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 is paying the price for mismanaging Boris Johnson

The Foreign Secretary's bruised ego may end up destroying Theresa May. 

And to think that Theresa May scheduled her big speech for this Friday to make sure that Conservative party conference wouldn’t be dominated by the matter of Brexit. Now, thanks to Boris Johnson, it won’t just be her conference, but Labour’s, which is overshadowed by Brexit in general and Tory in-fighting in particular. (One imagines that the Labour leadership will find a way to cope somehow.)

May is paying the price for mismanaging Johnson during her period of political hegemony after she became leader. After he was betrayed by Michael Gove and lacking any particular faction in the parliamentary party, she brought him back from the brink of political death by making him Foreign Secretary, but also used her strength and his weakness to shrink his empire.

The Foreign Office had its responsibility for negotiating Brexit hived off to the newly-created Department for Exiting the European Union (Dexeu) and for navigating post-Brexit trade deals to the Department of International Trade. Johnson was given control of one of the great offices of state, but with no responsibility at all for the greatest foreign policy challenge since the Second World War.

Adding to his discomfort, the new Foreign Secretary was regularly the subject of jokes from the Prime Minister and cabinet colleagues. May likened him to a dog that had to be put down. Philip Hammond quipped about him during his joke-fuelled 2017 Budget. All of which gave Johnson’s allies the impression that Johnson-hunting was a licensed sport as far as Downing Street was concerned. He was then shut out of the election campaign and has continued to be a marginalised figure even as the disappointing election result forced May to involve the wider cabinet in policymaking.

His sense of exclusion from the discussions around May’s Florence speech only added to his sense of isolation. May forgot that if you aren’t going to kill, don’t wound: now, thanks to her lost majority, she can’t afford to put any of the Brexiteers out in the cold, and Johnson is once again where he wants to be: centre-stage. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.