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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Theresa May confirms Brexit Britain out of the single market – 8 other things we learnt

The Prime Minister dropped the Brexit bombshell that we're out of the single market, and more. 

Theresa May confirmed suspicions that the UK will leave the single market after Brexit in a major speech on her objectives.

The Prime Minister said the Brexit vote was a clear message about controlling immigration, and “that is what we will deliver” – but this meant the UK could not continue following the rules of the single market

She said: I want to be clear. What I am proposing cannot mean membership of the  single market. European leaders have said many times that membership means accepting the “four freedoms” of goods, capital, services and people.

"And being out of the EU but a member of the single market would mean complying with the EU’s rules and regulations that implement those freedoms, without having a vote on what those rules and regulations are."

May also repeated that maintaining the open land border between Northern Ireland and the Republic of Ireland would be a priority, and that she wanted trade deals with the rest of the world.

But leaving the single market wasn’t the only Brexit bombshell May dropped. Here is what we learnt:

1. The single market may be replaced by a European free trade deal

The Prime Minister has ruled out a single market, but is hoping for a deal to replace it. She said: “As a priority we will pursue a bold and ambitious free trade agreement with our neighbours in Europe."

2. No more European Court of Justice

May said Brexit will end the jurisdiction of the European Court of Justice in Britain, and that “laws will be interpreted by judges not in Luxembourg but in courts across this country”.

3. Parliament will get a vote on the Brexit deal

Most MPs already expected to get a vote – as their peers in the European Parliament would get one. May confirmed this, saying: "I can confirm today that the government will put the final deal that is agreed between the UK and the EU to a vote in both Houses of Parliament, before it comes into force.."

4. EU citizens still face uncertainty

May has always been clear she wants to confirm EU citizens’ right to remain in the UK, but only if British citizens receive the same guarantee in other EU countries.

She made no further guarantees, saying: "I have told other EU leaders that we could give people the certainty they want straight away, and reach such a deal now. Many of them favour such an agreement - one or two others do not"

5. She will try to stay in the customs union

May explicitly said the UK will have to leave the EU single market, but she was far more nuanced on the customs union, which negotiates trade deals on behalf of the EU member states.

She does not want Britain to share the EU’s common commercial policy, or be bound by common external tariffs, but does want to “have a customs agreement with the EU”. This could mean the UK becoming “an associate member of the customs union”. 

6. Some payments may continue

May said that Britain voted to stop large contributions to the EU, but she stopped short of ruling them out altogether. There may be payments that are “appropriate”, she said, if there are programmes the UK wants to be part of.  

7. Brexit could be in phases

The PM said several times she wanted to reassure businesses – who are increasingly unhappy about the uncertainty ahead. She wants the negotiators avoid a “cliff edge”, but also avoid “permanent political purgatory” (something Brexiteers fear). 

May suggested a deal could be done by the time the two-year process of Article 50 ends, and this could be followed by a “phased process of implementation”.

It’s worth bearing in mind at this point that two years in EU deal-making time is extremely speedy.

8. The UK’s nuclear option: Corporate tax haven

The Chancellor Philip Hammond has already floated the idea that a disgruntled Britain could slash corporate tax in order to attract unscrupulous multinationals to its shores.

May said that the UK would be prepared to crash out without an agreement, saying “no deal for Britain is better than a bad deal for Britain”. 

In such a situation, Britain "would have the freedom to set the competitive tax rates and embrace the policies that would attract the world’s best companies and biggest investors to Britain". In other words, become an offshore tax haven. 

 

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