now spreading to other areas of the UK and Europe. Local and national governments must act to prevent global demand for housing as investments from driving prices beyond the reach of those who need real homes.

4. Build communities, not walls

Gates, bars, armed security and homeowner restrictions are all ugly traits of private housing developed within the US context of desperate inequality and racism. The UK has a long and vibrant tradition of community development, creating a supportive built environment and social infrastructure of schools, libraries and other municipal services for residents.

Community assets. Image: Helen K/Flickr/creative commons.

This kind of development, and the social mobility and growing equality it fosters, safeguards public health and safety – not big walls, barbed wire and security guards. The private rented sector in the UK should be regulated to bring it more in line with Europe, where tenants prosper with security of tenure and strong regulation of rents and rent increases.

5. Raise your voice

Those who are bearing the brunt of our current housing crisis must be at the centre of efforts to change it. From tenants’ associations and renters’ unions, to campaign groups such as Justice for Grenfell, it’s vital to support those voices advocating fairer housing rights.

This also means rejecting austerity’s constant cuts to public services, funding social support for physical and mental health and ensuring that homes are safe, decent and secure, to create a safety net for those who are working to improve their communities.

The Conversation

Andrea Gibbons, Researcher in Sustainable Housing and Urban Studies, University of Salford.

This article is republished from The Conversation under a Creative Commons license. Read the original article.