The Housing Question No 6: The reason to focus on housing

Labour and growth, what was and wasn’t in the King’s Speech and a resilient housing market

Welcome to the fifth issue of The Housing Question, my newsletter covering everything to do with housing. After a prolonged hiatus, I’m back on a more regular basis with some thoughts on what’s been catching my attention in the last week. The Housing Question is still a work in progress but let me know what you think and please consider subscribing and sharing on social media if you like what you read.

Building a new Britain

This year’s Labour conference left behind some big questions about what its housing policies will be if it wins the next election. A think tank report out this week could provide some of the answers.

Housing is barely mentioned in the party’s five missions and it was not chosen as a priority for debate at the conference but it still featured heavily in Keir Starmer’s leader’s speech as he proclaimed ‘it's time to get Britain building again’. The party has set a target of 1.5 million new homes in the next parliament via a mixture of planning reform and ‘the next generation of new towns’ and is pledging to revive ‘the British dream of home ownership’.

Given that this level of housebuilding has not been achieved since the 1970s, and only then by building large numbers of council houses, that begs some big questions about who will build them and how, especially when housebuilding numbers are currently moving rapidly in the opposite direction. If the answer to that is planning reform and private developers, at least one of them argues that it will not produce many homes at all in Labour’s first five years. Even if it can be done it will have to be sustained over 10 or 20 years to have much impact on affordability.

If the answer is that much of the programme is for social and affordable housing, where is the money coming from? Deputy leader Angela Rayner promised ‘the biggest boost to affordable and social housing for a generation’ but claimed this would be delivered via tweaks to the Affordable Housing Programme and stopping developers wriggling out of their Section 106 agreements. There was no mention of investment.

So how to square that circle? It feels significant that there is overlap between what Labour is saying about housing and the planning reform message coming from right-wing think tanks (see this recent report from the Adam Smith Institute) and the ‘growth’ wing of the Conservative Party. Labour seems to be seeing building more homes as a means to the end of delivering more economic growth and tax revenues for public investment rather than as an end in itself (meeting housing need).

That impression is confirmed by a new report from Labour Together, a think tank credited with much of the work in smoothing Starmer’s path to power. The diagnosis in Building a New Britain – Investing in Britain’s Public Realm is that low investment is ‘the cause of the UK’s uniquely low productivity’ and that ‘delivering growth is the most fundamental of Labour’s missions’. The reasoning is that growth is about ‘underpinning improvement in public services and spreading opportunity’. The underlying principles are very New Labour - public investment ‘must be fiscally responsible’ and ‘should focus on where it can best crowd in private investment’ – and there seems to be some selective amnesia about PFI.

Based on that, the report identifies three areas for investment in the public realm: energy, housing and infrastructure, with legislation to accompany each. So far, so good and especially since the first of these has a heavy dose of housing too via investment in the energy efficiency of existing homes.

On housing specifically, the report argues that the UK is by some measures the most spatially unequal country in the world, with higher wages in the richest parts of the country swallowed up by higher housing costs. The big picture is that:

‘The reason to focus on housing starts with the desire, in a fiscally constrained Britain, to use tools other than public investment, specifically planning reform and private-sector partnerships. Not only that, housing presents the opportunity to use private investment for public aims, and could even generate revenue for the Treasury.’

It follows that planning reform should be accompanied by more effective land value capture, with the report arguing that the UK uses only one of five instruments for this (planning obligations on developers) while ignoring others used across the world such as infrastructure levies, pooling land for joint development, and buying, developing and selling land. And Labour should repeal 1961 legislation on compensation for landowners that stands in the way of replicating the post-war new towns.

Finally, building should be focussed on areas where wages, tax revenues and housing costs are high and new homes will reduce out-migration:

‘If we built a million homes in London, this would boost wages for more than a million people by nearly £9,000 a year, generating nearly £5 billion a year in extra revenue for the Treasury. This likely understates the flywheel effect of generating a more successful agglomeration. And when this is combined with the potential for land value extraction, it points towards a homebuilding strategy that could improve the public finances.’

This gets to the heart of the argument about housebuilding, growth and public services, I think. But the ‘if’ at the start of that quote is doing a lot of work. It’s not bad as a thought experiment but is it realistic? Net additional dwellings in London have increased by 630,000 during this century or just 29,000 a year. A million sounds a long way off even if (another ‘if’) Labour could deliver successful planning reform. As for the other assumption, what proportion of people leaving London because of high housing costs carry on in the same career from somewhere else, either commuting or working from home? Most important, none of this addresses the desperate need for more social and affordable housing in London: the only source of funding I can see is from Section 106s on development for sale but that all depends on those previous ‘ifs’.

The vehicle for Labour ambitions would be The British Homes Act, delivering not just planning reforms but also institutional changes to balance the needs of areas that will benefit from growth and areas where property prices are lower and regeneration funds will be required. A new national institution, GB Homes, would develop a national strategy for homebuilding, work with regions and local authorities to develop plans and ensure they are delivered, and redirect some of the proceeds of land sales in the South East for priorities identified nationally.

But… British Homes Act? Does Labour plan to reverse the devolution of housing and planning to Scotland and Wales? I get the synergy between GB Homes and Labour’s plans for Great British Energy but the same argument applies. And if we are only talking about England, what is the difference between England Homes and Homes England? Or between that and the Homes and Communities Agency, English Partnerships and any other iteration of the same basic idea of a government agency driving growth and investment? The new agency will clearly have new powers but will it really amount the scale of institutional change that will be required?

