New housing strategy misses a trick

Government intervention has made it more likely that we are on course for another lost decade in Bri

The three main planks of the government's new Housing Strategy represent a bonanza for Britain's big builders. The "Build Now, Pay Later" scheme, releasing plots held by statutory bodies like the MoD and NHS, will give them public land. The £400m "Get Britain Building Fund", intended to un-stall shovel-ready sites, will give them public money. And the new mortgage indemnity scheme will underwrite the house-buying borrowing that they rely on, at the taxpayer's risk. What is missing is the quid pro quo -- the crucial piece of the jigsaw that requires the development industry, in return, to perform.

In the past, a disproportionate amount of the money from previously announced pump-priming schemes has gone to the largest house-builders, without a clearly articulated "ask" of them in return. So, the danger is that this could again lead to the major developers repairing their balance sheets while the sector maintains its long-term record of under-performance. If this is allowed to happen, we will not see the 250,000 new homes each year we need.

The fallout from the credit crunch has left a damaged building sector at low levels of output with unhealthy balance sheets. The historical experience of past recessions contrasts with the current optimism about a strong supply-side response from the building sector. The past two British house-building recessions, starting in 1972 and 1990, both resulted in lost decades for housing output. The shock we are now seeing -- with the lowest levels of house-building since World War Two -- comes alongside long-term trends of failure from the building sector. We have seen a failure to increase output or respond adequately to growing demand; a trend towards industry consolidation within the sector over output growth; and a growing cyclicality and vulnerability to external shocks. There is little reason to think this behaviour is likely to change without reform. The danger is that we are now on course for another lost decade in British house-building.

If anything, today's government intervention makes that eventuality more likely. Government intervention has stopped any "creative destruction" in the building sector. Its effect has been to prevent the realisation of losses and release of cheaper land that is critical for facilitating new market entrants and delivering cheaper housing. Rather than leveraging up government investment, the current approach deleverages down the impact of government subsidy by allowing it to cushion financial weakness among existing larger players at the cost of under-performance. Larger firms benefit from being seen as "too big to fail", but smaller firms and possible new market entrants have become increasingly frozen out of access to credit and government support packages.

Planning reform and public land schemes should drive building sector innovation to increase output and encourage new entrants, as there is a real danger that existing UK house-builders will merely use building on public land with public money to displace activity from less viable market sites -- leading to no net increase in output.

The Housing Strategy sets out ways to get land and money to developers, but there are serious question marks as to whether house-builders are willing or able to deliver on their side of the bargain. Just as the government's attempts to increase bank lending have broadly failed -- with a banking sector more concerned about recapitalisation and risk management -- so the attempt to encourage the major UK house-builders to increase supply is currently likely to fail due to their overriding focus on restoring their damaged balance sheets and entering into a long period of risk aversion and stagnation. The government needs to come up with a programme of radical change within the building sector itself if it is to succeed in spurring growth through house-building. Like the UK banking sector, the UK building sector is a "broken transmission mechanism" in need of reform. IPPR will publish a paper next month analysing the sector's problems and suggesting ways to shake it up, such as tying public land release to stricter criteria for lower profit margins and faster build-out rates, as well as the government acting as a clearing house for the landbanks of failing developers. Meanwhile, it is not too late for the Chancellor in his autumn statement next week to show that government is serious about getting developers to develop; building the sorts of homes we need, where we need them, soon.

Andy Hull is Senior Research Fellow at IPPR

Picture: ANDRÉ CARRILHO
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Leader: Boris Johnson, a liar and a charlatan

The Foreign Secretary demeans a great office of state with his carelessness and posturing. 

Boris Johnson is a liar, a charlatan and a narcissist. In 1988, when he was a reporter at the Times, he fabricated a quotation from his godfather, an eminent historian, which duly appeared in a news story on the front page. He was sacked. (We might pause here to acknowledge the advantage to a young journalist of having a godfather whose opinions were deemed worthy of appearing in a national newspaper.) Three decades later, his character has not improved.

On 17 September, Mr Johnson wrote a lengthy, hyperbolic article for the Daily Telegraph laying out his “vision” for Brexit – in terms calculated to provoke and undermine the Prime Minister (who was scheduled to give a speech on Brexit in Florence, Italy, as we went to press). Extracts of his “article”, which reads more like a speech, appeared while a terror suspect was on the loose and the country’s threat level was at “critical”, leading the Scottish Conservative leader, Ruth Davidson, to remark: “On the day of a terror attack where Britons were maimed, just hours after the threat level is raised, our only thoughts should be on service.”

Three other facets of this story are noteworthy. First, the article was published alongside other pieces echoing and praising its conclusions, indicating that the Telegraph is now operating as a subsidiary of the Johnson for PM campaign. Second, Theresa May did not respond by immediately sacking her disloyal Foreign Secretary – a measure of how much the botched election campaign has weakened her authority. Finally, it is remarkable that Mr Johnson’s article repeated the most egregious – and most effective – lie of the EU referendum campaign. “Once we have settled our accounts, we will take back control of roughly £350m per week,” the Foreign Secretary claimed. “It would be a fine thing, as many of us have pointed out, if a lot of that money went on the NHS.”

This was the promise of Brexit laid out by the official Vote Leave team: we send £350m to Brussels, and after leaving the EU, that money can be spent on public services. Yet the £350m figure includes the rebate secured by Margaret Thatcher – so just under a third of the sum never leaves the country. Also, any plausible deal will involve paying significant amounts to the EU budget in return for continued participation in science and security agreements. To continue to invoke this figure is shameless. That is not a partisan sentiment: the head of the UK Statistics Authority, Sir David Norgrove, denounced Mr Johnson’s “clear misuse of official statistics”.

In the days that followed, the chief strategist of Vote Leave, Dominic Cummings – who, as Simon Heffer writes in this week's New Statesman, is widely suspected of involvement in Mr Johnson’s article – added his voice. Brexit was a “shambles” so far, he claimed, because of the ineptitude of the civil service and the government’s decision to invoke Article 50 before outlining its own detailed demands.

There is a fine Yiddish word to describe this – chutzpah. Mr Johnson, like all the other senior members of Vote Leave in parliament, voted to trigger Article 50 in March. If he and his allies had concerns about this process, the time to speak up was then.

It has been clear for some time that Mr Johnson has no ideological attachment to Brexit. (During the referendum campaign, he wrote articles arguing both the Leave and Remain case, before deciding which one to publish – in the Telegraph, naturally.) However, every day brings fresh evidence that he and his allies are not interested in the tough, detailed negotiations required for such an epic undertaking. They will brush aside any concerns about our readiness for such a huge challenge by insisting that Brexit would be a success if only they were in charge of it.

This is unlikely. Constant reports emerge of how lightly Mr Johnson treats his current role. At a summit aiming to tackle the grotesque humanitarian crisis in Yemen, he is said to have astounded diplomats by joking: “With friends like these, who needs Yemenis?” The Foreign Secretary demeans a great office of state with his carelessness and posturing. By extension, he demeans our politics. 

This article first appeared in the 21 September 2017 issue of the New Statesman, The revenge of the left