Theresa May has promised a One Nation government. This will focus on solid and dull delivery. In that spirit I thought it was worth mentioning housing policy – which May put high up her domestic agenda. It still sits in the top five issues for voters. Fix this and the Conservatives will be well on the way to victory in 2020. Fail, and it will be a major stick for Labour to beat us with.
1. We have a system where the key structures are broken
The most important thing in understanding our system is that councils are the (broken) lynchpin. The entire system is based on councils assessing local need and creating a plan that delivers sufficient homes to meet it. But when I was in Number 10 and dug out the figures (which officials were not keen to share) fewer than ten councils (out of 326) turned out to have an up to date local plan and deliver their housing need. A similar number do so without an up to date local plan.
Thus over 300 councils failed to oversee delivery of housing need. This is the housing crisis in a nutshell. There is talk from the local government sector and central government officials about the need to empower councils and for central government to deliver. Yet who issues planning permissions? Who allocates insufficient land? Who could – but does not – place restrictive covenants or request developers sign up to delivery rates or even contractual obligations? Councils.
And who asks for 20-year pie-in-the-sky plans rather than delivery today? Who refuses to fix issues like local control over design and an overly complex planning system? Who empowers large developers in the appeals system despite their repeated failures to deliver? Who fails to help councils hold developers to account? Central government.
The sanction of the Presumption in Favour of Sustainable Development is simply inadequate to get them to increase output and is largely a way for developers to capture large greenfield sites (it also basically repeats a 1980s failure termed ‘planning by appeal’).
Despite the debates around Right to Buy, Starter Homes, and sale of high value assets, the most important reforms underway since 2015 were a low-key battle to reform the system so that:
- Councils were assessed against a delivery test. Each council would be required to deliver enough homes to meet housing need.
- Up to date local plans would move from 500 pages of verbiage and policies on everything from climate change to an ageing society, and instead focus on delivery of homes – with infrastructure, design and political engagement prioritised.
- Central Government would “put plans in place in consultation with local people” in areas without an up to date local plan that failed to deliver. It was hoped in Number 10/the Treasury this could be rolled out if we were able to find a way to do this in a politically acceptable fashion.
There were moves around ‘direct commissioning’ (opposed by parts of the Treasury) so that councils could control the land market themselves and, without taking on balance sheet risk directly, allocate land to developers in return for agreement to build at a set rate.
These reforms were not particularly supported by the sector or within DCLG, despite help from some good officials and ministers, (particularly Brandon Lewis). DCLG was far too focused on mayors (despite clear evidence that London’s mayor, who has extensive housing powers, had not stopped London seeing the biggest housing failure of all). Against all the headwinds and vested interests the agenda set out above barely moved – much like housing numbers.
2. What sector builds is important but the key is fixing the structures in place
The housing sector (and many academics/left wing charities) are largely a series of vested interests focused on more money and hidden subsidy (e.g. cheap public land) for their favoured type of housing. This includes councils. Number 10 would often be lobbied by a council that barely allocated land for housing and had an annual shortfall of, say, 300 to 400 homes and yet argued that the priority was increasing local council house building from ten to 30 a year.
Deconstructing the arguments is depressing. The social housing sector argues it is ‘counter-cyclical’ and ‘builds in a downturn’. It is true from 2007-2012 social housing providers started work on around 25,000 homes a year. But this cost close to £2 billion a year in direct subsidy, nearly double times what we are spending now on support for affordable homes to deliver a higher number of shared ownership units. And overall this ‘counter-cyclical’ system saw a post-war low of just 90,000 homes started in 2008/9. Not an overall success to replicate.
Or take another silver bullet – ‘build to rent’. It replicates the commercial market’s use of long term rents, which some argue makes it more resilient – but in the last recession we saw a nearly 50 per cent drop from peak to trough in terms of commercial output. Meanwhile, planners argued for more resources, yet many (though not all) showed themselves unable to prioritise, unable to accept streamlining, and opposed to genuine consultation and local input. Net immigration made up around 25 per cent of demand yet many argued stopping this would solve everything.
The current private market only builds more with rising demand. So to end the housing crisis, which is a supply/demand imbalance, some argue for higher demand to induce higher supply. But this is nonsense because supply is unresponsive. Since the cost of construction is below sales prices, the real solution is rewiring the model to increase elasticity of supply, not just push up prices and hope that there is an extra dribble of housing. (Note at present if you flooded England with council homes sufficient to reduce demand, without other changes, this would just reduce private output.)
The key to fixing these issues is to ensure that councils control the local land market, remove the risk from those building homes (sharing it between landowners, developers and councils, not taking it onto Government), and ensure local areas pursue a politically sensitive strategy to deliver – and step in directly where they do not. In some areas, more PRS is right, in others custom build, in others, Starter Homes and, if councils actually deliver, and the new Prime Minister is content, more social housing. But what is important is central support is only delivered as part of an overall strategy by each council to build sufficient homes. Developers and others will fight hard against a system that actually focuses on delivery.
3. I haven’t even mentioned how you make development more acceptable…
Of course, councils are not helped by the failure of central government to help make housing more politically acceptable. You could write a thousand words on each of the failures to deliver infrastructure with new homes, the failure to get local input right, the excessive complexity and tinkering from the centre, the failure of ensuring good quality design, interventions that increased land prices more than they drove housing delivery or how central intervention is both necessary but incredibly difficult to get right, and in each case barely scratch the surface.
Further, you need a narrative. Home ownership might get flack in The Guardian‘s pages. But at the recent Tory away day every MP accepted more homes to increase ownership. This is in large part because they get that home ownership is a) popular, b) what their voters worry about and c) necessary for the very survival of the Conservative Party. If you are going to build homes across the green shires you need a better reason than keeping GDP numbers up. If there is a better one than Tory voters’ children being unable to access home ownership, go for it, but I am not sure there is.
Sajid Javid’s reputation, and potentially May’s, will depend not on high profile interventions but on the issue of whether or not the housing crisis looks like it is easing or getting worse by 2020. It could not be more important to get right. Or more difficult.