23 August 2016

We must be pragmatic, not romantic, to fix the housing crisis


Many well to do Londoners who bought their homes twenty years ago have become millionaires by sitting on their backsides in front of their televisions.

The astronomic rise in house prices has been somewhat less so rosy for the rest of the country. Rent now makes up two fifths of private tenant’s outgoings, and the average price of a London home is edging close to the half million mark. Outside the capital, the proportion of people owning their own homes in Manchester has fallen 14 per cent since 2003.

We face a crisis in supply, nothing less. Demonising Middle Eastern sheikhs for buying up London homes as investments and leaving them empty may make good copy, but it’s not the cause of the problem. Even if the government were to nationalise all foreign owned and unoccupied homes in the UK and re-We purposed them for council housing, it would make little more than a percentage point dent in UK housing supply.

So what do we do about it? Last year, David Cameron committed the government to build one million new homes by 2020. This target is already on track to be missed, with only 140,000 homes actually being built in 2015. While market trends suggest supply will rise this year, it will not touch the 245,000 needed annually to cut house price inflation to one per cent.

Even this figure, set out set out in the 2004 Barker Review of housing supply, is now likely to be a gross underestimation of actual housing need.

To avoid the poorest in our society facing increasing overcrowding and homelessness, the government must do all in its power to increase housing supply. This means throwing out green belt regulation, radically simplifying planning permission, and completely overhauling affordable housing policy.

Killing the Green Belt

The green belt is simply not what you might think it is.

As housing and homelessness charity Shelter put it in a recent report:

“Green belt land is often portrayed as having intrinsic qualities of beauty or public amenity value. But there is no test of aesthetic or environmental quality that land must pass to receive green belt designation.”

It is not a series of green and pleasant pastures, preserved for the public to enjoy, but a network of towns and industrial estates surrounding major conurbations that have not been allowed to expand around their edges to avoid urban sprawl.

There are good reasons for proper urban planning. Unchecked, building large quantities of low density housing, the easiest thing for developers to do, can create infrastructural nightmares for local government in terms of transport and health, for which taxpayers would inevitably have to pick up the bill.

But green belt designations have changed little in thirty years. When more of Surrey is covered in golf courses that it is in housing, it is clear green belt policy is dangerously unbalanced.

Iver station in Buckinghamshire is one example of how such skewed priorities are depressing housing supply.

The station is being added to the Crossrail network, meaning trains from Iver will reach Bond Street in just 26 minutes. Surrounded by large areas of low intensity farmland, it would seem to be the perfect location for new housing developments or even a new garden city to take pressure off the London housing market.

Yet Iver lies firmly in the green belt. To get planning permission, developers would need to demonstrate extraordinary housing need, something that in Buckinghamshire itself is not severe enough to warrant. Thus, little or no development is planned to tie up with the new rail infrastructure. This is a tragic waste, and land such as this simply must be unlocked for housing.

This is not to say the government must immediately remove all planning delimitations. A shock therapy of rapid deregulation of planning law will benefit only landowners with windfall payments due to the change in their land’s status, and the volatility this would create in the land market could even harm house building numbers.

But urban sprawl planning must become far more pragmatic, releasing land for house building unless there is a good reason not to. Current green belt regulation is simply not fit for purpose, and must be scrapped.

Permission granted

The application of planning legislation is currently very inconsistent, with no clear timetable or check list for developers to meet across councils. This leaves them with considerable legal costs and uncertainty, and makes investors think twice and a third time before putting money on the table for new housing developments.

Some local authorities produce local plans, which set out how many houses need to be built in the local authority area and setting out areas where they are to be constructed. However, these tend to be rather inflexible. Once a plan is put in place planning permissions are incredibly difficult to get outside of the plan, making it difficult to cover the inevitable drop off in construction numbers over time due unforeseen circumstances.

That said, an inflexible plan is far better than no plan at all, true for many local authorities with the greatest housing need. Housing policy in these councils becomes unpredictable and discretionary. There is no way to predict exactly which permissions will be granted and which won’t.

