As local councils have granted more building permits in recent years, large developers have used their market power to deliberately slow construction, making overall higher profits by producing fewer houses, so prices continue to increase.
We need to inject competition into this once vibrant sector by helping smaller builders – who get permits fast to help cash flow.
Companies completing fewer than 100 homes a year now account for barely a tenth of all production, down from almost a third before the global financial crisis, which took away so many of them. The top ten developers are building nearly two-thirds of new supply.
In July 2016, the Lords Economic Affairs Committee concluded that the UK housing construction industry “displays all the characteristics of an oligopoly”.
Since then, with the big boys sucking up the bulk of purchase aid funding, the industry has become even more focused. A full investigation by the Competition and Markets Authority is long overdue.
The crux of the problem is our opaque and dysfunctional land market. When residential permissions are granted, land values can soar hundreds of times – this vast ‘planning gain’ going almost entirely to landowners, developers and intermediary ‘land agents’.
Rather, it should be widely shared with local authorities, which curbs price speculation.
Cheaper land would then make homes more affordable, while generating funds to build schools, hospitals and other infrastructure. The new houses would then become more popular with existing inhabitants, transforming the heavy local politics of planning.
Existing “Section 106” provisions help the state “claw back” some planning gains — but, again, reinforce the status quo.
Powerful developers are negotiating their obligations to build councils and affordable housing – threatening councils, under pressure from Whitehall to deliver homes, with further delays. Small builders lack such power, so they are forced to fulfill their community obligations – often in advance, making small developments unviable.
The number of official ‘new homes’ has increased over the past year – but due to a series of often shoddy one-off conversions of office buildings and shops. Britain’s big developers are still building far fewer houses than before the financial crisis, despite gorging themselves on aid to buy taxpayers’ money.
Rather than tackle these issues, Rishi Sunak has taken the easy option of “suppressing development”. In a desperate appeal to loyal Tories, many of whom are elderly homeowners, the former chancellor says it should be ‘much harder to build on our precious green belt’.
While some greenbelts are indeed beautiful, much of it is mundane farmland or urban scrub that is long overdue for development. Far from being ‘concreted’, the area of the Greenbelt has more than doubled since the 1970s and now covers 13% of England’s landmass.
Housing, including gardens, represents less than 2 pc. The “no space to build” mantra is a myth. There is, however, a shortage of land, with building permits, controlled by those who have the incentive to build quickly.
Only bold action can break this impasse. I proposed a transparent system dividing planning gains equally between developers and local authorities. A major planning gain is being channeled into infrastructure spending in much of the world – Britain is an exception.
Sunak, on the other hand, embraced green belt dogma, helping crush the ownership dreams of millions. It is a path to long-term conservative collapse.