Mass house-building and localism: a difficult marriage
The coalition double act pitched up in one lucky homeowner’s living room today. Their point? That a brand new house is exactly the sort of reasonable life expectation rapidly disappearing from Britain’s broken housing ladder. Mr Cameron and Mr Clegg say they can fix it.
Their plans are wide-ranging and innovative – an attempt to reach mass house-building. But there is one massive question mark hanging over it. How on earth do they square it with the localism agenda, and the Localism bill that received Royal Assent last week?
As I reported last year, one of the government’s first decisions was a letter from Eric Pickles telling councils to disregard regional housing targets set by Labour. Tetlow King, a planning consultancy commissioned by the National Housing Federation calculated 100,000 planned homes were scrapped as a result of this. At the time the housing minister and others told us that this would be remedied by localism and the New Homes Bonus.
Huge number of planned houses scrapped
Tetlow King has recalculated its numbers, and now says the number of planned dwellings pulled by councils in England stands at a remarkable 261,624. Its figures show that the west of England has seen a total reduction of 44,510 dwellings, down from 117,350 – a reduction of 38 per cent. And the evidence so far is that they are not being replaced by the coalition’s free market approach.
Indeed as the FT pointed out today, although housing starts have increased a little from a low base, housing completions remain crushed, and have started to dip again. The latest figure for Q3 this year of just 24,520 is consistent with the lowest since the 1920s. Developers talk of a planning hiatus between Labour’s top down approach (which clearly had its problems) and the coalition’s bottom-up approach.
Now the government hopes that it’s found the key to unlock a malfunctioning housing market. Nick Clegg says he’ll strain every sinew.
Government to guarantee mortgages
To help demand, taxpayers will back an indemnity scheme to get banks to give a 95 per cent mortgages on new properties, requiring buyer deposits of just 5 per cent.
Essentially the government puts in 5.5 per cent, and the house-builder 3.5 per cent, which means that a bank can lend at 95 per cent, but only take the risk of an 86 per cent loan. My understanding of this vague plan, is that a buyer would suffer from negative equity, whereas the bank is protected from falls of 14 per cent.
Also it’s worth stressing that this taxpayer funding of mortgages does not appear to be limited to first time buyers, though it would be only valid for new homes and flats. In theory that means new supply for the extra demand, limiting the inflationary impact of taxpayer-funded demand. Who knows if that will work in practice.
House prices still high
As Ed Stansfield of Capital Economics points out, the problem for cash-strapped buyers is the huge inflation of prices, much more than it is the 95 per cent mortgage famine. Anyway, £400m will go to smaller building firms that need development finance. There’ll be public sector land with room for 100 thousand homes released.
As they seek to marry local planning with free market, there’s certainly no shortage of coalition housing policy initiatives. The New Homes Bonus, the New Build Indemnity scheme, theGget Britain Building programme, the Growing Places fund, Community right to Build, Custom Build Homes etc etc. There’s almost more initiatives than homes being built.
And remember the coalition has to make up for the plans abandoned by councils too. It might well work eventually. It isn’t yet.
The original plans were the product of Labour’s now abandoned regional housing targets. This Government hopes that taxpayer incentives and the free market will bring these homes back again, and where local populations want them. The lesson of British house-building history, is that mass house-building does not occur without the state driving it totally.