If the government wants more homes built it first has to tackle the Credit Crunch

One of the many policies and aspirations of the present government that lies in tatters is its wish to see many more houses built in Britain. With an impeccable sense of timing and no sense of irony, the government chose the top of the housebuilding cycle to announce that it intended the building industry to step up from around 180,000 new homes a year to 240,000. With all the certainty of the old Communist regimes announcing their tractor production targets, Ministers told us solemnly that another three million homes will be built by 2020. The policy was to be pushed through by the construction of numerous “eco” towns on greenfields, coupled with brownfield redevelopment, town cramming and back garden building.

All of this looks absurd when you see the reality of the Credit Crunch. The first thing the government did to “help” implement its policy was to nationalise the most aggressive of the mortgage banks, and then stop it undertaking new lending! With the Bank of England the government failed to keep markets liquid enough, so credit dried up at many of the smaller lenders, and the larger banks all had to rein in their lending and raise new capital. As a result in the first quarter of this year only 32,000 new homes were started – an annual rate of a mere 130,000 if the first quarter’s activity levels can be sustained, or little more than half the government’s ambition.

At the same time the government decided it needed to speed up the granting of planning permissions for major projects. It has chosen to do so by legislating to set up a new quango to become involved in these decisions. In our recent debate on the subject Ministers were unable to confirm it would be quicker to wait for the new quango if you want a major planning permission, whilst the Opposition pledged to abolish it and pointed out it was likely to delay matters with judicial review of decisions a distinct possibility.

Regional government – unelected, expensive and much disliked – is currently dividing up these top down government targets for more housebuilding. It is playing the part of a faithful retainer in this process of illusion – instructing councils to make land and planning permissions available on a huge scale, as if the industry wanted to build all these homes, or people could borrow the money to buy them. I look forward to a Conservative manifesto pledging to abolish both these hated regional governments and the silly housing targets they generate. Planning applications should be considered on their merits by the local authority involved. If a company or a landowner wish to gain a permission which greatly enhances the value of their land, they should make it worth while for the local community and the people who will be adversely affected by the development. They should not be able to rely on unelected regional officials, on chief executives of councils keen to do the government’s bidding to advance their own careers, and on the idiotically optimistic government view of how many houses people can afford to build and buy.

I was pleased to hear shadow spokesmen sharing my view that top down targets, regional control and over optimistic plans are a bad idea. The planning system at the moment suits no-one. Developers think that in better economic times they cannot get the planning permissions they want, whilst most people feel the system fails to take their views seriously and fails to protect communities against unwanted development or to provide the additional facilities needed to make a housing estate part of a thriving community.

So what should councils do about the pressures from the top to identify more greenfields to be bulldozed? They should argue, remonstrate and use every clause in the long manual to slow things down. There is no need to identify new sites at the moment. This system cannot last. There is no need for more planning permissions today, as the housebuilding industry is going through extremely difficult times. Land values are going to fall. There is too much land with planning permission around for current needs. Leading housebuilders need to sell land and finished houses to pay off some debt. The government is in a world of its own. The problem today is not a shortage of planning permissions, but a shortage of mortgages and people to buy the homes.

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11 Comments

  1. David H
    Posted June 30, 2008 at 10:15 am | Permalink

    It appears to be insane, doesn't it? However, perhaps you are not applying the correct perspective to the problem. It makes more sense if the wishes of the EU are taken into account.

    The regions are for the convenience of the EU. The voting powers of the "countries" in the EU depend upon the sizes of their populations. More populous countries have more power, so increase the number of homes and immigration will follow to fill the houses available. Just a pity that the finance side of the equation has hit a temporary problem.

    A lot of apparently stupid decisions and plans suddenly make a sort of sense when one thinks "EU"

  2. David Eyles
    Posted June 30, 2008 at 10:40 am | Permalink

    The recent set of targets for new homes has produced an over supply of flats, whose prices are now plummeting because the demand was actually for low rise 3 bedroomed houses. The buy-to-let market has almost dissappeared because of the credit crunch.

