Building more houses...(probably not)

Hardly a day passes without some politician, activist, think tank or journalist announcing that we have to build more houses. Mostly our response is "like duh" as we all know that, for about twenty-five or thirty years, we've failed - every year - to build enough houses to meet the demand for them. There are lots of reasons for this most of which have the words "planning system" somewhere within them.

"But we used to built this number of houses, you know back in the 1950s."

We did and, in the 1950s and 1960s we also built a lot of council houses. In the main these were either built on land cleared as a result of damage caused during WWII bombing or else as a result of slum clearances. In my more-or-less home patch of Penge, the roads around where my grandparents lived (in a house thankfully untouched by the bombs) are filled with blocks of flats built on the land cleared by the Luftwaffe in its failed attempts to destroy the rail infrastructure at Norwood Junction.

In Bradford, where I am now, you'll see a similar load of mostly 1960s housing where decrepit, poor quality terraced housing once stood. Typical of the 1960s this council housing features tower blocks (there are over 30 in Bradford), what are called 'walk up blocks' being lower rise flats and maisonettes in blocks without a lift, and the familiar family three-bed semis often with good gardens.

Which brings us to the latest promises:

Jeremy Corbyn has pledged that a Labour Government led by him would build one million homes in its first five years, including 500,000 council houses.

The Labour leader has said that he would “reverse a generation of underinvestment in housing” that has led to a crisis in the sector. “Decent housing is a basic human need” that successive governments have failed to provide.

Exciting stuff - a dynamic government meeting real social need (and all that guffle beloved of left wing politicians). Except for one small problem, one spotted by planner and blogger, Andrew Lainton:

Whilst welcoming expansion of social housing and council house building what evidence is there that councils and housing associations have a landbank of ‘shovel ready’ sites with planning permission to hit this?

Councils have sold off most easily developable land and most projects by even the most progressive council involve intensification of existing land such as council estates – which take time. Faced with difficult financials and cuts in funding housing associations have run down their land banks.

The fact is such targets could only be hit through private land and there is a huge risk of a public spending induced land price bubble blown up by slow progress on local plans.

This policy is introducing a 1950s level of social housing spending to a teenies level of public sector landbanks, a recipe for disaster.

From a standing start this programme would need to identify land for building, secure public ownership of that land, draw up plans, obtain permissions, contract builders and complete the homes. There really is no way that this is going to happen in five years, especially given that there isn't anything close to the capability or capacity to deliver such a building programme within local authorities and housing associations - let alone national government. And this is assuming there are the workers around to dig the foundations, lay the bricks, dry line the walls, plumb the bathrooms and install the plugs and wires a modern home requires.

Just as with the promises being made by the new Mayor of London - ones he has backed rapidly away from - these promises of rapid increases in rates of house building are not tenable. We need a more open and flexible planning system before we even start talking about accelerating the building of houses. And we need to stop treating private developers as if they are denizens of Hell's lower planes - these are the experts who are going to deliver the housing we need.

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Labour and the landbanks - good politics but bad policy

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“The homebuilding industry, which owns a significant landbank, does not appear to systematically hoard land with implementable planning permission; most land of this type is under construction.”

This was the conclusion of the Office of Fair Trading back in 2008. And I know times have changed since then what with the financial crash and so forth. However the fundamentals of the industry haven't changed and, to be honest, the 500,000 or so permissions that haven't been built represent a low rather than a high figure - at least in national terms. Indeed, if we take the projections of housing need at face value (I think they're completely barking mad though) then this represents just over two years' supply.

Since the last time Ed Miliband talked about this subject, things have moved on. I'm guessing that his advisors looked at the evidence and discovered that the big housebuilders weren't sitting on loads of land they weren't intending to develop. So the rhetoric has changed - we now talk about land 'hoarding' instead. That and the fact that housebuilder profits have risen!

Miliband will point out that the profits of the four biggest housing developers have soared by 557% this year. He will accuse them of hoarding land to push up its value, with homes being built at the slowest rate witnessed in peacetime for almost a century.

Over at the New Statesman, they are helpful to Ed by casting a wider net on the supposed landbanking:

One reason for this is the practice of land banking, with investment funds, historic landowners and developers sitting on vacant land and waiting for its value to go up.

The essential argument remains unchanged. Houses aren't being built because developers are waiting for values to rise. As we've pointed out, this isn't true for the housebuilders (indeed they've been buying up land because their land supply was drying up) but there is a wider truth, that of development viability.

Put simply, plenty of investors and developers bought land and property prior to 2008 and are regretting it. They paid more than they should and, not surprisingly, are reluctant to realise that loss. As a result plenty of sites with development permissions, particularly in the inner city, are simply not viable.

Worse, the expectations of planners add costs - sometimes these are valid (cleaning up contamination, getting the drainage right) but others are indulgent (zero-carbon housing). To be fair to local councils, they're constrained by the onerous rules laid on them by well-meaning idiots in Whitehall. And by expectations set in the time before the financial crash.

As a result of this developers shun more difficult and marginal housing land and are prepared to wait for better options to emerge. This is a particular problem in London where much of the development land is marginal and expensive to develop. And if it's not viable to build market housing on this land, it's certainly not viable to build social housing.

The answer doesn't rest with compulsory purchases or with new rules and interventions but with the removing of barriers to viability. The current idea of allowing the renegotiation of s106 agreements is a good one but we also need to allow for greater flexibility in other barriers such as the requirement for zero-carbon homes.

Finally a note about those profits. As ever it rather depends where you start from - by picking 2010 when housebuilder profits were very low the rise seem massive. However, the big housebuilders' margins have yet to recover to pre-crash levels (about 17%). Indeed, the recovery in profits are because the builders are doing just what Miliband says he wants them to do:

Until now the biggest driver of the recovery in housebuilders’ margins has been the changing nature of their land banks. Having held expensive, low-margin land bought before the financial crisis – much of which has now been built on, written down or sold – they have found themselves with cheaper, higher-margin land picked up during and after the recession.

The big block to viability - and to sustaining those profits - is our old friend planning:

In addition, many of the bullish forecasts for housebuilders’ margins and profits assume a big rise in sales volumes – which still lie some way off their 2007 peak – and this is reliant on the planning system keeping pace.

What Miliband is doing is finding scapegoats and easy marks (greedy developers, NIMBY councils and profiteering housebuilders) rather than proposing things that might actually ease the process of development. Great politics but pretty poor public policy-making.

Update: some kind folk at Channel 4 have done a fact check and here are the conclusions:

Land banking or hoarding could be a problem, but there is no evidence that the big developers are guilty of hoarding land. In fact, the number of unimplemented planning permissions has fallen since 2008.

Developers appear to be working through their land banks more quickly.

A string of independent reports has found no substantive evidence of the big housebuilders trying to rig the market by sitting on land. All of which suggests that Mr Miliband might be aiming his lance at the wrong windmill here.

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