We’ve all spent more time at home lately, with millions working from a spare room or kitchen table, rather than travelling to the office. The gulf between those with spacious accommodation and others living in cramped conditions has been put in stark relief.
The Covid lockdown has highlighted that for many in Britain, our physical home, far from offering comfort and refuge, is a source of misery – and may even be risking our health. The correlation between localities with lots of sub-standard accommodation and deaths from this virus is striking.
The UK has long had a serious housing problem. There is a chronic shortage of homes, not only to buy and rent, but social housing too.
Young adults – up to their mid-40s – spend more on housing and are more likely to rent than any generation since the 1930s, as high prices deny home ownership. And the dearth of social housing has seen overcrowding and homelessness escalate among countless low-income families.
“We must build, build, build,” declared Boris Johnson over the summer. As the ranks of “Generation Rent” keep swelling, the Prime Minister wants to “fix housing”.
In August, the Government proposed a “radical planning shake-up”. Ministers claimed “a lack of land with planning permissions” was why we’ve built two to three million too few homes since the turn of the century. Yet around four fifths of residential planning applications are now accepted, and permissions for over a million homes remain unused.
The real problem is ever-lengthening delays between permissions being granted and homes being built – as the big, powerful builders which hoover up most permissions stage a deliberate go-slow. They make higher profits overall by producing fewer homes so prices keep rising. Unless ministers acknowledge and tackle this massive market failure, our chronic shortage will remain.
This is not controversial. Any decent equity analyst knows large developers impose “contrived scarcity” on local housing markets. It’s the core of their business model – and has sent profits sky-high given the lack of competition from smaller outfits that build out quickly to aid cash flow.
Certain Cabinet ministers scoff when I put this to them, but contrived scarcity is real. Our top 10 developers account for over 70pc of all supply.
An extensive House of Lords inquiry in 2016 said the UK housebuilding industry “now has all the characteristics of an oligopoly”. Since then, the industry has become even more concentrated.
Proposals to use more “zoning” – making residential planning rules clearer and more predictable in some localities – will help a bit. But the real problem remains a lack of competition, with countless smaller builders still stymied by an inability to raise adequate finance to access extremely expensive building land.
When residential planning permission is granted, land prices soar, often several-hundred-fold. In the UK, almost all that gain goes to landowners and shadowy land agents, who have optioned land.
This generates huge price speculation and long delays in bringing land forward, resulting in a “low-build, high-price” gridlock benefiting powerful vested interests that in turn make big donations to political parties. It would be hard to design a system more stacked against ordinary people trying to buy a reasonably priced home.
Britain is an outlier. In many other advanced nations, planning uplift is split between landowners and local government. That keeps a lid on land prices, while generating funds to build local infrastructure – such as schools and hospitals.
Under Section 106 agreements, builders here are supposed to make contributions to local infrastructure and affordable housing. But large developers routinely muscle their way out of S106 contracts.
There is a broad coalition across British politics – from housing campaign groups to centre-Right think tanks, to say nothing of several Parliamentary inquiries – that wants far more planning uplift going towards local infrastructure. The Government has rejected this idea entirely.
There is a similarly wide range of backers for making parts of the green belt available for housing, not least around transport hubs. Far from “being concreted over”, the green belt now covers 13pc of England’s land mass, having more than doubled over the last 40 years.
The Government, though, just ruled out any green belt release. There is also a screamingly obvious case for a full Competition and Markets Authority inquiry into our housebuilding industry. Again, ministers have laughed in my face.
Rather than tackling vital supply-side reforms, successive governments have opted instead for the easy headlines of boosting demand.
Help-to-Buy has, since 2013, channelled £20bn of public money mainly to our largest housebuilders. While profits have spiralled, they’re still building fewer homes than before 2008, despite massive subsidy.
While helping some on to the housing ladder, Help-to-Buy has pushed prices up for the vast majority of aspiring homeowners outside the scheme. It’s also resulted in large developers building a spate of over-priced, sub-standard homes, often sold on egregious leaseholds. Help-to-Buy is a ridiculous, shameful policy – but don’t rule out a repeat performance.
And last week, Johnson talked about offering new long-term fixed-rate mortgages with just 5pc deposits, potentially with state guarantees.
“It could be absolutely revolutionary, especially for young people,” he said. But again, Prime Minister, if you just juice up demand, while ignoring supply blockages, you’re making a bad situation worse.
I accept it was generally variable-rate mortgages which sparked the 2008 subprime collapse. But fixed-rate loans are expensive.
Inflation and interest rates could soon rise, which is why no mainstream lenders currently offer a standard term 25-year fix. The 15-year fixes available are very costly for borrowers – at several hundred basis points above the comparable gilt yield at which lenders borrow themselves.
Home buyers landing in negative equity if prices turn could end up returning their keys.
Tweaking regulations so the financial services industry gains exposure to yet more desperate, even more heavily leveraged home buyers is the easy bit – and probably counter-productive.
Addressing the real problem – our systematic, self-reinforcing lack of housing supply – is somewhat harder.