Our housing situation is dire. Hard-working professionals are routinely forced to pay fortunes for faulty flats. The social ramifications of housing scarcity are appalling, with 145,000 children growing up in temporary accommodation.
Today, Labour launches its manifesto, including a plan for housing based on a set of ‘golden rules’. Unfortunately, these plans are bound to backfire and make the homelessness situation worse. Their policies are fool’s gold.
Before discussing housing supply, we must recognise that overheated demand is a major problem. Out-of-control immigration and family breakdown drive up the number of households, and therefore prices, making it harder for first-time-buyers to secure a home.
Labour wants to fix this with a flagship mortgage guarantee scheme. This is far from a new idea. Homeownership subsidies of various kinds have long existed and are proposed on both sides of the aisle. The scheme will involve taxpayers underwriting 5% mortgages for first-time buyers. Sounds sensible, right? Who could be against increasing homeownership?
There are two problems. Firstly, it will be inflationary, needlessly stoking prices across the board as people are able to bid up the price of homes with greater borrowing. That is the last thing we need. As the House of Lords Built Environment Committee reported, commenting on demand-side homeownership subsidy schemes, ‘evidence suggests that, particularly in areas where help is most needed, these schemes inflate prices by more than their subsidy value’.
Secondly, the schemes encourage people to take on expensive debt. Mortgages that borrow 95% of the value of a property are expensive: while less needs to be paid up front, more needs to be paid in interest. Speaking about a similar scheme, Martin Lewis sighed deeply as he told ITV viewers, “Look, I’ve never been a fan of 5% mortgages. You’ve only got a little bit of cash in there.”
Demand-side stimulus is not the answer. The only meaningful solution is to unlock supply and build more homes.
While too few homes have been built in recent decades, the Conservatives’ track record is in fact substantially better than Labour’s. Since 2015, housing output under the Tories has eclipsed that of the last Labour government.
From 1997-8 to 2009-10, the number of net additional dwellings averaged just over 170,500. Since the Conservative majority in 2015, average output has soared to just over 228,700. Not enough, but a vast improvement.
What has made the difference? Housebuilding is driven by many factors, but one critical reason is that the Conservatives have a stronger grasp of commercial prudence. By contrast, Labour’s so-called ‘golden rules’ are vague, expensive, and counterproductive.
Their first rule is ‘brownfield first’. A great idea in theory. Why build on green and pleasant land when we could get rid of ugly urban eyesores instead?
The reality, as Homes England explains, is that much brownfield development is ‘difficult and expensive’. This is because brownfield sites must be decontaminated, can require complex structural engineering, often have challenges with site access, and can therefore be much more expensive to plan, finance, and insure.
All these costs must be covered, so who is going to pay for them? Either eventual homeowners or taxpayers. If buyers could afford to pay, then the commercial incentives would result in more brownfield redevelopment. The reality is that, outside high-value areas, not enough prospective buyers can afford to pay the brownfield premium. And so our towns are littered with dilapidated ex-industrial eyesores.
The only alternative, if brownfield housing is to be put ‘first’ in any meaningful sense, is for government subsidies to fill the gap. Labour’s plan will fail because anything above tokenistic subsidies are patently unaffordable to the taxpayer.
Another foolhardy ‘golden rule’ is the overzealous demand for ‘at least 50% affordable housing delivery when land is released’.
Talk of ‘affordable housing’ can be seductive. Of course we want homes to be affordable. But ‘affordable housing’ is defined in public policy as homes sold or rented substantially below market prices. Again, somebody has to pay for that. One option is taxpayer subsidy, but, again, our tax burden is already absurdly high and pushing its limits.
Another option, ironically, is that the future occupants end up paying, since much ‘affordable housing’ eventually fails to live up to its name. Last year, it was revealed that a salary of £30,000 was too low to be eligible for ‘affordable housing’ in the capital.
The other option is to require developers to build it in return for the rights to develop land. The problem is that 50% is an absurdly high demand. Current policy sets a much lower bar of “at least 10%”. As a result, this will simply act as a block to giving the green light to large-scale residential development. The technical term for this is a lack of ‘viability’. In other words, the policy will shoot itself in the foot.
This has already played out in Sadiq Khan’s approach in London. As an independent review detailed at the start of this year, ‘Many London boroughs and developers’ told the Department for Levelling Up, Housing, and Communities of ‘issues arising from the pressure to meet the London Plan’s ambitious affordable housing target of 35%, and even more so on Public Land, where the target is 50%, leaving them with unviable projects, particularly on smaller sites’.
If the 50% rule doesn’t work in London (where land values are highest) and on public land (which is already government owned) then it certainly won’t work in the rest of the country on privately owned land.
The problem doesn’t stop there. The affordable housing demands will undermine the latter two ‘golden rules’. Labour rightly recognise that we need more ‘public services and infrastructure’ and want to ‘improve genuine green spaces’. But again, who is going to pay for these?
In saying that their policy ‘requires plans to include improvements to existing green spaces’, Labour appears to want developers to do this in return for planning permission, as with current ‘Section 106’ agreements. These costs will need to be recovered by developers, and they will do this by raising sale prices and slowing the release of homes onto the market as the Letwin Review demonstrated.
But once Labour have hammered the commercial incentives to build homes with their 50% affordable housing requirement, there will be nothing left to fund necessary public infrastructure. In these situations, either the project never starts, or the developer wangles out of delivering the promised infrastructure. Neither outcome is good for the country.
The net effect of this plan will be dire. Housebuilding will slow down, and the inevitable result will be higher prices for first-time buyers and worsening homelessness.
The social ripple effects will continue to be widely felt. It will needlessly reduce employment opportunities in skilled construction jobs. The lack of living space will act as a disincentive for people to form families and have more children. As immigration stimulates housing demand in major cities, the housing shortage stifles labour mobility within the UK as it is harder for people to move to areas with the best-paying jobs. This limits productivity and, therefore, economic growth.
The only solution to the problem is tackling it at root cause: fixing the broken, cumbersome, unpredictable planning system. Until this changes, the dire situation is here to stay.
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