A King’s Speech that left much unsaid

My latest column for Inside Housing looks at the King’s Speech and what we know so far about housing in the final session of this parliament.

The Leasehold and Freehold Bill is the major new piece of legislation and includes significant new measures that will help existing leaseholders, the most significant of which (a cap on ground rents) has gone out to consultation first. A ban on new leasehold houses is proposed (very few are now sold) but there is nothing to stop new leasehold flats being built (almost all of them). Next year marks 20 years since the creation of a fairer but rarely used alternative – commonhold – that governments have repeatedly promised to reinvigorate.

The Renters (Reform) Bill will continue its progress from the last session but Section 21 will not actually be abolished until the government has completed its reforms of the courts. Gove’s claim in the second reading debate that this merely followed a recommendation of the all-party Levelling Up Committee drew a testy response from committee chair Clive Betts. He pointed out in a letter to the housing secretary that improvements in processing times mean that the courts can already cope with the provisions of the Bill and that ‘the lack of any timeline for implementation raises the concern that Section 21 abolition may be indefinitely delayed’.

However, given all that had been extensively trailed, the first King’s Speech since 1951 was more notable for what was not mentioned than what was.

Suella Braverman’s attempt to ban tents for rough sleepers was a prominent absentee. Whether the leak of the home secretary’s plan was a piece of self-promotion, an attempt to get sacked or an act of sabotage by an opponent, it has now been sent back to the Home Office for more work. However, a source close to her tells the BBC that the idea has not been dropped and the implication is that something could still appear in the Criminal Justice Act

In the wake of the leak, Braverman doubled down by taking to Twitter to proclaim that ‘we cannot allow our streets to be taken over by rows of tents occupied by people, many of them from abroad, living on the streets as a lifestyle choice’.

https://twitter.com/SuellaBraverman/status/1720730450556006714

That ‘lifestyle choice’ generated predictable outrage and a rush by other ministers to distance themselves from her comments. Less remarked on was that line about ‘many of them from abroad’.

Because if anyone’s choices are relevant here, it is surely the home secretary’s and her department’s. Many of those most at risk of homelessness and rough sleeping are living in Britain under the condition of No Recourse to Public Funds. This applies to anyone subject to immigration control and means they have no access to means-tested benefits and are at severe risk of homelessness unless they are helped by friends or family or get National Asylum Support Accommodation.

Refugees who are granted the right to live in the UK are also at risk of homelessness thanks to Home Office rules that force them to move out of asylum support accommodation at short notice without the documentation they need to access housing and benefits. Until July, they had 28 days’ notice to leave their accommodation after receiving a notice to quit and even that left them at risk of not receiving their Biometric Residence Permit in time to enable them to get a job, find an alternative home, open a bank account and apply for benefits. That move-on period has now been reduced to a minimum of seven days, leaving rising numbers at risk of homelessness and local authorities and charities picking up the slack. It’s less lifestyle choice than no choice.

Another notable absentee was net zero, apart from the government’s rather obvious attempts to turn it into a wedge issue with Labour. The background briefing on the King’s Speech discusses the government’s commitment to energy security and net zero in the contentious context of the Offshore Petroleum Licensing Bill and talks of ‘improving the energy efficiency of homes’ alongside boosting domestic sources of energy.

You might have thought then that there would be other measures to boost energy efficiency. Instead the only other mention is a glaring contradiction: the scrapping of the requirement for private landlords to bring their properties up to EPC C by 2025.  

The downturn that wasn’t?

Dire predictions (or, if you’re a frustrated renter, hopeful ones) of a housing market crash are being hurriedly revised in the wake of data showing more resilience than expected.

Both the Halifax and the Nationwide recorded rising house prices in October, confounding expectations that rising mortgage rates would generate continuing decline. True, that’s only one month, but forecasters like Savills and Capital Economics now say that further sharp price falls are unlikely.

So what’s going on? The feeling may be that interest rates have now peaked but 2.4 million mortgage borrowers are still due to come off cheap fixed rates by the end of next year. Existing borrowers and first-time buyers alike still face mortgage rates of over 5 per cent compared to less than 2 per cent in 2021, increasing their monthly repayments by 50 per cent or more.

Capital Economics suggests two key reasons: affordability is not as stretched as it seems because more first-time buyers are taking out longer loans (30-35 years rather than the traditional 25) that reduce their monthly repayments; and mortgage stress tests plus low unemployment have prevented a rise in forced sales. That’s borne out in the latest data from UK Finance showing 630 repossessions of home owners in the third quarter of the year, down 9 per cent on the previous quarter and 10 per cent on a year ago.

I’d add two further factors. First, the Mortgage Charter between the government and mortgage lenders has helped some borrowers reduce their outgoings and dampened arrears and repossessions (at least for now). Second, house prices have already fallen significantly in real terms but this has been masked by high inflation. The Nationwide index shows that the average UK house price now is the same as at the start of 2022 in nominal terms but adjusted for inflation it is down by 15 per cent.

All of which might add up to the familiar recent pattern of a subdued market with falling transactions and housebuilding. Those higher interest rates, however, are not going away.  The Welsh Government this week launched an interesting variation on Help to Buy. Help to Stay Wales will offer equity loans to home owners who run into problems with their mortgage repayments. It could yet be needed.