Building More Homes (Economic Affairs Committee Report)

Lord Turnbull Excerpts

Thursday 2nd March 2017 Lords Chamber

[Lord Turnbull (CB)]

My Lords, let us start by giving credit where credit is due. First, the White Paper is candid in acknowledging the multiple failures in the housing market. Secondly, it recognises that the current target of 1 million homes over five years is too low. Although we are told that it remains in force, it has been completely airbrushed from the documents, presumably because it is clear that housing starts have already fallen behind the asking rate.

Thirdly, it adopts much of the thinking of the Economic Affairs Committee—for example, that the problems will be solved only by action by all players and on all types of tenure. It makes a major move away from the almost exclusive focus of recent Governments on promoting home ownership and recognises that there are severe pressures in the rental market. Indeed, in my view, it is the rental market that is the epicentre of the crisis, where hardship is greatest. I agree that much of the credit for this fresh thinking should go to the new Minister for Housing, Gavin Barwell, and I wonder whether he will eventually enter the pantheon of those who have held this portfolio with distinction—notably the then Sir George Young and Nick Raynsford, who between them held it for about 15 years.

Fourthly, it acknowledges that the so-called volume builders will never want or be able to build enough. Thereafter, things go downhill. A new range is suggested, although whether it is a target or just the consensus is unclear—I hope that its status can be clarified. The bottom end of the range, 225,000 homes per annum, may not even be enough to match emerging demand. The top end of the range, 275,000, may not do enough to catch up the underprovision of the past decade. For that reason, our report recommended 300,000 per annum.

The main failing of the White Paper is that, despite an extensive range of measures, there is no assurance that the Government will deliver the numbers required—indeed, no attempt is made to reconcile the two. Finally, there is a serious omission: the tax issues which distort the housing market are simply not addressed. That is the gist, but let me develop some of these points.

I do not need to go over the main failings. Most of the things that the Government want are not happening or, worse, are going in the wrong direction. A major factor in these failings comes from the excessive focus on home ownership to the neglect of the rental sector. Simple economics tells you that if, as the Government claim, they have helped 200,000 people into home ownership but the supply has not increased, house prices will rise to price out a different 200,000.

The recognition that renting needs to be promoted is a huge advance. The share of the private rented sector has doubled from 10% to 20% in the past 15 years, but much of the sector is in poor condition, badly managed and, as has been said, tenancies are insecure, so families cannot even be sure where their children will go to school.

The Prime Minister’s foreword itself acknowledges that 2.2 million working households on below-average income spend a third or more of their disposable income on housing. As has been said, that figure is greater in London. Today, it would take a low or middle-income family saving 5% of their wages 24 years to reach an average-sized deposit. This is all massively unfair, as the White Paper reveals that housing costs relative to income are substantially lower for owners than for renters.

As the main housebuilders build almost exclusively for sale, it follows that if rental provision is to increase, new players have to be mobilised. Historically, local authorities and housing associations played that role, and they need to be brought back into play. My estimate is that we need to find an additional 100,000 homes above those provided for sale.

There is a lot in the White Paper about local authorities, but most of it is about their role as planning authorities. The requirement to produce plans which meet local need is very much to be welcomed, as is the fact that they are to be given extra resources to speed the planning process. However, while paragraph 3.27 states:

“They also have an important role in delivering homes themselves”,


there is no sign of the relaxation of the housing revenue accounts that we have called for.

This is followed by a masterly euphemism in paragraph 3.32:

“We will work with local authorities to understand all the options for increasing the supply of affordable housing”.


This ranks alongside Hirohito’s:

“The war … has developed not necessarily to Japan’s advantage”.


The picture is not much better with housing associations. Paragraph 3.26 raises hopes, stating that the Government will,

“set out, in due course, a rent policy for social housing landlords … for the period beyond 2020 to help them to borrow against future income”.

Hopes rise further with:

“Our aim is to ensure that they have the confidence they need about their future income in order to plan ahead”,


but then reality comes crashing in:

“The Government also confirms that the 1% rent reduction will remain in place in the period up to 2020”,


together with the damaging restrictions imposed by the Housing and Planning Act.

Great hopes have been expressed about the entry of institutional investors, who allegedly have billions of pounds ready to go, but I have heard all that before. Those investors now find themselves constrained by the ill-thought-out Solvency II directive.

So it continues to the end of the document: encouraging aspirations not backed by the resources or the freedoms to develop them. There are lots of bits and pieces of schemes, many of them worthwhile, including one to deal with great crested newts, but nowhere is there a table which draws all the contributions together to demonstrate that the plans for more housebuilding can be achieved.

Then we come to the serious omission: the way that the tax system distorts the housing market. This is dramatically illustrated in the White Paper, which states:

“In 21st century Britain it’s no longer unusual for houses to “earn” more than the people living in them”.


This is a shameful admission, but nothing is offered to remedy it. While pay is subject to income tax and national insurance contributions, there is no tax whatever on the increase in the value of the house: no income tax, no CGT, no extra council tax, only, eventually, inheritance tax, where the allowances are currently being increased. It is not surprising, with returns on financial assets low and taxed, that investment in bricks and mortar, whether a second home, a buy to let or simply a loft extension, is proving so popular, thereby taking home ownership further out of the reach of many.

In our report, we criticise the working of council tax. We have a situation where the grandest mansions, some no doubt owned by Members of this House, could never pay more than three times the tax of the humblest dwelling. This is a much shallower gradient than the old rates system. The property values are still those of 1991, so those living in the areas where values have risen most have not been asked to contribute more.

In practice, the Government recognise the argument that high-value properties are not paying enough, but their response is to impose very high rates of stamp duty at the top, so those who move pay astronomical sums, while those who stay put, like me, pay nothing. Evidence is beginning to emerge that this is proving counterproductive, causing such a slowdown in turnover that revenues have declined. Far better to return stamp duty to more reasonable levels and then recoup the money by raising council tax, so that all property owners pay a little more every year.

To conclude, the White Paper starts promisingly by introducing some fresh thinking, but it fails to convince that it is capable of making the step change that is required.