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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How tribunal fees silenced low-paid workers: “it was more than I earned in a month”

The government was forced to scrap them after losing a Supreme Court case.

How much of a barrier were employment tribunal fees to low-paid workers? Ask Elaine Janes. “Bringing up six children, I didn’t have £20 spare. Every penny was spent on my children – £250 to me would have been a lot of money. My priorities would have been keeping a roof over my head.”

That fee – £250 – is what the government has been charging a woman who wants to challenge their employer, as Janes did, to pay them the same as men of a similar skills category. As for the £950 to pay for the actual hearing? “That’s probably more than I earned a month.”

Janes did go to a tribunal, but only because she was supported by Unison, her trade union. She has won her claim, although the final compensation is still being worked out. But it’s not just about the money. “It’s about justice, really,” she says. “I think everybody should be paid equally. I don’t see why a man who is doing the equivalent job to what I was doing should earn two to three times more than I was.” She believes that by setting a fee of £950, the government “wouldn’t have even begun to understand” how much it disempowered low-paid workers.

She has a point. The Taylor Review on working practices noted the sharp decline in tribunal cases after fees were introduced in 2013, and that the claimant could pay £1,200 upfront in fees, only to have their case dismissed on a technical point of their employment status. “We believe that this is unfair,” the report said. It added: "There can be no doubt that the introduction of fees has resulted in a significant reduction in the number of cases brought."

Now, the government has been forced to concede. On Wednesday, the Supreme Court ruled in favour of Unison’s argument that the government acted unlawfully in introducing the fees. The judges said fees were set so high, they had “a deterrent effect upon discrimination claims” and put off more genuine cases than the flimsy claims the government was trying to deter.

Shortly after the judgement, the Ministry of Justice said it would stop charging employment tribunal fees immediately and refund those who had paid. This bill could amount to £27m, according to Unison estimates. 

As for Janes, she hopes low-paid workers will feel more confident to challenge unfair work practices. “For people in the future it is good news,” she says. “It gives everybody the chance to make that claim.” 

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.