Saturday, February 25, 2017

Addressing the housing crisis

Your humble Devil decided to reply to this Jonn Elledge article in the Grauniad, since I've been working with housing associations (HA) for nearly nine years, and we share offices with a private housebuilder (who also builds homes for HAs).

  1. most HAs exist because councils cannot borrow money (and usually only for CapEx projects);
  2. councils let their housing fall into disrepair, and could not borrow to bring their homes up to a decent standard (partially set by the EU);
  3. the HA sector is (technically speaking) mortgaged to the hilt (they "owe" the government around £45 billion across the sector);
  4. the biggest HAs are lobbying the government to be allowed to pay off these debts, so that they can be released from their social obligations, i.e. be more like private builders;
  5. like any other company, an HA has to be able to make a profit (although most are "not for profit" organisations): however, they too must be able to sell or rent their new builds at a profit;
  6. they employ instruments such as Shared Ownership and Help to Buy to get people into these houses.
The real problem is the planning permission: there really is no shortage of actual land in this country (we have built over about 2.27% of it)—there is a shortage of land that is allowed to be built on. So...
  1. when anyone objects to a development, the house builder must come up with an answer, re-survey, etc.;
  2. councils are quite adept at shaking down house builders, e.g. "you want to build ten houses there? Well, if any of the residents use cars then they might use this bridge over here: and, wouldn't you know it, it looking a wee bit shaky and we think that you paying to re-build the entire thing would be really nice...";
  3. the above had, for instance, in the case of one development, resulted in our office-mates having spent over £2 million trying to obtain planning permission (and still hadn't got it, last time I spoke to them).
HAs tend to get their planning permissions through only very slightly more easily—so they face, essentially, the same issue as private house builders. Also, most HAs don't actually build the houses themselves—they hire private builders to do it. And round we go again.

The issue is not a shortage of capital (HAs are have been pretty innovative about this, e.g. bond sales, etc.), nor really a shortage of land: it is a shortage of permission to build on land.

So, why not majorly reform planning law (as the Coalition promised)? After all, the best way to remove the so-called "housing crisis" would be to repeal the Town and Country Planning Acts.

Well, politically it is difficult: doing so would (if it were actually effective reform) lead to a huge increase in houses—which means a decrease in house prices. And which political party is going to find that popular with their voters? Labour won't—and the Tories most certainly will not.

So, our politicians will continue to skirt the issue—using demand-raising ideas such as Help to Buy, and Shared Ownership to try to feed buyers in at the bottom—and hope that they are not holding the parcel when the whole housing market finally grinds to a halt.

Because here is the point—if no one can afford to buy their first home, then no one can sell their first home. So no one can move to their second home; and second home owners cannot move to their third, etc.

The entire housing market will grind to a halt. We will then face an economic slump that will make the 2008 banking crisis look like a mere bagatelle (although the reasons—a lack of liquidity—will be similar).

And so the government will introduce an exciting new demend-raising initiative such as the Help to Buy ISA, the music starts and the parcel gets passed again. But at some point the music is going to stop...

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