This all costs developers time and money. One house builder estimated that for an average 100 unit housing development in the South East, it would take 114 weeks to go from making a pre-application to the planning permission conditions to be fully met, taking another 125 weeks to build and sell all the homes.

When planning permission is taking as long to secure as building the houses themselves, it is unsurprising supply is lagging.

But while the over-complexity of the planning system is a painful complication for big house builders, it is a near total barrier to entry for smaller firms.

The number of small and medium house builders building less than 100 homes a years has fallen by 80 per cent since 1988, according the House Builders Federation.

As David O’Leary, policy director at the HBF put it:

“Over the course of a generation, because of the ever-increasing cost and complexity associated with the planning process, we have seen the steady decline of small, regional house builders and very few new entrants. To allow entrepreneurialism to flourish we must inject dynamism into the sector and allow smaller firms and new companies to identify potential sites and get on and build.”

The lack of SMEs means that smaller plots of land, unlikely to interest the larger firms but perfectly viable for houses, are simply not being picked up and developed. Even larger firms admit privately that the industry could benefit from a wider array of SMEs.

Planning permission on land must become a formality, with an assumption it will be granted unless there are strong economic or environmental reasons it should not be.

Of course local authorities have to meet their legal obligations, but doing so in such an ad hoc way creates huge uncertainty, which is even worse that enforcing a high threshold for granting permission in a consistent way. This depresses supply and prevents a bedrock of SME house builders emerging that can deliver the homes we need.

Unless we return to this entrepreneurial model, with smaller, more agile firms entering the market to develop more marginal opportunities, too few houses will be built, and they will not be built in the right places.

Indirectly affordable housing

Councils are required by law to secure affordable housing for their residents. But in many places, this is simply fudged.

By trying to take housing in the new developments themselves, even when these are in hugely expensive areas and designed for wealthier buyers, councils are not getting the numbers of affordable houses needed to support poorer inner city communities.

They are consistently forced to accept fewer affordable houses from developers, because original planning requirements are deemed to make the developments not worth building in the first place if they are actually enforced. My own investigation for the BBC found only one London Borough was actually meeting its affordable targets over the past three years in London.

Instead, we need to simplify the affordable housing system, focusing on maximising the quantity of good quality affordable housing being brought onto the market, rather than the geographic location of this housing. This would mean in many cases taking affordable housing contributions from developers in expensive areas in cash, allowing them to build exclusive developments for wealthy clients, while and ploughing the capital taken from developers into building affordable homes in less expensive areas where the money will go far further.

Critics will argue this will lead to social cleansing in affluent areas, and that on location affordable housing is designed to prevent just this from happening. They would argue areas such as Hackney, Islington and Tower Hamlets, close to central London but with poorer communities, may lose their diversity, with disproportionately white and middle class residents replace existing residents over time.

What these arguments miss is that this social cleansing process is already happening at a rapid rate; short of full nationalisation no local authority can provide enough affordable housing to prevent this unless something is done on the supply side.

An attempt to plough on with direct provision of affordable housing will not stem the tide. To do so would to be to embrace the fallacy that government must always do something directly to solve problems. In this case, a solution fixing the structural supply issue would help the worst off even more than hitting developers with greater affordable housing requirements.

Unless the number of affordable homes is dramatically increased, communities will continue to be forced out of increasingly unaffordable metropolitan areas. Upping the total number of houses can start to make property affordable for the worst off in the inner cities indirectly by ending the paucity of supply plaguing the market.

Trade-offs needed

We are building less than half the number of homes a year that we need to be. To rapidly make up that difference, trade-offs are going to have to be made. We need to lose the green belt, relax affordable housing policy and central government is going to have to legislate to radically simplify how local authorities apply planning law, introducing an assumption that permission will be granted unless there is a good reason not to.

Above all, the only way to solve the housing crisis is to build more houses. Anything less than that will further entrench ‘generation rent’ as perennial tenants.

George Greenwood is a freelance political journalist.