Building More Homes (Economic Affairs Committee Report)

Lord Hollick Excerpts

Thursday 2nd March 2017 Lords Chamber

Moved by

[Lord Hollick]

That this House takes note of the Report from the Economic Affairs Committee, Building More Homes (1st Report, HL Paper 20).

[Lord Hollick (Lab)]

My Lords, it is a privilege and a pleasure to introduce the report of the Economic Affairs Committee entitled Building More Homes, which was published last July—things move quite slowly in the housing policy market. I thank all members of the committee who participated, our terrific support staff, Ayeesha Waller, Ben McNamee and Oswin Taylor, and our specialist advisers Professor Geoff Meen and Professor Christine Whitehead.

The committee examined this topic in depth over six months. We heard from more than 50 witnesses and received scores of written submissions. What was revealed was a dysfunctional market beset with long-term failures, leading to a chronic shortage of supply and worsening availability and affordability. The committee concluded that the housing market needs bold and radical measures if it is to be reformed. Today’s debate affords the House the opportunity to consider the Government’s recently published White Paper, Fixing our Broken Housing Market, and see how it matches up to our report’s challenge to build more homes.

The cost of a broken market in human terms is considerable. The supply of affordable rental accommodation, in particular social housing, is inadequate and the availability of affordable starter homes is severely restricted. This forces many young families to live in insecure private rental accommodation, supported by a rapidly increasing housing benefit bill, which in 2015 amounted to £27 billion. The lack of availability of affordable housing prevents movement of labour to areas—particularly London and the south-east, and other major metropolitan areas—where there are job opportunities. The price people are paying for our failed housing policies is a crushing financial and emotional burden for many families.

The lack of housing supply forces house prices up, with the latest annual increase to December 2016 at 8.2%. Those buying their first homes are now older and wealthier—indeed, they have to be wealthier. Unaffordability has increased the cost of the private rental sector, such that tenants in London spend 60% of their income in rent, as opposed to those owning their own home, who spend 19% of their income.

How many new homes do we need to build each year? The current level of supply is gradually recovering from a sharp decline following the financial crisis but still falls far short of what is required. Our findings were that, if we are to meet the current annual demand and catch up on the hangover of unmet demand from the past, we need to build 300,000 homes each year. This higher rate of construction will need to be sustained over many years to have a moderating effect on prices.

The White Paper acknowledges that between 225,000 and 275,000 homes need to be built each year, but it does not commit to that target. The Government appear to be continuing to stick to their current target—the target of the last Government—of 1 million homes in the lifetime of this Parliament. Would the Minister please confirm in his reply what the Government’s current target is?

The last Government chose to prioritise the expansion of home ownership at the expense of homes for social and affordable rent, where demand from low-income households is high and unmet. We were told that opportunities to boost institutional investment in the private rental sector are potentially being undermined by the very policies designed to assist owner occupation.

The committee examined the long-standing and persistent reasons for failing to build enough homes, and proposed solutions to each of them. I will focus on three key failures.

The Government have very much relied on the private sector to build the homes needed, and the private sector has failed to do that. The private market is, we learned, uncompetitive and distinctly oligopolistic in character. The number of SME builders has fallen dramatically following the financial crisis, while the large builders and land agents hold significant land banks. A third of planning permissions are not used, and estimates of the total number of unused planning permissions vary from 445,000 to more than 600,000. That variance highlights one aspect of this market, which is that the statistics are often rather elusive.

From the builders’ economic perspective, they are behaving quite rationally, as they are seeking to maximise profit and minimise exposure to risk; they therefore manage for margin rather than volume. So the economic incentives need to be changed. We recommended that local authorities be given the power to levy council tax on land not developed after an agreed period of time. The Government recognised the problem, but their response is to decrease slightly the length of time before builders have to start work. It is doubtful that this measure is strong enough to tackle the problem.

The second failure is the almost non-existent level of public sector building. A central finding in our report is the conclusion that the UK has only built—and, in our view, can only build—enough new homes when local authorities play a substantial role in housebuilding. In the decade to 1979, local authorities built more than 1 million new homes, but in the decade to 2015, they built just 9,000.

We were impressed by the ambition of local authorities, particularly large metropolitan authorities, wanting to get back into the business of building houses, but they are unable to access the funding required to support their ambitions. The restrictions on the ability of local authorities to borrow to build social housing are both arbitrary and anomalous. The restrictions that, for example, allow them to borrow to build a leisure centre or a swimming pool but not to build houses should be replaced and reformed. They should be allowed to borrow under the prudential borrowing regime to build all types of houses, in particular, social housing.

