Council building programme need to tackle homes shortage
- Homes should be sold into owner-occupation and the cash continually reinvested
- Public sector investment is needed to bypass private interests and push down prices
- Developers drip-feed properties into the market only at a rate that supports existing prices
The government could substantially overcome the housing shortage with a single capital investment of less than £20 billion, a new Civitas report argues today.
It warns that the under-supply of homes in recent decades results from an over-reliance on private sector developers and will not be rectified without a major public-sector building programme.
It proposes a new requirement on local authorities to directly commission those homes the private sector fails to build, sell them into owner-occupation and plough the proceeds into more homes.
A one-off upfront outlay of £15-20 billion could build 100,000 houses and flats, including 25,000 in London; this investment could be reinvested year after year – as homes are sold – to top up private-sector building output on a rolling basis.
The report also calls for the introduction of new ‘use-it-or-lose-it’ planning permissions, placing an obligation on developers to build out sites more quickly. This would carry with it the threat that land that is not developed quickly can be compulsorily-purchased by the local authority at half its residential use value.
The proposed framework is designed to hold prices down by breaking the stranglehold of landowners and developers who currently drip-feed homes into the market at such a rate that existing values are always held up.
In ‘The Housing Question: Overcoming the shortage of homes’, Civitas editorial director Daniel Bentley shows how housebuilding in Britain has only ever kept up with demand, and prices stabilised, when the public sector has topped up private output.
Such was the case in the 1920s and 1930s, and then in the 1950s and 1960s. The shortage of homes that we see today dates from the early 1970s, when council housebuilding went into terminal decline.
Planning permissions have been granted in ever-greater numbers in recent years, hitting 261,000 in England the year to March 2015, but output languishes well below demand. About 250,000 homes a year are needed to keep up with population pressures and household formation, but only 143,560 were started in 2015.
Bentley argues that the reason for this is that private housebuilding interests – including both landowners and developers – have no incentive to build homes so quickly that prices fall. Build-out rates are carefully calibrated on a site-by-site basis to ensure that they do not undermine local land and house values.
In order to build enough homes that housing costs are reduced for everybody, this dynamic must be bypassed and the public sector directly commission the construction of those homes that the private sector does not build.
‘The government is talking a good game about the need to improve the supply of homes and reverse the decline in home ownership. But its efforts so far have been too timid and fail to get to grips with the reality of the situation,’ Bentley says.
‘The single biggest barrier to building sufficient homes is the lack of incentives for landowners to release land, and developers to build it out, any more quickly than they do already. We need to take away their power to restrict supply in order to hold up prices.
‘This will require public sector investment to build the homes that the private sector does not, and new incentives for developers to speed up the construction and sale of the homes that they do build. We cannot afford to leave the business of housebuilding to the interests who have most to gain from choking it off.’
The report proposes:
- Giving local authorities a statutory duty not only to survey housing need but also to ensure the delivery of those homes within appropriate timeframes. They should be required to step in and directly commission construction work where the private sector fails to meet the needs identified in the local area.
- Establishing a National Housebuilding Fund on which local authorities can draw for the financing of construction work. These homes would mostly be sold into owner-occupation on the open market, with the proceeds of sales reinvested into the fund and used for future housebuilding, in perpetuity. But there should also be access to this fund for housing associations to build homes for social rent and repay the amount out of future rental income over the years ahead.
- Granting planning permissions in future on the basis that they are completed within a given timeframe, corresponding with the existing and future needs that the local authority has identified. Build-out rates would effectively be determined by local planners according to the area’s needs. Where sites are not built out as planned, the local authority should be able to impose charges, and/or (as appropriate) acquire the land at less than its residential use value (probably 50 per cent) and directly commission building firms to complete the work.
- Giving local authorities the power to acquire non-planning permissioned land at less than its residential use value when the pipeline of developable local land has run low, and where the land in question is deemed strategically important to meeting local housing need.
While the cost of the building programme may appear large in the current fiscal climate, this one-off investment should be viewed alongside the annual £25 billion cost of housing benefit, which is the direct consequence of decades of failure to build enough homes.
Central-government borrowing can be undertaken very cheaply at the moment – 10-year gilts are less than 2 per cent – and the boost to the construction sector would benefit the wider economy at a time of anemic economic growth.
Notes
‘The Housing Shortage: Overcoming the shortage of homes’ is published by the cross-party think tank Civitas: Institute for the Study of Civil Society on Thursday March 31st, 2016.
The author, Daniel Bentley, is Editorial Director at Civitas and a former journalist. His previous publications include ‘Finding Shelter: Overseas investment in the UK housing market’ (2014) and ‘The Future of Private Renting: Shaping a fairer market for tenants and taxpayers’ (2015).
The Housing Question