    Just sitting back and thinking about this and other problems this government has got itself and the taxpayer into, it seems their failures can be classified into two categories:

    The first is where they have completely failed to deal with the strategic issues properly. Defence, transport and energy provision are examples in this category. It seems that they are incapable of thinking about our long and medium term needs and doing what governments should do to plan and provide the infrastructure.

    The second category is where they have spotted a strategic need, say in education or the NHS, but have gone about dealing with it in the worst possible way by interfering with the market place. The result is a flurry of top down targets and policies, which only serve to muddy the waters and make matters much, much worse. They have concerned themselves with detail and interfered with professionals who should have been allowed to get on with the job. That interference has spawned a whole growth industry of civil and public servants whose career structures have depended upon responding to the dictat from above as opposed to the need from below. Much of that detailed interference has centered around their obsession with technology, such as IT and CCTV, as a substitute for human hard work and interaction – the removal of police from the streets is a case in point. Their other obsession is with legislation as another panacea for our ills. Admittedly, much of that is of EU origins, but it still amounts to a considerable and daily interference in all of our lives.

    So, to return to the particular point of your article: I too, am pleased that the Tories have promised to abolish regional government in England. There is no point to it and it is another layer of government that we could do without. We also need an end to centralised targets imposed upon local planning authorities. Let the market take the strain.

    But we also need reasoned and informed debate about how the country is going to prosper in the next two or three decades. This involves consideration of housing; transport; how we intend to earn our living as a nation; how we are going to feed ourselves and how we are going to govern ourselves at local, national and international levels.

    It looks like David Cameron is going to be busy when/if he gets into power.

  3. Posted June 30, 2008 at 10:52 am | Permalink

    John, surely you don't expect the government to reverse their commitment to a poorly-thought out piece of legislation?

    You should know better!
    http://lettersfromatory.wordpress.com

  4. Peter Shields
    Posted June 30, 2008 at 11:06 am | Permalink

    Even at the best of times I just don't understand where the demand for all this new housing is coming from? And who can afford it? With our birth rate falling below sustainability level, it can only be immigration and divorces that will create any extra demand. Maybe this is the main motivation for the governments determination to introduce so much anti-family policy. It is only by fragmenting households that it can create demand for the new houses it is determined to build at all costs.

    And I'm no big environmentalist but what will be the impact of theses 3 million new homes … requiring 3 million new water supplies, 3 million electrical supplies, 3 million new washing machines, 3 million new fridge freezers, 100's of miles of access roads with street-lighting, drainage etc etc… ?

  5. Posted June 30, 2008 at 12:56 pm | Permalink

    "The problem today is not a shortage of planning permissions, but a shortage of mortgages and people to buy the homes"

    Correct, but the pressure on accommodation from increasing population continues and no-one talks about it.

    When it comes to buying property, the availability of mortgages is indeed important, hence the impact of the credit crunch on those wanting and able to buy houses.

    However, prices (including rental prices) are also determined by the supply and demand for accommodation. Demand for bed spaces is primarily determined by the number of people in the country (including citizens, immigrants, tourists and other visitors) which brings us back to population.

    Therefore, could I ask: do you agree that population is an issue for the housing market, and if so, what should be done about it?

    Reply: Yes – we need to control our borders better

  6. Posted June 30, 2008 at 1:47 pm | Permalink

    OK, we need to control our borders better but what about the fact that our borders have been extended beyond the Channel to the extremities of the EU?

    Reply: Not what I wanted – I voted "No"

  7. Posted June 30, 2008 at 2:19 pm | Permalink

    John I completely disagree. The building industry would have no problem building & selling houses if they were allowed to do so & to use modern building methods. The Norwegians can buy a 4 bedroom house, built in a factory, for £40,000 & have it in place for £80,000. At that sort of price I am quite certain there would be no problem selling them.

    The cost & shortage of housing is entirely because of government regulations. This may enable the toffs to look out on fields of cows rather than of the common people but it keeps most of Britain living in expensive outdated homes & sucks up an unnecessarily large amount of their income to do so. It also makes it difficult for people to start a family until they are middle aged. Compared to that the damage to those "adversely affected" by having neighbours is insignificant.

