The housing crisis – can our construction companies solve it?

18 September 2017

According to my clients who build houses, their main problem over the last decade or so has been acquiring land on which to build. Some of them find land so hard to obtain that they have to concentrate on repair work and extensions; others resort to acquiring dilapidated properties, renovating them and keeping them as residential lets. No-one is suggesting that this type of house-building company is going to make a significant impact on the housing shortage but their experiences are an indication of the obstacles that lie in the way of solving it.

There are many opinions but the consensus appears to be that this country needs to build 300,000 houses per year over the next four years just to stabilise prices. A recent survey by Opinion Research reveals that 37% of those who are currently renting their homes think that they will never be able to afford to buy a property. When asked to rank the greatest problems facing the country, the housing crisis came fifth after immigration, the NHS, membership of the EU and terrorism. The respondents in London ranked housing as the number one issue.  88% of people living in urban areas thought that there was a crisis. Those surveyed were also asked to comment on the causes of the crisis. The five most quoted in decreasing order of frequency were:

  1. Immigration
  2. Foreign investors buying up houses
  3. Right-to-buy/selling off social housing
  4. The buy-to-let boom
  5. Developers holding onto land after getting planning permission

This appears to reflect the recent trend to simply blame foreigners and big business. Whilst it is fair to say these opinions are not generally shared by the organisations that have made a study of the problem, it is difficult to discern any consensus of opinion even among those organisations.

It seems that the most commonly suggested solution, and one that is gaining traction in Government circles, is to relax planning regulations in the Green Belts.

The Centre for Economic Performance at the LSE provocatively stated that a larger area of Surrey was given over to golf courses (mostly in the Green Belt) than to housing and suggested that, since Green Belt land was mostly inaccessible to the public, it served generally to protect the interests of those wealthy enough to live there (although, in response, The Campaign to Protect Rural England was keen to point out that the claim only held true if gardens and access roads were excluded from the comparison).

The CPRE itself favours one of arguments raised earlier, that house-building was being delayed by the large building companies holding huge land banks.  It is true that large amounts of land are held and in 2016, the nine house-building companies included in the FTSE 100 and FTSE 250, held over 600,000 undeveloped house plots. Their professional body, the House Builders Federation, have explained that such large land banks are necessary to provide a buffer against the long delays and uncertainties in obtaining planning permission.

Regardless of the arguments, the facts are that in the year to June 2017 only 164,960 new dwellings were begun, about half of what is needed and only about 75% of the rate at which houses were being constructed between 1969 and 1989. The result is soaring prices and lack of affordability: after taking account the effects of inflation houses now cost five times more than they did fifty years ago, and house-building land costs 15 times as much! The average house now costs 7.7 times the median annual earnings – the highest ever. Mortgages are affordable to some, but only because of the historically low rate of interest.

There is no doubt that a focused intervention is required by Government. Releasing large areas of Green Belt is not the answer and would be unpopular, not only with golfers. Only 9% of those surveyed approved of this solution. Building more social housing might help a little, but people generally want houses to buy, not to rent. A streamlining of planning rules is needed in those areas not designated as Green Belt or protected, and a straightforward and significant reduction in Stamp Duty on houses bought for own occupation would be a useful stimulus. Also, speaking for all of our smaller housebuilders, perhaps there should be a tax disincentive for companies that hold on to land for long periods of time so that more building land is released for those who want to get on with the job now!

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