Published:


AMAlex
Morton is Research Director for Housing, Planning and Urban Policy at Policy Exchange.

Terrible
news. There is no other way to describe the fact that housing starts fell by
11% in 2012 to below 100,000 new homes a year. The current deplorable state of
affairs is also depressingly predictable. In 2010, in Making
Housing Affordable
,
we argued that the planning shake-up proposed by
the Government, which empowered local councils, was unlikely to succeed. We
noted the reaction to the proposals was negative, “with almost all councils promising ‘no new homes’ in their area –
something that should be ringing very loud alarm bells in government.” In 2011’s Cities
for Growth
we argued that “current solutions are not clearly related to
the problems that we face.”

Solutions
must understand the system they face

Quoting past reports now is not to try to say “I
told you so”. It is to note that solutions to a problem have to actually tackle
the issues that are causing that problem. Otherwise they are either mere
gimmicks or, worse, risk exacerbating the underlying causes of failure.


So, for example, the Government will face calls to
spend more or relax credit to boost housing. But the problem of housing supply
is not fundamentally to do with lending. In our system, more lending largely
boosts house and land prices as the graph below shows. There is an issue with first time
buyers not being able to obtain high Loan-to-Value mortgages because of the way
capital requirements work. But this should be dealt with by a focused attempt
to tackle this bottleneck, not an indiscriminate pumping of credit into a
slowly deflating bubble that would only do more harm than good.

Graph

Indeed
the credit-heavy model of recent years has supported a failing model used by the
big developers. Because so little land is provided by the planning system, and is
marked for development, then land-owners are placed in a quasi-monopolist
situation. They can demand high prices and options or up-front payment for
land. So developers comply. The problem is that this means developers over-leverage
themselves, and they can only build when land prices and house prices rise. So,
even in a housing crisis with huge affordability issues, housing numbers can
still fall, as they did in the aftermath of the 2008 credit crunch. 

Recent
research from Savills indicates risky behaviour is being increasingly undertaken
by the big developers. If there is further credit turmoil (e.g. in the wake of
the UK losing its AAA rating) the housing market may be plunged into a renewed
downturn – from its already appalling lows. Throwing credit at the problem makes
things worse by supporting a botched model of development.

Illusions continue
to distract from real concerns

Our
reports Cities for Growth, Making Housing Affordable and Why
Aren’t We Building Enough Attractive Homes?
all dismantle the illusions
that powerful vested interests use to justify our housing crisis. Our empty
homes – less than 1% of our housings stock. Immigration – an issue, but much
less important than the fact older people are living much longer in large empty
family homes. Our “shortage of land” – largely a myth as only 2.4% of England
is built on and less than 10% developed, including all of the parks and
gardens.

But
there are substantial and real concerns around the quality of new homes and the
infrastructure with new homes, as well as the fact new homes come with no
amenities or improvements to the area they live in. NIMBYism is in many cases
all too rational. These issues must be dealt and the Government must show
sensitivity around them.

There is no time
for radical reform

The
current system governed by the 1947 and 1990 Town and Country Planning Acts has
failed totally. Local people who live near new housing suffer as they lose out.
The quality of new housing ranges from poor to mediocre, making England less
beautiful. Those who want a home of their own, or who need a bigger house, lose
out because rents and house prices are too high. But there is no time to fix
the overall system before the next election.

But there is still
time for action – although it needs to understand the system it works within

This
doesn’t mean nothing can be done. We can still get housing numbers up to
300,000 a year, improve the quality of new homes and reduce the political
tensions that come with new homes. But the first step to actually getting
things done is realising how the current systems of housing, land markets,
credit and other issues all fit together.

We
will soon be publishing work on how the Coalition can pioneer a huge increase
in self-build or custom-build homes. By procuring land cheaply, making these
new homes for local people, and giving local control over quality, then we
could provide a huge number of attractive new homes for those currently
desperate for somewhere to live. This would boost the economy. It would also be
politically attractive as it would only be about ensuring councils hit their
own targets, not imposing new ones, and would create a new waiting list for
self-build homes, creating a visible pro-development lobby.

Allied to
redevelopment of our crumbling modernist estates into attractive terraced homes
on brownfield sites, and selling off our expensive stock and recycling the
proceeds, housing could be a key part of getting the economy going – at
absolutely no cost to government. Politically, both sides of the Coalition are
united in the need for more homes. There is still time to make more and better housing
a positive long term legacy for this government.

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