Consumer choice should drive our housing market

We have a broken housing model which fails to meet aspirations and where demand is unable to influence supply but it could all be very different.

Why doesn’t the supply of housing rise to meet demand?  In the last 50 years the population of the UK has grown from 55 million, in 1967, to just over 65 million now. More than half that growth has occurred since 2004. And the UK will have a further 10 million people by 2040.

All these people need somewhere to live.  So has the supply of housing risen to match population growth? Hardly. Over the last 50 years, new housing completions have dropped from around 350,000 each year in the late 1960s to less than half that now. Unsurprisingly, prices have shot up. In my South Norfolk constituency, it now costs 8.2 times average income to buy the average dwelling; in Hertfordshire one needs over 13 times’ average income; and in Oxford the multiple is 16 times.  A generation ago, it took just three to four times’ average income to buy the average dwelling.

As recently as 1988, the market share of small and medium-sized housebuilders (SMEs) was 66 per cent; it is now just 25 per cent. Most housebuilding is now done by a small number of very large companies who hog most of the land, denying access to others. Volume housebuilders can sometimes sit for years on land which already has planning permission, to the despair of government. As Melanie Dawes, the Permanent Secretary of the Department for Communities and Local Government recently told MPs: “We are always challenging the developers and the builders as to whether they are really pushing fast enough or whether they are just protecting their margins and building out too slowly”. But what kind of a system is it where a senior civil servant spends time cajoling private businesses to do their job, while sitting in judgement on what is – or is not – an ‘acceptable’ profit margin?

Although “landbanking” can be an issue, the suggestion that it is the chief problem misses an important point –not enough people want to buy the product of the volume housebuilders. There is no incentive for volume housebuilders to build more homes than they can sell – and according to a YouGov poll, 75% of consumers would prefer not to buy the product they offer.  The Home Builders’ Federation’s own research indicates that 67% would not buy or are unlikely to buy the current new home offering.

In a well-functioning market, if two thirds to three quarters of your potential customers didn’t like what you were offering, you might change your product; but currently the volume housebuilders don’t need to change, and no amount of pleading by government will make any serious difference. In a well-functioning market, the job of government is to shape the business environment in such a way that consumer choice can exercise sway and influence outcomes.  But currently thehigh level of risk and uncertainty – and high costs due to the thicket of planning rules – make more investment in housing unpalatable to many financiers, ending up with the exclusion of nearly all but the major housebuilders.

The central problem is that demand is unable to influence supply and drive volumes.  As the presenter of Channel 4’s ‘Grand Designs’, Kevin McCloud said while meeting MPs at the House of Commons in 2014: “The consumer has been on the receiving end of a pretty poor deal. We build some of the poorest, most expensive and smallest homes in Europe. That’s not something to celebrate.”

We have a broken housing market which is failing to meet aspirations, which lacks investment in innovation and training, and which only seems capable of functioning at all with a steady infusion of immigrant labour, despite growing political pressure against uncontrolled immigration. And all this is happening despite our having a growing population and a long-run need – the need for a roof over one’s head – that is intrinsically more predictable and less risky than almost any other area of consumer demand.

Meanwhile, a whole generation is growing up with little idea of how they will afford somewhere to live.  The Bank of Mum and Dad is not a long-term sustainable approach – and it is certainly not a vote winner.

The answer is to allow real consumer choice to hold sway. The Self-Build and Custom Housebuilding Act 2015, a private member’s Bill which I steered through Parliament last year, places an obligation on each local council to keep a register of individuals and groups of people who would like to obtain a serviced plot of land to build a house. Agricultural land is worth around £10,000 per acre. However, if one grants residential planning permission, the value can rise to £1million per acre or more, depending on the precise land use and tenure. Planning permission is essentially a gift conferred by society on a particular tranche of land – and it is perfectly reasonable that society should share in the financial upside in order to cope with the consequences of development.  There is – in other words – already a very great deal of “We” involved. We should use it more wisely.

Most landowners whom I have met actually want to do ‘the right thing’ and see a worthwhile legacy from development. They understand and accept that much of the land value increase needs to be captured to enhance the new settlement, but the current system makes it as difficult as possible to do the right thing in practice. Instead of taxing the land in a way that creates the maximum number of difficulties and slows things down at every turn, we should find more imaginative and creative ways to work with local authorities, landowners and those who want homes in order to make places that work.

We need to separate placemaking from homemaking. Under this approach, the public sector would take a more confident and enlarged view of its responsibilities to identify and bring forward places that were well-run, well-connected – both in transport and digital links – well-designed, well-served, environmentally sensitive, economically thriving, and fair to all people including those on the lowest incomes.

Housebuilding would fundamentally be shaped around an accessible land market with large numbers of serviced plots of land, and the growing number of suppliers who will supply a customised house which exactly meets the consumer’s needs, often built using off-site methods of construction.  Instead of the ‘take it or leave it’ approach which dominates volume housebuilding, we could build each house as if customers really mattered. The reason we know that this is do-able is that in The Netherlands it is already happening. The Dutch have doubled their custom and self-build sector in the last 8 years. 

If it were as easy to buy a serviced plot of land as it is to go into a Ford or Vauxhall dealership to buy a car, the housing crisis would soon be over. According to IPSOS Mori, some 53 per cent of the adult population in the UK would like to build their own house – or have someone build the house they want – at some point in their lives; and 1 million people would like to do it in the next 12 months. Creating an outlet for turning this pent-up demand into reality would unleash a revolution that would change the face of housing in the UK, ensuring that everyone has somewhere decent to live.  It would go a long way towards creating a country that works for everyone.

 

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