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

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Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.