Next Monday, if sources are to be believed, the Government will publish its White Paper on Housing. This has been long anticipated, and has been delayed several times from the original intention to produce it in Autumn last year. The extensive delays have allowed lots of rumours to circulate, and expectations to mount, among those who want to see radical new policies announced to tackle one of the biggest challenges facing the country: the housing crisis.
The government’s stated target of 1 million new homes (in England) by 2020 would require 200,000 new homes built each year from 2016 to 2020, but given that there has been a shortfall in the housing supply for several years, it is believed that the true requirement may be more like 300,000 per year, as found by the House of Lords Economic Affairs Committee. As the graph below shows, England has not come close to building 200,000 new homes since the mid 1980s, and 300,000 haven’t been built in a year since the Premiership of Harold Wilson.
Ministers have certainly briefed that the paper will represent a step-change in policy and provide solutions to the many issues facing the housing market. But what are we actually likely to see, if the paper does indeed surface next week? What measures will it contain, and will it match up to the high expectations?
“Carrots and Sticks”
Both Sajid Javid, Secretary of State for Communities and Local Government, and Gavin Barwell, Minister for Housing, have been saying for several months that more needs to be done to ensure developers ‘build-out’ their sites at a good rate – that they build the number of units for which they have planning consent in good time, rather than sitting on them and wait for prices to rise further. This issue of ‘land banking’ is a contentious one, but there is no doubt that Ministers want to get the biggest housebuilders to build at a quicker rate.
There are different ways this could be done. Government could introduce a new tax that captures the increase in land value that planning permission for a new development brings. Alternatively, a developer could be punished for not building-out their schemes in time, either with a fine or by revoking planning permission. An announcement of this kind is likely when the White Paper is revealed, not least because the Government is keen to shake up the monopoly that the biggest firms have in the housing industry. However, it will have to be a careful balancing act between getting tough on developers so that they build more and faster, but not too tough that they feel overly punished and withdraw from the market. One way or another the White Paper will outline initiatives and incentives to ensure small- and medium-sized builders – whose output has shrunk since the financial crash – can deliver more.
Finding and allocating sites
As for developers, the same goes for Local Authorities. They will play a key part in delivering new housing across the country, and the Government will want to encourage them to allocate more land for housing. It is likely that the it will be announced that Councils that do not have a Local Plan in place will not be allowed to bid for parts of the £2.3 billion housing fund. We can also expect measures to try and boost capacity in Local Authority planning departments aimed at speeding up determinations: this was something Gavin Barwell hinted at during Conservative Party Conference.
The Homes and Communities Agency (HCA – chaired by former Deputy Mayor of London Sir Edward Lister) will continue to beef up its role in releasing land across the country to bring forward more sites for development. It has already launched a £7 billion programme to deliver 200,000 new affordable homes and the Agency will certainly be a key part of the Government’s plans.
One of the purported reasons for the White Paper’s delay is that its proposals have run into objections from backbench Conservative MPs. Many housing specialists, economists, and – it would appear – Sajid Javid, believe that current greenbelt legislation is hampering the country’s efforts to build more houses. However necessary, it would certainly be a bold step from a Conservative government to encourage local authorities to give over greenbelt land to developers. Andrew Mitchell, MP for Sutton Coldfield, has attacked Javid over plans to build 6,000 new homes on the greenbelt in his constituency, and he will use all legal means to block the development. If Javid does back down on these proposals, perhaps the paper will devolve powers over greenbelt land to local or combined authorities. We can certainly expect the issue to be re-litigated in the upcoming Metro Mayor elections in the West Midlands.
Javid and Barwell, as well as Greg Clark, who as Secretary of State for Business and Industrial Strategy has an important input into the Housing paper, are known to be keen to tackle the affordability of housing as a key pillar of the government’s plan to appeal to the JAMs: those “just about managing”. As the graph above shows, house prices have risen almost constantly for 20 years in some parts of the country, while in others they have remained more or less the same since the Financial Crisis of 2007-08. The chart below shows the differences in the median house price to median income ratio in different parts of the country. Whereas in parts of central London and the South East a house can cost 20 to 40 times the average local income, in other areas of England, house prices are only three or four times the local income.
