Property News

Why the UK Can’t Build Enough Homes

Em Morley - January 13, 2015

The Labour government in 2007 set a target of 240,000 homes to be built annually by 2016. The country has not managed numbers even close to this.

After the Second World War, the UK built over 300,000 new homes every year. In recent times, the country has only achieved half of this. There are many factors that have caused this crisis.

Ten years ago, the Barker Review of Housing Supply revealed that around 250,000 homes need to be built a year to stop house prices getting out of hand, and to prevent a shortage of affordable housing.

This aim has been continuously missed. The closest the country got to reaching the goal was in 2006-7, when 219,000 homes were built. However, 2012-13 saw a post-war low of 135,500. This was mainly down to the financial crisis. Last year, this figure rose slightly to 141,000 homes. The coalition government has since dropped Labour’s target.

The Governor of the Bank of England (BoE), Mark Carney, said in May 2014 that house-building in the UK was half that of his home, Canada, even though the UK has a population double the size. The consequences have been sky-high prices in London, the South East and other parts of the country.

Planning permission

A recent survey of house-builders found that around 95% believe the “modest” industry target to build 200,000 new houses a year by 2016 is unachievable.1

Two of the main reasons for this were noted as the planning system and local opposition to building. The Home Builders Federation (HBF) comments that, although things have improved, the planning system is “still far too slow, bureaucratic and expensive.”1

However, the Government have revealed recently that in the year to September 2014, there were 240,000 planning permissions for new homes. Housing minister Brandon Lewis believes this is a sign of the Government’s planning reforms working.

In 2012, the Government tried to simplify the planning system by launching a new National Planning Policy Framework (NPPF). Property Economist at Capital Economics, Matthew Pointon, says this is working: “In the past, planning was a big part of why we didn’t hit our targets.”

Nevertheless, the HBF says it can still be difficult to go from outline to detailed planning. Apparently, there are more than 150,000 plots for new houses with outline planning permission that are waiting in the system for detailed permission.

The Government argue that the planning system is quickening, as there has been a steady increase in detailed planning permissions being granted in the last four years: from 158,000 in 2011, 189,000 in 2012, 204,000 in 2013, and 240,000 in 2014.1

Head of Housing and Planning at think tank Policy Exchange, Chris Walker, says this is a positive step. However, these figures could simply be levelling after the low levels of building during the financial crisis. Walker says: “We probably won’t get to 200,000 on the back of that 240,000.”1

The Government has eliminated national and regional planning house-building targets. However, Chief Executive of the Town and Country Planning Association, Kate Henderson, says that leaving things to local decision-making encourages Nimbyism.

She adds: “There’s a lot of pressure from politicians in certain areas to suppress housing figures.”

Yet Brandon Lewis says that the growing number of permissions show that the tide is turning. He also discards the idea that replacing regional planning targets with local decision-making has caused Nimbyism. He highlights the British Social Attitudes survey, which showed a 19% increase in the amount of people supporting house-building in their area.1

Available land

Homelessness charity Shelter believes that a shortage of available building land is to blame for the housing shortage. A spokesperson says: “We fail to provide enough land at prices that make it possible to build decent, affordable homes.”

They also reveal that land prices have risen “massively”. Residential land prices grew 170% from 2000-07, compared to the 124% rise in house prices, says the Institute for Public Policy Research (IPPR).1

The private sector HBF and the National Housing Federation (NHF) agree that the main long-term restriction is land. The NHF thinks that local plans drawn up by councils often do not identify enough land to meet local housing needs.1

A spokesperson for the Department for Communities and Local Government (DCLG) says: “We’re well on track to have released enough formerly used, surplus public sector land for 100,000 homes by the end of this parliament, and the Autumn Statement included plans to identify similar land for an additional 150,000 homes in the next five years.”1

Jeremy Blackburn, Head of Policy at the Royal Institution of Chartered Surveyors (RICS), believes that this will help. However, public sector land is just a small part of the problem. Private landholders also need to be stimulated to release sites for house-building.

A controversial area is the greenbelt. Blackburn thinks that it will help if rules around this are relaxed. He says that generally, the greenbelt can be built on and green space can be released in other areas.

Councils have always had the ability to build on the greenbelt in special circumstances. It was found in August 2014 that 15 homes are approved on the greenbelt daily. In October, Eric Pickles, communities secretary, said that the Government’s new planning rules on the greenbelt would be tightened. Many in the planning and construction industries would like to see the greenbelt released for building, but it is thought that politicians won’t agree on something as controversial.

