Tories must use this Budget to offer radical solutions to the housing crisis
We've been told to expect a Budget statement that includes 'real action' on housing - and it has to deliver
WE’VE been told to expect a Budget statement that includes “real action” on housing.
If tomorrow does bring measures that genuinely tackle the UK’s chronic housing shortage, it won’t be a moment too soon. Housing is the Government’s most pressing domestic issue.
Around three million too few homes have been built in the past 30 years. Relentless demand, in the face of inadequate supply, has caused prices to spiral upward, preventing countless young adults from buying a home.
Millions of hard-working people — even well-educated professionals who should be natural Tory voters — cannot fulfil this basic ambition.
Average house prices across the UK are now eight times the average wage — a historically high multiple and impossible to finance with a regular mortgage.
That’s why half of first-time buyers depend on “the bank of mum and dad”, rising to two thirds in London and the South East — an option available only to some.
The UK housing market, once a source of social mobility and security for those willing to work and save, now generates discontent and anger.
Some of us warned, this time last year, that unless the Tories took bold steps to boost house building, helping the ranks of “priced-out” 25-to-45-year-olds, Labour’s Jeremy Corbyn could soon be in Downing Street.
Ministers responded with a housing white paper in February which, on the insistence of Number 10, ducked radical reforms.
Four months later, buoyed by the votes of “generation rent”, Corbyn came within a whisker of power.
Then, in her party conference speech last month, PM Theresa May vowed to take “personal responsibility for fixing the housing market”.
The Prime Minister’s solution was to pump an extra £10billion into Help To Buy (HTB). It was a major error.
Because it applies only to new-builds, HTB has allowed powerful developers to sell a slew of small, low-quality homes — racked with faults and often on very punitive “leaseholds” that require ongoing payments and make homes difficult to sell.
It’s been a cash bonanza for the large developers who dominate the UK housing industry, a sector a recent House of Lords report said “showed all the characteristics of an oligopoly”.
May’s latest HTB announcement added more than £1billion to the stock market value of the UK’s biggest house builders in a single day.
While HTB has helped some, its main effect has been to juice up the demand side of the market even more, pushing prices further out of reach for the vast majority, often as they look to settle and raise a family.
Rather than injecting more taxpayer cash into a property market already bloated by a glaring demand-supply imbalance, the Government must now take drastic steps to ensure more homes are built.
One method is to directly fund councils, or housing associations, to build more social housing — homes with subsidised rents for low-income workers.
For decades, the construction of social housing has been ridiculously low — falling to single-digit hundreds per year under Tony Blair and still in the low single-digit thousands.
If the UK is to build the 300,000 new homes needed annually, that must include at least 50,000 units of social housing a year. At party conference, May offered funding for just 5,000 social units a year for five years.
It was risible, and this Budget must show more ambition.
The most important priority is to provoke much more private-sector house building.
Over recent years, the industry has become too concentrated, with the three largest UK builders now providing a quarter of all new homes, and the eight largest more than half.
This market power has allowed them to delay the conversion of planning permissions into actual homes, boosting prices and profits by imposing a deliberate housebuilding go-slow.
At the 2016 Conservative Party conference, Communities Secretary Sajid Javid called them out. “The big developers must release their strangle- hold on supply,” he said.
“It’s time to stop sitting on land banks and delaying buildout. Homebuyers must come first.”
His white paper originally contained radical measures to punish developers holding back supply by breaking agreed limits on how quickly planning permission should result in saleable homes.
The measures were watered down, though, to be almost toothless — just as the developers wanted.
That must change. Big developers, sensing public clamour, have just produced eve-of-Budget statistics to show new building up sharply.
But these figures have been artificially inflated by including the conversion of houses into flats and shops into homes — and that is not fresh building.
The Government must impose punitive taxes if homes are not built and marketed within a certain time of permission being granted. After two years, say, council tax should be payable on dwellings, to be met by developers if homes are not completed.
The UK last built more than 250,000 homes in a year back in the mid-Eighties.
At that time, the small and medium-size enterprise (SME) builders accounted for three-fifths of all new homes — now it is less than a fifth.
Unable to access adequate land, and often starved of bank finance, the smaller builders — vital to spur competition and get houses built fast — are nearly always pushed out by the “big boys”.
That, too, must change.
The Government should acquire land cheaply, grant itself planning permission, then sell off plots — reserving some solely for SME builders.
The captured “planning gain” — the massive increase in land value once permission is active — would then accrue to the state.
That cash should stay with local authorities, to be spent on the new schools, hospitals and other infrastructure that will make more local housing popular.
Last week, Mrs May renewed her vow to fix the housing market. It won’t happen without radical reforms — which this Budget must deliver.