  8. John
    Posted June 30, 2008 at 5:26 pm | Permalink

    "The government is in a world of its own"
    Quite agree, having read the lastest blogs from Tom Harris, Labour's Happiness Minister. You'd think that with all the problems facing Labour, they would be blogging their socks off to explain themselves and try to regain a bit of credability.
    Tom's train of thought is centred on Dr. Who and the Daleks, an indepth analyzation.
    As you say, in a world of their own.

  9. William B.
    Posted July 1, 2008 at 6:36 am | Permalink

    I am a very simple fellow. I believe the market to be the best instrument of decision making in commercial matters.

    Houses and flats are not (generally) built on a whim because no sensible builder invests time and money on a development project unless he perceives there to be sound evidence of demand for the new homes at a price that will make him a profit.

    For many years we have seen superb Victorian terraces and squares, particularly in northern towns, decaying because there is no demand to live there. It is no use renovating them if no jobs exist to attract new occupants to the area. By all means renovate them at public expense to provide decent homes to replace 1960s concrete hell holes for those trapped in dismal estates, but do so only as part of a balanced budget (for example where the land occupied by the concrete monstrosity is desirable to a commercial buyer or the cost of necessary work to that monstrosity is such that renovation of an old terrace would provide better value for money).

    At the other end of the scale we still see builders sniffing around every available square inch of London because they know the land occupied by a failing pub can turn into ten flats which will sell off-plan. This might end soon, the market will decide.

    Government decrees cannot create a demand which does not exist.

    I have a vague recollection of someone once saying "you cannot buck the market". The history of nationalised industries should be proof enough for everyone of the truth of that phrase. We can but hope the current government will agree. My fear is that they will attempt to create artificial demand by throwing vast sums of taxpayers' money at speculative developments, after all their standing is now so low they have nothing to lose.

    Mr Eyles put this point much better than I have, but he is surely wrong about one thing. He says there has been a failure to deal with the strategic issue of transport. Methinks he overlooks John Prescott's Integrated Transport initiative – the centrepiece of his role in the first Blair government. I know little of transport and cannot explain all the benefits, perhaps one of your readers can enlighten me.

  10. mikestallard
    Posted July 1, 2008 at 12:33 pm | Permalink

    I am so glad that the EU has been identified as the culprit here – the Regional Plans to be specific.
    My own problem is what these eco towns will look like in, say, thirty years time.

    These eco towns are going to be hotbeds of crime where there is no work, probably no means of travel, no water except during floods and, who knows, no electricity either. Every single person in them will have a real cause for their anger too – they will have all been let down. Add in a lot of immigrants, mainly from the rest of the world outside Europe (Migrationwatch figures) all with their own ideas of how people should behave and live(words left out).

    I wonder if the Nu Labs see such places as the new Council estates all voting Labour in the back of their minds?

  11. Chris H
    Posted July 2, 2008 at 6:10 pm | Permalink

    I have no skill at writing political things. I have lived five decades and despair at the ruthless strategies that have been devised for a monstrous pile of housebuilding. I truly don't see where all the people are going to come from, to purchase three million homes. I have yet to meet a homeless person or family; and if I did, I doubt whether they'd have enough money to even buy a three-piece suite, let alone a three-bedroom house.
    Surely, "predict and provide" should have been tossed out years ago. I have to assume that the 3 million target was based on predicted huge increases of immigrants, let alone the split-up families. As it is, where I live (Liam Fox's constituency) is largely rural, with lovely villages and a thriving tourist industry….yet we are told that more, more, more homes must be built for the rising population. I've watched new houses being built here, and quite frankly I've yet to see anyone buying who remotely resembles a "desperate struggling family".
    If it's the only thing I ever do, I would beg a Conservative government to PLEASE get some control over housebuilding and planning regs, so that houses are only built where and when they are genuinely needed. Housebuilding federations will always claim that there is a "need"; they would, because they make money on it.

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    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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