Falling consumer confidence and severe development unviability are hindering housebuilding. We need a comprehensive strategy including regulatory freezes, a shared equity scheme, and planning reforms to tackle the housing crisis, says Gavin Barwell
Everybody knows there is a housing crisis – it has been building for the last 50 years. The victims are all around us. A few – fellow citizens reduced to sleeping rough on the streets – are visible, but most are hidden: families stuck in temporary accommodation, millions of young people denied the opportunity to follow in their parents’ footsteps in owning their own home.
That is why, soon after launching in January, Prosper UK set up an expert-led Housing Commission. The new political movement exists to develop ideas for economic growth, of which housebuilding is an important driver, and to occupy a centre ground left vacant for too long. Both mean tackling the housing crisis head on.
My interest in housing goes back to my first job at the Conservative Research Department, and as housing minister in Theresa May’s first government I worked with Sajid Javid on the white paper Fixing Our Broken Housing Market, whose reforms got us close to the holy grail of 300,000 homes a year.
After a couple of years in which Nimby backbenchers held too much sway, we now have a government that wants to build more homes again. It has made some welcome changes to the planning system and increased funding for affordable housing. Yet it is falling far short of its ambition to build 1.5m homes in five years.
What is going wrong? The Commission’s diverse group of industry experts – planners, housebuilders, investors, housing association executives, land agents and economists – identified two things.
First, a lack of consumer confidence is holding back demand. If housebuilders can’t sell or rent out the meagre number of homes they are building, we should hardly be surprised if they don’t build more.
Second, many schemes with planning permission are unviable. It is much more expensive to build an average new home than it was five years ago – £76,000 more since 2020, about half of it cost inflation but half of it regulation, policy and tax such as the Future Homes Standard and nutrient neutrality – but house prices have barely increased, wiping out developers’ margins. A 300-home Build to Rent scheme that would have made an £8m profit in 2020 would now make a £6m loss.
A 300-home Build to Rent scheme that would have made an £8m profit in 2020 would now make a £6m loss
On viability, we recommend a freeze on new regulatory burdens for at least three years, and two tests for every obligation on new housing – whether the cost belongs on new homes, and whether it is proportionate. Section 106 should pay only for what a development needs, not act as a general tax on new homes.
On demand, we propose a strictly targeted, time-limited shared equity scheme, capped at around a fifth of sales per site and funded by an industry access fee. This was the recommendation we agonised over most, but planning changes since the election mean supply can respond, limiting the risk of higher prices. Once these two problems are cracked, the report sets out other recommendations to increase supply, including a National Planning Service for large schemes and councils that are deliberately under-resourcing their planning service or rejecting applications that are compliant with policy. It also proposes a national review of the Green Belt, keeping land that stops towns and cities sprawling and merging and releasing the rest.
Some of this won’t be popular, and anyone looking for simple or quick answers will be disappointed. But that is no excuse for inaction.
I was pleased to see Labour and the Conservatives use their conferences to announce policies the Commission supports – a shared equity scheme for first-time buyers of new homes from Labour and reform of Section 106 from the Conservatives. But our recommendations are not ‘pick n mix’ – boosting demand without increasing supply will help a few people at the expense of everyone else; tackling the viability problem without tackling the demand problem will make little difference. The solution requires attacking the problem from every angle, and the industry experts who wrote the report have shown how.
Gavin Barwell is a former housing minister and Downing Street Chief of Staff, and chaired the Prosper UK Housing Commission.