Alex Morton was a member of David Cameron’s Downing Street Policy Unit.
Housing is the topic of the day. The Prime Minister has said she is taking personal charge of fixing the dysfunctional state of British housing. Gavin Barwell as Chief of Staff and a former Housing Minister understands the system. But it is a colossal task. What will be required is an intelligent series of interventions that build together to fix the broken housing system.
Firstly, it is a system – not a ‘market’ in any real sense. A system whereby the most critical factor, land, is rationed by Government and creates local monopolies is not a ‘market’. The Housing White Paper was strong, but its phrase ‘fixing the broken housing market’ leads some to assume that since ‘the market’ is broken, the solution must be ‘the Government’. If so, we might as well give in to Jeremy Corbyn, as we can never win on such terms. It is also worth noting we have the fourth lowest level of home ownership in EU and the second highest level of sub-market rent (social housing). Other nations have fixed their system while increasing ownership – the goal of 86 per cent of people.
1. Always focus on local delivery and intervene if necessary in local areas
The key to understanding our housing system is that it consists of 326 councils in charge of meeting their local population’s needs. In theory, each council monitors increasing population and wealth (since richer people want bigger and more homes), and ensures that private housebuilding, supported by Government schemes, delivers sufficient homes.
Of course, most councils fail to do this, and have done for a long time – hence the housing crisis. In 2015, David Cameron’s Government created, and in 2017 Theresa May’s Government expanded and improved, the fundamental concept that councils which fail to meet local needs would face penalties and intervention. For the first time in decades we are aiming at the right target – housing delivery per area – under the delivery test.
The problem is that no one thinks this is serious, and all that believe no sanctions will ever be placed on those who fail to build. Because of this, many councils will continue to not hit their target. The only current penalty, of an increased risk of being unable to block the big developers on specific sites, does not work in delivering enough homes for councils to hit their local target, and allows councils to blame Government for overriding them at planning appeal.
The Government needs to announce a hit list of five to ten councils where they will intervene in the next 12 months where the gap between delivery and target is greatest. The interventions will have to keep a majority of local people onside, while embarrassing and potentially even penalising the local councils.
Such interventions will have to be politically intelligent rather than being seen to punish local people (focus on design, infrastructure, home ownership, and benefits for local communities). There will have to be ways to ensure that permissions granted are built out as local people will not accept imposition of new sites without these sites being developed as promised. But forget about another big national announcement – it is local intervention that will show if May is determined to fix housing.
2. Government interventions must be judged on local demand and supply
The second key point is what central interventions deliver in support of local targets. Reading that some people argue that by spending £x billion ‘the Government builds x homes’ is painful. In all such cases, Government, by providing subsidy, buys (or lets a housing association buy) a property from a (usually large) house builder, say at 70 per cent of open market value, and passes it on to a household who pay rent or become shared owners for the property.
All grant or similar spending is ‘demand side’. Understood properly, grant is not different from Help to Buy Equity Loan, where a developer builds a house, and the Government helps a household that could not afford the property purchase the home through a loan subsidy. In both cases, by ensuring a purchaser of the built home, developers are given confidence to build out a planning permission. Higher spending can mean lower rent for the household or just a higher initial purchase price, not necessarily more homes. Even infrastructure spending is about inflating land values, which accelerate the speed of sales and gives developers confidence to build homes, not building homes directly.
We spent £246 billion last year on housing through mortgage lending (this is before you add billions more in build-to-rent, shared ownership and other private and public schemes). With all central support and schemes, the goal is the maximum increase in supply in return for a minimum spend and increase in housing demand. The amount spent is less important than how you spend it.
3. Diversity and build out to achieve local delivery
Once you understand 1 and 2, you realise that this is about a system that ensures councils provide sufficient planning permissions that actually get built out each year.
This is also why design matters (as well as the raw political fact that if we are going to build on greenfield sites in the South of England they have to look decent). One survey finds eight in ten do not want to buy a new build home. The fewer people will buy a new home, the slower our builders build. The fact other countries have a more diverse housing product range is why they have built enough homes without needing massive intervention.
The goal both among councils and when Government intervenes must be:
- Different products – retirement housing, shared ownership, build-to-rent, custom and self-build as well as a limited amount of sub-market rent.
- Greater emphasis on design and diverse products from the major builders, and trying to increase the numbers who would purchase a new build home.
- Support that increases build out by the major developers through infrastructure and other schemes.
- Greater political sensitivity around design, infrastructure and showing how the local community can benefit from new homes.
National schemes are not about size, but how they add up in and incentivise each area to meet that local target. The Government should not, for example, give a penny of social housing grant to Labour councils that are totally failing to build – social housing should be a reward for Labour councils that are close to or already meeting their delivery needs.
A broken system needs systemic reform not another policy bolt-on
If Government announces some colossal bureaucracy or huge new spending programme alone on 22 November without showing how it will ensure local delivery is met, it will be a sign they are planning for headlines not a real solution. They need systemic reform not a big announcement. We will see what happens in three weeks’ time.