Housing

Anna McMorrin Excerpts

Thursday 28th March 2019 Commons Chamber

[Mr Richard Bacon (South Norfolk) (Con)]

I am sorry to see Members leaving the Chamber, because we are about to discuss the Government’s top domestic priority, which is of far more concern to many people up and down the country than our endless talk of Brexit. I have entitled this debate “Housing” because I did not want to be confined to any specific part of the housing debate and wanted to give the Minister the opportunity to address any question within the housing space.

It is absolutely clear that we have a very big housing problem, and have had a very big problem, for some years. I have been attending seminars, roundtables and conferences on housing for at least seven years. I first went to the QEII Centre to hear Adri Duivesteijn, the godfather of the self-build and custom house building movement in the Netherlands—a former Dutch Member of Parliament who then became the mayor of Almere, a community in the Netherlands that I think I am right in saying the Minister has visited. Since then, I have been to many events of various kinds, and everyone has their own diagnosis of the problems and their own solutions, but generally they all mention land, planning or finance. They often mention the role of the volume house builders, the way in which local council planning authorities are stretched and the difficulty in getting access to land.

Many of these points have a great deal of truth about them, but the issue can be encapsulated much more simply in the following sentence: the supply of housing does not rise to meet the demand for housing. In many other areas of life, it is true that supply generally does rise to meet demand. In what I would call orthodox, rather than classical, economics, if someone is making what economists call supernormal profits—profits that are in excess of what one might expect—two factors generally combine to bring those profits down to normal levels. One factor is that other actors in the marketplace will see the opportunity of those high profits and will move in. In other words, new suppliers will move in, with competition, increasing choice for consumers and driving down the profit margins. But that is not the situation that we have in the United Kingdom. In fact, over the last 30 years, the situation has steadily become the reverse of that. We effectively have permanent supernormal profits.

Some 30 years ago, in 1988, 66% of houses in this country—a large fraction of the total—were built by SME builders, which were represented by excellent organisations such as the Federation of Master Builders. The situation now is that less than 20%—perhaps 15% or 17%—of houses are built by SME builders, with all kinds of extra problems that make it more difficult for them to engage. Now a very small number of very large companies build most of the houses; for the most part, they are the members of the Home Builders Federation.

The strange thing is that if one asks consumers what they think and what they want, as has been done several times by independent, authoritative opinion pollster organisations that have been commissioned for the purpose, they will come up with the following result. Somewhere between two thirds and three quarters of people do not want to buy the products of volume house builders. The figure of 75% comes from a YouGov survey conducted by the National Custom and Self Build Association, which is a trade body for, as the name suggests, self-building and custom house building, whereby houses are manufactured offsite—perhaps a better way of putting it is “high-tech offsite construction”—and then delivered to a site where they are constructed. The figure of 67%—the two thirds of people who do not want to, or would prefer not to, buy the product of the volume house builders—comes from the volume house builders themselves. Their own research tells us that most people do not want to buy their product. Now, in a vaguely competitive ecosystem where there was choice for consumers, that would be corrected by new suppliers coming in and providing something that consumers did want.

Let me be very clear that the numbers themselves suggest that between a third and a quarter of consumers do want to buy the product of volume house builders. If they wish to do so, they should be free to do so, as long as those products are built to the right standards in terms of health and safety and building regulations. I have no issue with that at all. It is true that, over the last 30 to 40 years, houses have got smaller and more expensive than they were in the not-that-distant past. However, if people wish to buy the product of a volume house builder, they should certainly be free to do so, as long as those volume house builders operate within the law; I do not object to that at all. But fundamentally, the two things required for this ecosystem to function are low barriers to entry and consumer choice, and those are the two things that are fundamentally absent.

We all know what the consequence is. I have tested this with nine-year-olds in primary schools in my constituency. I say, “What happens to the price of something if there is not enough of it?”, and every had goes up and they say, “It goes up.” Then, just to make the point really clearly, I say, “And what happens to the price of something if there is too much of it?”, and every hand goes up and they say, “It goes down.” It is not difficult to understand—it is intuitive to the point where a nine-year-old can grasp it. That is what has happened to the housing market, if one can call it a market, in the UK. I suppose that an economist might say that of course it is a market, but a very oligopolistic one—in other words, something approaching, but not quite, a monopoly.

That means that the suppliers making supernormal profits can keep on doing this for a very long time without let or hindrance. At the same time, the average price of an average dwelling has gone from three and half to four times income a generation ago to about eight times income now. That depends on where one is in the country, of course. For South Norfolk, the last figures I saw from the National Housing Federation—admittedly slightly out of date now, but they will not have changed that much—were about 8.2 times average income. The same numbers suggested 8.2 times average income in Harlow in Essex, 13 times average income in Hertfordshire, and 17 times average income in Oxford—and in some of the really hot boroughs in London, it was completely off the charts. Even in the poorer parts of the country where incomes are lower and properties are less desirable, it is now five and half to six times average income in many cases.

