Housebuilding

Lord Stoneham of Droxford Excerpts

Thursday 24th October 2013 Grand Committee

Asked by

[Lord Stoneham of Droxford]

To ask Her Majesty’s Government what progress they expect to make in increasing housebuilding by May 2015.

[Lord Stoneham of Droxford (LD)]

My Lords, I start by declaring my interest in the register as chair of Housing 21, a housing association. I thank my noble friends Lord Borwick and Lord Oakeshott for taking part in this debate and also the noble Lord, Lord McKenzie, and my noble friend Lady Stowell. I hope what we lack in quantity we will make up in the quality of the debate. I also congratulate my noble friend Lady Stowell on her appointment as Parliamentary Under-Secretary of State for Communities and Local Government and apologise for putting her on the spot so soon after that appointment.

I tabled this debate six months ago. My main motivation was to assess the progress on housebuilding in this Parliament and to monitor the progress on the government strategy as outlined in Laying the Foundations: A Housing Strategy for England. The document was hailed by the Prime Minister and Deputy Prime Minister as a perfect example of the approach of the coalition, which took decisions that were right for the long term and not for the headlines. In the foreword, they committed that the Government,

“will unlock the housing market, get Britain building again, and give many more people the satisfaction and security that comes from stepping over their own threshold. These plans are ambitious—but we are determined to deliver on them”.

It is nearly two years since that housing strategy document was published, and it has to be said that the first year, in terms of the number of houses built, was disappointing. In 2012-13, only 108,000 houses were completed. We have to face the fact that, after the 2008 economic meltdown, which had an overheated speculative housing boom and bust at its epicentre, restoring confidence and getting finance flowing again was never going to be a quick fix. There was also the adjustment of a new social housing programme, which has taken time to bed in and get under way.

However, there are signs of life now in the housing market. The number of new homes completed in the last quarter was up 25%, housing starts were up by a third and stamp duty revenues were up. That is clearly a change from a year ago. Housing was then very much seen, certainly by those who thought we should give greater priority to it, as the best possible kick-start to the economy. Now, with signs of recovery, our main concern must be that demand does not outstrip supply. We have to refocus on the shortfall between the number of houses built and the formation of new households, which requires houses to be built at double the rate we are building them at the moment. I hope the Minister will be able to tell us what the Government’s latest forecast is for new homes this year and whether they are confident that they can build the projected 170,000 affordable homes by 2015 that they set out in their housing strategy. That will represent significant progress on the number built in the last five years of the previous Government.

With signs of recovery, and some initial concerns about house prices rising in the south-east and London, housing strategy requires a long-term focus. We must avoid the quick fix that ends in another burst housing bubble and which will only compromise the chances of more people owning their own home or renting one at an affordable rent. We must not forget the many lessons of past housing cycles, which have occurred under Governments of all persuasions, but particularly under the previous one in the so-called good times between 1999 and 2007. The number of new houses built annually during that period rose by something like 30%, from 120,000 a year to 160,000 at the peak. But prices rose by 173% and mortgage loans increased by 182%. The central problem is that housing is a cyclical industry where price inflation has been the driver of profitability in the short term and land asset appreciation has been endemic to a business model that eventually hits the buffers.

Each boom and bust has not only shaken financial confidence but has sapped capacity in the sector. Each cycle has made the inelasticities of the supply chain even less subtle. Housebuilders are rightly going to be cautious following the experience of the bust times. They are initially going to be motivated to make marginal additions on their most profitable sites. They will even have some interest in allowing prices to rise rather than in providing volume to counter the higher prices. There has been a huge reduction in capacity in the sector, and skilled workers and developers have left the scene. Already there are signs that building costs are moving up with the initial recovery.

I suggest three guidelines for the Government. First, given the very dysfunctional housing market, they will need to intervene more than they want to. Particularly as recovery takes hold, they will have to work on opening up land supply and making sure that our technical colleges provide the new skills that are going to be needed to fill the capacity shortages. They will have to monitor competition in the market with the smaller number of developers in play.

Secondly, they will have to watch like a hawk their demand-led initiatives, such as Help to Buy, to make sure that they do not simply lead to price inflation. Thirdly, although 75% of new build is in the private sector by developers, they need to balance their attention with initiatives for social and council houses and for self-build to develop the full potential of new capacity and affordable housing. Doubling building capacity must be our objective, and it will probably take another full Parliament to get there.

What is needed with these guidelines? It is all there in the housing strategy document, but the strategy now has to concentrate on easing the supply constraints in the sector. Let us look first at the private sector. Planning flexibilities have to show through to release more land to be used. We have to make sure that the new homes bonus for local authorities provides an incentive to release development land. New players have got to be encouraged into the market. The Government were right to give more support to encourage self-build, which has been a weak component of the private sector after the destructive impact of stop-go cycles. Price stability has to be an important objective for living standards. Energy bills pall into insignificance compared with the cost of housing.

We have been very lucky to have low interest rates, but we do not want people fooled into thinking that they can continue. The greatest concern is that Help to Buy will stoke up prices in the south-east, although it will probably still have a role to play in other parts of the country. Will the Government consider reverting to a regionally focused Help to Buy scheme if house prices get out of hand in London and the south-east? Will the Minister update us on the progress the Government have been making with build now, pay later, the Growing Places fund and initiatives to stimulate self-build? Is the announcement on the much needed larger developments for the new generation of garden cities now imminent?

In the social housing sector, there is still uncertainty about future funding. If it delivers the Government’s target of 170,000 affordable homes, it would demonstrate its capacity potential. The Government’s proposal to develop a guaranteed bond scheme linked to potential institutional investment has the potential to fund a further 60,000 homes. What impact on extra housing supply can now be expected from the guaranteed loans for social and private rented landlords provided in the Government’s strategy?

In the council housing sector, now that councils have control of their housing revenue accounts, is the improving economic situation not a good time to review whether council investment in housing should be included in the public borrowing limit? We need to put councils on an equal footing with housing associations. No other European country has as strict accountancy arrangements as we do. Frankly, if we want to tackle some of the problems of our own council estates, they need development, regeneration and investment. Is this not a good time for the Government to review the anomaly that exists between councils and housing associations with regard to the treatment of their investment in the public accounts? If they did, it could be a source of new funding.

Finally, with so much to do and deliver, we must question whether the Department for Communities and Local Government has the resources and leadership to do all this. The Labour Government had nine Ministers for Housing. The coalition is now on its third. Yet the position of Minister of State for housing has disappeared. Can the Minister tell us how, in the face of the many challenges and the need for the housing sector to be galvanised to increase housebuilding, we can manage without a Heseltine or a Macmillan figure to meet the strategic housing needs of the country?

Housing is not just key to improving the social fabric of the nation; it has often been at the heart of the health and the crises of the economy. Never has there been such a requirement for a strong strategic focus aimed at long-term stability. The Government have made a start but they need to prove their grasp in the next 18 months, and we need to show that we take decisions that are right for the long term and not for the headlines.