SlideDecks – BuiltPlace

It’s nearly 8 years since I stole Kate Barker’s phrase as the title and wrote my blog “What would success look like?”. It highlighted the existence of multiple and sometimes overlapping crises affecting housing. It also suggested the need to identify the outcomes we want in housing – a framework for success – that determine what we need to do to fix it rather than simply focussing on housebuilding targets.

Lots has changed since then, not always for the better. But we’re still stuck focussing on the process rather than the outcome. The government’s housing target of 1.5million new homes this parliament – based on net additions in England – is the perfect example of this. It emerged during the pre-election campaign as Labour sought to outbid the Tories on their commitment to build new homes. There appears to have been little thought at the time of how deliverable it might be and what outcomes it might be trying to achieve.

As an aside, perhaps the best statement I’ve seen from a politician on the desired outcome from higher supply was by Sajid Javid in his Letwin Review remit letter: “These steps should support an increase in housing supply consistent with a stable housing market in the short term and so that over the long-term, house prices rise slower than earnings”.

Let’s be clear: the political desire to build more homes is very welcome, especially compared with the twilight years of the Conservative era when even the housebuilders and developers turned against the previous government. And the new government has been quick off the mark in their attempts to deliver.

However, the 1.5million target was always overly optimistic given the underlying state of the economy and housing market. While not unachievable, the majority of market analysts – including me – think it is highly unlikely to be hit. You certainly wouldn’t start from here. A more sensible but still challenging target would’ve been hitting 300,000 per year by the end of this Parliament – setting us up for 1.5million in the next. But maybe that’s why I’m a housing analyst rather than political analyst.

One of the problems is the government’s housebuilding target is stuck in a no man’s land. It initially appears achievable if you don’t look too closely at the current state of the market and could be deliverable under current approaches. But it’s also not so high that it demands a radical rethink about how we commission, fund, and build new homes. Unfortunately, the political desire to build a large number of new homes rapidly under current models of delivery and without any statement of desired outcomes makes this target not only difficult to hit but also potentially dangerous.

To illustrate how dangerous, we can assess the challenges faced by the different sectors of the market that will have to deliver the 1.5 million homes.

Perhaps the biggest challenge is the lack of money – something that may get worse given the global political direction. Ideally, this government (and probably the previous one) should’ve already intervened in the housing market by funding housing associations to take over market sale homes as affordable and private rent instead – as they have done in previous downturns. That would’ve maintained delivery and preserved construction capacity. Institutional investment into the single family build-to-rent market has helped a bit but not by enough. Unfortunately, housing associations’ capacity has been compromised by their shift to a cross-subsidy model. This has made them more exposed to the market cycle while also facing the need for massive investment in their existing homes. That leaves us reliant on a private housebuilding sector that is struggling with a combination of higher interest rates, the end of help-to-buy, high build costs, and low demand.

The volume housebuilders will inevitably be cautious about expanding rapidly. Previous periods of fast growth led to multiple scandals including build quality and leasehold. They would probably require a new equity loan scheme – just don’t call it Help to Buy. But a new version of Help to Buy would probably only get them back to pre-pandemic levels of delivery – and possibly not even that if mortgage rates stay high. If rates do fall, then housebuilders and mortgage lenders will be keen to unlock more potential buyers by removing lending restrictions. And more liquidity in the second-hand market would also help increase the number of home movers looking at and buying new build homes. But deregulation of the mortgage market would come with a longer-term cost – making it more difficult for future generations to buy.

The geography of the new housing targets requires a massive increase in delivery across city centres. One quick win would be to include purpose built student housing in the target but that’s probably one of the few. That might appear like fiddling the numbers but the market for student housing overlaps with the wider market and it can help alleviate pressure elsewhere. However, even here there are signs that some student markets are oversaturated while student numbers fall – with developers looking to convert student developments to residential in markets like Cardiff, Coventry, and Liverpool.

Urban housing markets also have very different delivery models to the volume housebuilders – who can usually build as fast as they can sell. Unlocking development finance is key for high density developers. Cashflow (or at least promises of future cashflow from off-plan buyers) during the early stages of development is required to unlock the money to buy the site – sometimes after planning has been obtained – and build it out. Institutional funding has grown in importance especially through the build-to-rent sector but is still insufficient to meet the scale of money required. That means encouraging investors, both domestic and international, to buy more new build homes by easing the tax and other regulatory burdens. That will inevitably lead to an increase in the size of the private rented sector unless we encourage more first-time buyers to purchase new build flats –something I’d recommend avoiding.

So, what is it the government hopes to achieve by building 1.5million homes? It is still not clear but having a framework for success would enable them to answer this question and help them make the appropriate policy decisions to tackle the challenges highlighted above. The forthcoming “long-term housing strategy” should provide some clarity though there have been few details so far and deciding the outcomes after committing to the process is all a bit back-to-front.

The result of racing to meet the 1.5million target with no clear statement on what outcomes are desired comes with severe risks. It risks us ending up with a new build market that is focussed on delivering numbers as quickly as possible to the exclusion of all other metrics and is enabled by deregulation, tax cuts, and subsidies. That will inevitably lead to housing outcomes that compromise on quality, safety, environmental protections, and the needs of the actual residents. That doesn’t look like success to me, and it shouldn’t to this Government either.