‘Affordability’ as an issue does not therefore have one single solution, and the Housing White Paper will need to provide a range of proposals if it is serious about this. Certainly, the funding available for housing announced at the Autumn Statement has given encouragement to the market. Just this week, one of the largest housing association in the UK, L&Q, announced its plans to acquire £500m worth of private land, on which they can build 42,500 new affordable homes, as part of their plans to build 100,000 in the next 10 years. In the past few years, many housing associations have merged with each other, or with external investors, to increase their resources and ability to fund large projects. This sector will hope to see greater encouragement in the Government’s announcements next week.
It will be interesting to see what happens to the Starter Homes policy, launched by George Osborne last year. These are new homes built on brownfield sites across England to be sold exclusively to first-time buyers at a 20% discount of the market rate. Then-Chancellor Osborne planned for Starter Homes to be a required component of all new housing developments, and the first wave of these will start this year in 30 Local Authorities. This policy however received widespread criticism, from councils, developers and industry bodies alike, as it was felt that there had been little study into the way Starter Homes would distort the market and potentially reduce the total number of affordable homes delivered as part of a development, either for first-time buyers, shared ownership or affordable rent. And as above, the range of house prices across England means that ownership, even at a 20% discount, is out of reach to many of those it is aimed at. It is likely that the paper will drop or reduce the requirement for all future developments to include Starter Homes.
Looking to the Future
The above two graphs show that the number of first-time buyers has fallen steadily for years (no doubt a corollary to rising house prices), and that a much greater proportion of people in nearly every age group are now living in privately rented housing. The housing market has adapted to this shift, and policy needs to catch up. Conservative Governments have always been keen to promote home ownership over renting, and the Help to Buy and Starter Homes policies are no exception. However it is clear that these are benefiting ever fewer people, and it is time to accept that more and more people will have to rent.
Ministers have spoken favourably about the capacity of the burgeoning ‘build-to-rent’ sector in delivering new homes. This is typically large developments with 50 or more units, where all units are self-contained and separately let, with unified ownership and professional management, and with longer leases than usual tenancies. These schemes are also attractive to institutional investors, like pension funds, as they provide secure, long-term revenue streams. According to the British Property Federation, there are currently more than 80,000 build-to-rent units with planning permission or under construction in the UK, and about half of these are in London. The Housing White Paper will certainly acknowledge this sub-sector of the market, and we could see build-to-rent schemes exempted from any Starter Homes requirements, and provide more clarity to potential investors.
To tie in with the newly announced Industrial Strategy, the Housing White Paper might also contain proposals to boost modular housing. These developments, where the majority of construction is done in factories off-site and then slotted together on-site, can be much quicker and cheaper than traditional methods. There are many innovative developers providing these kinds of homes, such as Urban Splash and Pocket Living, and Ministers have been impressed by the speed at which quality housing can be built. Last year, the Government brokered a deal with a Chinese construction company to build six new factories in the UK, and Legal and General opened their first production line last year. Expect to see more Government backing for this sector.
Time to Borrow?
A big announcement that could be made, but that isn’t widely expected, would be to allow Local Authorities greater freedom to borrow against their assets in order to build housing for social rent. This is currently tightly capped, but Chancellor Phillip Hammond’s Autumn Statement suggested that he would be moving away from Osborne’s austerity, to a new era of borrowing and investment in housing and infrastructure. Will the Government extend that to allow Councils to build more social housing?
It would certainly be a marked change in policy, but one that has been called for by the Federation of Master Builders, opposition parties and Councils across the political spectrum. Another option would be to allow local authorities to spend a greater portion of right-to-buy receipts on new housing (which is currently capped at 30%), as suggested to the Treasury by the Local Government Association. Either of these would be a reversal in the Conservative policies of the past six years. But if the Housing White Paper is going to truly address the shortage in housebuilding, then perhaps it is a necessary change.