The Government has identified, it says, sufficient public land on which to build over 100,000 new homes. It is, we are told, actively pursuing developers who will build these homes, by which it will help relieve the affordable housing shortage and increase economic activity.
It isn’t achieving any of these things because of three factors.
The first – and most important – is that the market for these new homes simply isn’t there in the places where the land has been identified. (The link to the list is here). Only 31% of that land is in the Eastern, south Eastern and London regions and these are, pretty much, the only regions where there is demand. Still, if we could get one third of these sites building, that would be good, wouldn’t it?
The second is that it is involved in a massive bureaucratic process to secure development partners. As the Homes and Communities Agency are disposing of these sites, the developers have to have gone through a “fully compliant OJEU procurement process”. So that means almost all the smaller builders who could get cracking straight away are excluded.
Finally, there is the need to dispose of these sites whilst securing “value for money”. That means they want developers to pay them as much as possible. Well, in these straightened times, that is unlikely to happen and developers really do not want to borrow up to half the cost of a project up front in the hope there might be buyers out there at the end. The market risk is just too great.
So how to break this deadlock? How about the Government funding the building of the homes directly? But, you cry, that would increase borrowing. Yes, short term it would, but what if you then sold them? The borrowing could be paid straight back. There might even be a small profit. But, you say again, wouldn’t the Government then be taking on the risk, just like the developers won’t? Not if you sold them at the cost of building them only, rather than the cost of building them and the cost of buying the land.
It is called, “no rent shared ownership”.
In London where the average price of a three bedroom terraced house (a proper “family home”) is around £300,000 in even the cheaper boroughs, land makes up 50% of the cost of a new property. Strip that out and you can sell a three bedroom house to a couple, each on average earnings. A three bedroom house, with a garden, for £200,000 in, say, Waltham Forest or Redbridge? At those prices, there would be demand, as the surge in Right to Buy applications since discounts were increased, shows.
The Government would preserve its share of the value, the land, protected by a legal charge. It would borrow for a very short term, say 12 months, while the homes were built. Don’t forget it wouldn’t have to buy the land up front and sit around and wait while planning consent was obtained with interest clocking up, it only has to borrow to build. Then, it would sell the homes and repay the debt. And as I said earlier, it could almost certainly add a small profit, so it would help to do that thing we all want to do. Actually pay off some of our existing debts.
When things improve and the buyers want to move on, they could either sell their share back to the Government, sell it as a share, or sell the whole thing and the Government would then collect its land value.
To my mind, that still sounds like “value for money”.