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

Photo: Getty
Show Hide image

The chlorine chicken row is only the beginning – post-Brexit trade deals won't be easy

The real problem isn't the bureaucracies of the EU, but the fears of voters.

What's wrong with a little bit of chlorine in the chicken? That's the question splitting the cabinet as far as a US-UK trade deal goes. It also goes to the heart of Britain's post-Brexit dilemma.

As far as public health goes, both chicken slaughtered and sold the American way and chicken in the United Kingdom and the European Union are just as hygienic by the time they end up in supermarkets. But banning chlorine-washing means that the entire production chain, from farm to abattoir, has to be cleaner in the UK and the rest of the EU than in the States, where farmers know that no matter what happens to the chicken, that chlorine bath will absolve all manner of sins.

The EU's own research concedes that there is no public health difference. The problem, both in the rest of the bloc and the UK, is voter resistance: among French farmers and shoppers across the EU27. We all know how British people are about animal cruelty – not that they're so het up they won't actually eat them you understand – and any change that makes it easier to treat animals worse is going to be politically painful for the government.

In the long-term, changing our regulations to US standards also makes it harder to sell into the European Union. It's not a choice where you can have the best of both worlds but one where ultimately one market may preclude the freest use of the other.

And without wishing to offend any poultry farmers among our readership, this is a fairly small issue as far as the average British voter goes, even allowing for the UK's thing for animals. Just wait until things like “the NHS” start to be used in the same paragraph as the words “trade deal”.

One criticism that Brexiteers make of the EU is that it takes such a long time to strike trade deals. But the real problem isn't the bureaucracies of the EU – but the fears of voters. A cabinet clash over chicken is only going to be the beginning. 

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.