I pumped my parliamentary salary into one of the websites just to see what a lender would lend, and I was quite horrified that the first number that came out was five and half times income. That would not have been possible a generation ago. We have had more money chasing roughly the same amount of houses, and, not surprisingly, the price has gone up. That has a number of consequences.

[Anna McMorrin (Cardiff North) (Lab)]

Does the hon. Gentleman agree that house builders need to be looking at the cost of living in a property over the time that residents would own that property and meeting carbon reduction or zero-carbon targets, so that when the house is sold the cost of living in that house has changed?

[Mr Bacon]

Yes, I do, although if one went on a sales course, one would be told “Benefits, not features.” One does not explain that a vacuum cleaner does 3,000 revolutions per minute rather than 1,500, as nobody cares—one explains that it cleans one’s house better. In the same light, I would not bang on about carbon, making people feel kind of morally inferior—I would explain that one could have the choice of having a house that would cost nothing to heat, and ask why anyone would want one that cost a lot to heat.

I had this out very specifically at the Policy Exchange think-tank with the land use and planning director of Barratt. I asked about what it did for its customers in this regard. I said, “Is it really true that you have a conversation with your customers in which you say, ‘Now madam, we’ve got a variety of houses available for you, this one over here that will cost you roughly £1,400 a year for heat and hot water, and this one over here that is insulated to, or nearly at, passive house standards that will cost you almost nothing to heat—perhaps, with mechanical ventilation with heat recovery, £80 or £150 a year. Which one would madam prefer?’ Do you really offer them that choice?” Of course, he turned his back on me and stomped off rather than answer the question.

[Anna McMorrin]

Does the hon. Gentleman agree, though, that we need to change our building regulations in England, and also in Wales, where this is devolved, to make sure that housing is built to low-carbon or zero-carbon standards to ensure that this happens across the board? We have house builders that are really taking advantage by putting up houses that come at a ridiculous cost to our climate.

[Mr Bacon]

Yes. I do not want to be building houses that we will be knocking down in 30 or 40 years’ time because they are so dreadful. That is utterly pointless. The hon. Lady mentioned building regulations. At the Local Authority Building Control conference, where I gave an address, I needed only to say the word “Persimmon” and people fell around laughing as if I was as funny as Tommy Cooper—perhaps there are people who think I am—because it is a byword for poor practice in the building industry.

I have heard the chief executives of volume house builders criticise Persimmon for its bad practice. We all know what happened to the sainted Jeff Fairburn. Because of his compensation scheme, he was being paid—I will say this slowly—£130 million in emoluments by the shareholders of Persimmon. So egregious a scandal was it that he got so sick of being followed round by someone from the BBC with a microphone asking him to justify it that he eventually resigned, which was a red letter day for many of us who are campaigning for higher quality. In a competitive environment where the company could not afford to pay one chief executive that much money, that money should have been going into larger spaces, better quality material and better thermal performance. There is a huge distortion.

--- Later in debate ---

[The Minister for Housing (Kit Malthouse)]

That was a remarkable example of a combination of encyclopaedic knowledge and conviction about what my hon. Friend rightly says should be not only the Government’s top domestic priority but the entire country’s primary moral mission: to build the homes that the next generation need and which are currently denied to them.

It is unusual for me to hear strains of my own speeches read back to me. I know that my hon. Friend has not been to listen to many of my speeches, but what he said resonates strongly with me: many of the themes he laid out in his preamble and diagnosis I am myself going around the country promoting—not least the dysfunctionality of the house building market. The one element that he omitted, but that I am sure he is aware of, is that the situation is not helped by the fact that in the crash of 2007-08, 50% of all small house builders were wiped out—removed from the market—having produced, as my hon. Friend said, more than half of all new homes. That proportion has now dropped to about a third, I think.

Both in coalition and since, the Government have done their best to try to push output up from a low of 124,000 in 2012 to 222,000 last year. The forward indicators for next year are looking pretty good as well.

[Anna McMorrin]

Why did the Government scrap the requirement for homes to be carbon neutral, when that would go a long way towards helping with living costs and budgets, as well as meeting climate targets?

[Kit Malthouse]

I totally acknowledge the role that high environmental standards have to play in a sense of social justice about housing. I went to a factory run by Accord Housing, which produces 1,000 modular homes a year. So good are the environmental standards in those homes that they have lower arrears because people can afford to heat them. That is definitely something on which I want to focus.

I want to address some of the questions that my hon. Friend raised. He is right that we need to do something about the way in which the house building market functions at the moment, and my job is to wander around being disruptive, supporting new entrants and players to create the competitive landscape that he is looking for—competing on quality and type; being disruptive on technology and encouraging modern methods of construction, including off-site manufacture and new techniques, so that new entrants find it easier to overcome the barriers to entry that he mentioned; and being disruptive on finance.

My hon. Friend is a little negative about Help to Buy, but I ask him to take care. Many tens of thousands of young people have accessed homes for the first time when the market was denied to them before, because of a Government-backed effective bank of mum and dad. While there will be assessments of that scheme, there is no indication at the moment that it has pushed up prices.