In London and elsewhere, local authorities have shown an entrepreneurial spirit, entering into partnerships with housing associations, institutions and private sector builders to develop multi-tenancy sites, where the development profits can be used to help the local authority to fund future developments. The success of the partnerships will hopefully encourage local authorities to consider investing some of their sizeable reserves in housebuilding.

The Government have made a welcome pledge of £2.3 billion over the next four years to the housing infrastructure fund, targeted at the areas of greatest housing need. The fund will pay for infrastructure projects, such as transport and utilities, to enable local authorities to unlock new housing projects. This is a good start. The White Paper introduces a further potential source of government funding, through bespoke housing deals with local authorities in high-demand areas to deliver genuinely additional housing. The Government are prepared to use “all the levers” at their disposal to support these bespoke deals, but the White Paper gives no indication of the funds available. Can the Minister please let us know the amount of money available to support this interesting initiative?

The third failure is the low level of homebuilding on public land. The committee heard evidence that over 3 million homes could be built on public land. Public land in total is 900,000 hectares, or 6% of all land. In London, it is estimated to be 20% of all land. Public land presents an opportunity to build the kind of homes the market is not willing to support and also, very importantly, to support the revival of small and medium-sized builders through direct commissioning. This would bring additional, much-needed competition to the marketplace.

The Government must be commended for taking action to release land, but, as the National Audit Office has pointed out, the promised houses have not been built on that land. The Government expect that, by 2020, nearly one-third of their housebuilding target—assuming it is 1 million—will be built on public land. We recommended that the National Infrastructure Commission be charged with overseeing and monitoring the number of homes actually built, so that we know what is going on. The Government acknowledge the problem and commit, somewhat feebly, to “work harder” to make public sector land available, but they are silent about how progress is to be pushed ahead and monitored.

We also recommended that the release of public land could be achieved, in part, by extending the flexibility of local authorities to dispose of land for housing at less than best consideration and not be forced—as is the case now—to sell that land suitable for housing at higher prices to commercial developers. The Government agree with this and acknowledge that the availability of public land is essential if we are to provide the boost to building low-cost homes in areas of high demand.

On planning, we called for local authorities to be able to increase planning fees if the extra revenue is invested in planning departments. Indeed, many developers told us that they were very happy to pay more if the underresourced planning departments that they had to deal with could use the funds only to beef up their staff resources to speed up the planning process. The Government opposed an amendment along these lines to the Housing and Planning Bill, but have now had a change of heart and included this proposal in the White Paper, which is to be welcomed.

Our report also drew attention to the negative effects on the housing market of regular policy and fiscal changes. Intervention in one part of the market can all too easily disrupt another part of the market. For instance, the changes in stamp duty land tax, which have proved to be a bit of a boon for the Treasury, appear to have deterred people from moving to smaller homes, thus creating a barrier to the best use of the current housing stock. This has also slowed the development of the vibrant buy-to-let market.

As he carries out his extensive consultation process on the White Paper, Gavin Barwell, the Housing Minister, is emphasising that he wants government policy to be held steady and settled for a period of years. This will be widely welcomed in the industry, but will the Treasury agree? It is of course the Treasury that sets the rules for local authority borrowing which so constrain the ambitions to build. Unless the Treasury takes the bold step to free local authorities to borrow prudentially to build homes, it is doubtful that the White Paper’s commendable ambitions can be delivered. I beg to move.

--- Later in debate ---

[Lord Hollick]

I thank all noble Lords who have spoken today. We have had an interesting debate and there were some kind remarks about the committee’s report. There were surprisingly high marks from the noble Lord, Lord Kerslake, and some unusual career advice from the noble Lord, Lord Horam. We may indeed return to this topic later, but we look forward to the Minister’s response, particularly on the availability of finance to underpin the ambitions that are widely shared around the Chamber. On the 1 million homes, it is clear that we will have to see quite a large increase at the end of the Parliament—in 2019-20. It might be helpful if I add a further burden to the Housing Minister’s already full in-tray, which is to provide a programme of how the Government are going to achieve this objective. What measures will they take? We have neighbourhood plans for local authorities, which indicate the number of housing opportunities available. How will those opportunities be grasped? Who will build those houses? If the Government could set that out, it would do a lot to allay the scepticism that we have heard around the Chamber today about the deliverability of the plans.

Motion agreed.