Jules Birch – Government is giving Housebuilders everything they want without committment to build houses in return #NPPF

Jules Birch in an excellent column in Inside Housing puts his finger on the lack of delivery of the major housebuilders:

Deregulation and the housing strategy are giving the big housebuilders practically everything they want without being committed to anything in return: why are there no building targets to match the lending targets imposed on (and largely ignored by) the big banks?  If billions of pounds worth of subsidy is available, why not use it to encourage new players to enter the market? If red tape needs to be cut, take a look at the barriers to entry? If cheap public land is available, use it to attract new players rather than hand it over to the big firms, who will simply use it instead of their existing land?

The government is throwing billions of pounds worth of corporate subsidy at major firms that will not deliver the numbers needed for its growth strategy to work. If it has to subsidise anyone, it should be looking at smaller builders, housing associations and new entrants to the market.

And the cause of course, as argued on here and by the IPPR last year, the accounting practices of the housebuilders requires them to rebuild their margins and reduce output rather than build out land they paid too much for or sell at a loss.

Compare that to Ireland where the government has a deliberate policy of liquidiating overextended housebuilders and taking hold of the assets through their National Asset Management Agency.

In any market where business have paid too much for assets there is only one of three solutions.

Either liquidate the firm, write off the debts (and liquidate or prop up the banks in consequence) or the central bank can boost its own balance sheet and take on the assets.

The Irish solution is likely to cause years of very low output before a spectacular recovery by new entrants.  I would not recommend it.  I am no fan of the product produced by our major housebuilders but we are stuck with them for short term delivery.

Rather I would suggest a mechanism whereby grant funding by the HCA is replaced by soft loans secured by collateral – housebuilders landbank’s.  That way the HCA could fund many more dwellings.  The land would be placed in a land trust with a share going to the local planning authority rather than CIL payments.  The HCA would then contract out to new entrants to the housing markets the building of homes, but the majority of the equity of the land would remain with the housebuilders.  – the rest split between the HCA (to create a revolving investment fund from land value uplifts) and the local authority.  Homeowners would initially only have to fund the purchase of the house, not the land, but on resale the second owner would need to pay the full price,  The beauty of this mechanism is that housebuilders would not have to write off the value of the land, because they initially would not be selling the land, they would only do so later in the business cycle when housing and land prices have recovered. The price the state would exact for rescuing house-builders balance sheets would be to free up the landbanks.  We can build before land prices have again catapulted.  It would also enable new business to come into the market which only built homes, rather than whose main purpose, as is current vilume housebuilder, the uplift in land values.  This mechanism is in effect a combinition of land trust and credit easing through construction (as advocated on the brickenomics blog).

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About andrew lainton

International Urban Planner

Posted on March 6, 2012, in Affordable Housing, Housing, National Planning Policy Framework, urban planning. Bookmark the permalink. 1 Comment.

  1. reading the 1947 house of commons 2nd reading debate on the TCPA, i came across this lovely line from the govt minister in relation to the issue of compensation to land owners “the reputable builder does not normally look for his profits to the sale of land. he expects to make a profit out of his building operations, and this he will be able to do when the Bill becomes law just as much as he could before. In so far as he does look to making profits out of the sale of land, this is a practice which i regard as undesirable, and no harm will come to the community if it is no longer possible.”

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