Features

Radical reform is the only solution to Britain’s housing crisis

With even young professionals now struggling to buy, the heat is rising

5 November 2016

9:00 AM

5 November 2016

9:00 AM

‘Prefabs to solve housing crisis,’ screamed the front page of the Sunday Telegraph last weekend. Can the shortage of homes in Britain really be so bad that ministers are floating plans to encourage the first new generation of temporary, pre-packed houses since the great reconstruction drive which followed the second world war?

The UK is in the midst of a housing shortage that numerous credible experts now describe as ‘chronic’ and ‘acute’. While it’s widely recognised that we need 250,000 new homes each year to meet population growth and household formation, house-building hasn’t reached that level since the late 1970s.

During the Thatcher era, as fewer council houses were built, an average of 190,900 new homes were constructed each year. That dropped to 160,800 while John Major was prime minister as we came to rely ever more on private-sector house-builders, then 156,000 under Blair.

Gordon Brown’s short premiership saw annual house-building fall further to 143,400 in the aftermath of the 2008 credit crunch, which wiped out so many small- and medium–sized builders. There was then another sharp drop in the Cameron years, as new homes per annum fell to an average of just 123,560. From 2010 to 2015, UK house-building hit its lowest peacetime level since the 1926 general strike.

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‘We haven’t been building nearly enough since the 1960s, and the total shortfall over the last 20 years has been huge — around 2.3 million homes,’ says Professor Paul Cheshire of the London School of Economics, an eminent housing expert who has advised successive governments. ‘A growing supply gap over the last few years has seen prices become more and more unaffordable and if we do nothing, it’ll get even worse.’

Back in the early 1990s, low- and middle-income workers needed to save 5 per cent of their wages for three years, on average, to build a deposit for a first-time property. Today, they need 24 years of such savings. That’s why home ownership has dropped sharply, particularly among youngsters. Ten years ago, around 64 per cent of 25- to 34-year olds, the crucial family-forming age group, owned their own home. Now it’s just 39 per cent. Well over half of a generation of young adults are locked out of the property market — an economic and social disaster.

Until recently, it was a political truism that rising house prices, which encourage consumer spending and boost the elusive ‘feelgood factor’, were a good thing. It was the house price collapse of the early 1990s, after all, following the pound’s ejection from the European Exchange Rate Mechanism, which trashed the Tories’ reputation for economic competence, making way for New Labour.


Now, though, as house prices spiral way ahead of wages, driven not only by a growing supply-demand chasm but also ultra-loose monetary policy, more and more youngsters from relatively affluent families are being priced out. The emergence of ‘generation rent’ means the political geometry is shifting.

‘If prices keep rising, home -ownership will fall further and for the Conservative party, with its base in home ownership, that’s disastrous,’ says Alex Morton, who was Cameron’s housing expert in the Downing Street policy unit. ‘Tories want a society where if you work hard and do the right thing you can own your own home and get on, and that’s becoming increasingly difficult for huge numbers of people.’

Despite the party’s lead in the polls, Conservative insiders are acutely aware that, with even young professionals struggling to buy anything — let alone something like the leafy suburban home of their childhood — the political heat is rising. Over half of first-time buyers in 2015 had assistance from ‘the bank of Mum and Dad’, rising to two-thirds in London and the south-east. Such realities lay bare an uncomfortable truth — the growing gulf between ‘property haves’ and ‘property have-nots’. The UK housing market, traditionally a source of social mobility and security for millions, is now fuelling social immobility and resentment.

‘I think the new government feels very keenly the need to increase housing supply,’ says Morton. ‘This housing crisis, and the related feeling of unfairness, is the one thing Labour under Jeremy Corbyn could use to claw back into power.’

Sajid Javid, the new Communities Secretary (who grew up above a shop in Rochdale, in a two-bedroom flat with his seven brothers and sisters), has come out fighting. Last month he used his speech at the Conservative conference to accuse the UK’s large house-builders of deliberately restricting supply to boost prices, and therefore profits. The ‘big developers’ have ‘a stranglehold on supply’, said Javid, and are ‘sitting on land banks’, while ‘delaying build-out’.

The idea of ‘land-banking’ — with the biggest house-builders remaining on go-slow to up their profit on each unit — used to be dismissed as a conspiracy theory. In recent months, that has changed. A quarter of all new homes in the UK are built by the biggest three providers and over half are provided by the top eight.

The UK house-building market has been described as having ‘all the characteristics of an oligopoly’ in a little-noticed report from the House of Lords economic affairs select committee, published during the depths of last summer. Now the secretary of state has weighed in, as has the veteran MP Clive Betts, who chairs the Commons select committee that monitors his department.

‘The big developers are deliberately restricting supply, maximising their prices and profits, rather than the numbers of houses they build,’ he says. The Housebuilders’ Federation, the industry lobby group, rises above the hurly-burly, and says house completions are up, while denying deliberate delays and endlessly blaming the planning system.

There’s increasing evidence, though, that while the planning system remains cumbersome, more and more permissions are being given. Yet the homes aren’t being made. Internal government figures show that over the past three years, while there’s been a 46,600 rise in building units granted permission, there’s been a 94,300 rise in such units remaining unbuilt — with the entire increase in planning permission being absorbed by increased alleged ‘land-banking’.

That helps explain why, since 2008, the average time lag between a housing unit being granted permission and the home appearing on the market has risen from 21 to 32 months.

Fired by such evidence, the government is set to publish a white paper on housing next month, with fines on building delays being touted and developers possibly being charged council tax on unbuilt units after a certain period. ‘There will be carrots and sticks,’ says Javid.

A year ago ministers publicly set a target that a million new homes would be built in the UK by 2020 — meaning 200,000 a year, compared with well below 150,000 now. I ask Paul Cheshire what the chances are of that happening. ‘There is no chance,’ he replies.

Like many housing analysts, Cheshire is calling for wholesale reform, including the alteration of house-builders’ incentives through taxation and the release of much more land for development. It certainly seems ridiculous that no new town has been successfully developed in the past 30 years, despite rapid population growth, and the fact that a third of homes granted planning permission are never actually built.

We’ve been here before. In the face of an acute housing shortage after the second world war, an outgoing Labour government oversaw the building of 200,000 homes in a year. The Tories were then elected on a promise, largely met, to build 300,000 and more — above and beyond the drab ‘prefabs’. What we need is to invoke the 1950s sense of emergency and of social justice that helped overcome planning restrictions, vested interests and ministerial torpor.

In the name of research, I rephrase my question to Cheshire. ‘Which is greater, professor, the probability of a million new homes being built by 2020, or the probability of you walking on the moon?’

The reply is instant. ‘There’s more chance, a lot more, that I’ll walk on the moon, waving a magic wand,’ he says. ‘But even a magic wand won’t work, unless we make very radical changes to our system.’

Liam Halligan’s Dispatches documentary, ‘Britain’s home-building scandal’, is on Channel 4 on Monday 7 November at 8 p.m.

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