Quite a lot of interest in the H&C Agency proposal for the government to underwrite the price of unsold homes.
A £2bn fund to boost housebuilding could be used by the government to offer guarantees to developers that it will step in to take on properties that they are unable to sell.
The Conservative party unveiled plans on Monday for £5bn worth of funding to support housebuilding, £2bn of which was designed to provide 15,000 new homes on public land by 2020.
The accelerated construction fund, could be used to underwrite new developments on public land, and could mean the government taking on unsold properties, according to Sir Edward Lister, the chairman of the Homes andCommunities Agency (HCA), which will oversee it.
“So it’s about us going to a housebuilder and instead of expecting the normal build-out rate of 50 units a year we’ll say, ‘We want you to build all 500 in one go and what we’ll do is guarantee to take them off you if you can’t find a buyer.’”
Property Week reported that the HCA would sell the homes on the open market or to private or social landlords, and that prices would be set before the government chose which schemes to back….
under the plan, builders would enter into a contract with the HCA at the start of the building process. “This doesn’t mean that they are guaranteeing homes in places where there is no demand for them – there will be a very detailed contract ensuring that it is the right properties being built in the right market.”
If the H&CA own the site then the form of contract can distinguish between the ‘market clearing price’ which is the price which maximises profits under free competition and the ‘oligopolist’ position we find on most sites where developers drip feed units to the market to keep prices high and to speculate on rising prices of land on undeveloped plots. In a ‘buy now pay later’ contract it would be straightforward to tier the land price component based on numbers sold up to the level where housebuilders have difficulty clearing inventory.
This doesn’t need state funding, just a write down of land prices on the public balance sheet.
What would need public funding is to do the same for sites owned by housebuilders. And such a scheme would only have an incentive if it ‘topped up’ returns to the oligopolitic price, effectively subsidising the land value component of the price. Why spend public money subsidising speculative land owners withholding land with permisssion from the market? Its crazy. As ever its much better to tax land with planning permission to incentivise to be sold to build. Short of a land value tax their is an easy way to resolve this. When land is granted planning permission it should immediately be subject to a capital gain, shared say 50% between the land owner and 50% by the housebuilder. The share is not important, a minimum for the landowner is the optimum rate which maximises swift sales to housebuilders. The optimum rate for housebuilders is the rate which achieves the market clearing price, which theory suggests is 100% – the land owner rate – the going rate of industry profit on land sales by housebuilders in competitive markets. Furrther if this cpaital gain was returned to the planing authority – as replacement for CIL and S106, then it would deincetivise over complex commencement conditions and planning obligations.