House-builders

Pointon says that house-builders who possess large sites often develop them gradually instead of building and selling the homes quickly.

Why the UK Can't Build Enough Homes

Why the UK Can’t Build Enough Homes

This works to their advantage, as by releasing a few at a time, the price stays high. If they were all available at once, the value of the properties would drop.

Pointon explains: “By building them out more slowly, it means they can maximise the value of their assets.”

Henderson says that although this works for them, it means that the country is left with developers sitting on land for houses that could be on the market and relieve the shortage. She believes that the state should take charge of developing large sites, so that big house-builders do not control the housing stock.

The HBF says that these sites can take years to develop. Spokesperson Steve Turner says: “House-builders can only build at the rate a local market will support. You cannot build out a site for 5,000 houses instantly or indeed put them up for sale in a local market at once. So when local authorities are drawing up their local plans, it’s imperative they include more smaller sites and not just a few large ones which inevitably take years to build out.”1

The state

Between the late 1940s and late 1950s, councils built more houses than the private sector. Until the late 1970s, local authorities were building 100,000 per year. When Margaret Thatcher came to power in 1979, house-building by local authorities declined.

Private sector building grew, but did not compensate for the drop in public sector construction. Housing associations were meant to fill the void, but have not come close to the state’s building figures, says a supporter of pressure group Defend Council Housing, Glyn Robbins. He believes that councils’ departure from house-building is “fundamental” to the housing shortage today.1

Henderson agrees. She says that the current lack of building shows that the private sector cannot deliver by itself, unlike the 1950s and 1960s, when councils built as much as the total house-building amount today.

Labour and the Liberal Democrats are both arguing for the state to commission and build homes again. Today though, they want to see development corporations buying the land and working with partners to build homes for different tenures. Labour is calling its plan the New Homes Corporations. Henderson says: “Once you grant planning permission, the value shoots up. So the state can capture that and deliver affordable housing.” She believes that garden cities are perfect for this.1

Brandon Lewis says that the Government’s flagship garden city of Ebbsfleet will be developed primarily by the private sector. He remains cautious about the state’s involvement in house-building, saying that the country must “live within its means.” However, he does emphasise the Government’s additional investment for councils to aid them with building new affordable homes around the country.1

Housing associations

Since the state stopped building houses, non-profit housing associations have been handed the task of providing social housing

Housing associations built 21,600 homes in 2013. The Policy Exchange believes that this figure could rise drastically if regulation is relaxed around housing associations.

The NHF agrees that its members’ building hopes are prevented by pointless restrictions. There are rules about setting rents, how properties are let and how housing stock is valued for lending purposes. These all reduce the housing association’s ability to borrow money for this, says the NHF’s Head of Policy, Rachel Fisher.1

Then is the mater of money. The 2010 Spending Review lessened the DCLG’s annual housing spending, which supports social housing, by around 60% to £4.5 billion for four years starting 2011-12, compared to £8.4 billion in the previous three years.

This comes when approximately 1.7m people are on the social housing waiting register in England. A spokesperson for the DCLG says that the government has offered more than 200,000 affordable homes since 2010. They add that between 2015-20, it will provide 275,000 more homes, which will lead to the fastest rate of affordable house-building for two decades.1

Skills and materials

Pointon says that the short-term lack of building is due to an absence of materials and labour. The high demand in late 2013 and early 2014 saw materials such as bricks running out.

In the financial crisis, construction workers left the industry, and since, the industry has not caught up with rising demand. Pointon believes that it will take some time for there to be enough skilled workers in construction.1

The Government set out steps in trying to recruit new construction workers in November 2014. One of the plans is to bring ex-military personnel to building sites.

Small builders

Now, house-building is the responsibility of less firms. The financial crisis had a huge impact on builders. In 2007, 15 companies provided over 2,000 homes per year. In 2008, this number was just six.

Small house-builders construct less than 100 houses a year, and built only 20,000 homes in 2013, the Financial Times found. Ten years earlier, it was 51,000.1

Research in 2014 by the National House Building Council revealed that half of small builders claimed banks’ reluctance to lend is a serious problem.1

The Government says that it has enforced measures to help small builders. For instance, builders of ten or less homes do not have to pay section 206 affordable housing and tariff contributions. The Government has also offered a £525m Builders Finance Fund to pick up work on halted smaller sites.

1 http://www.bbc.co.uk/news/magazine-30776306