Building More Homes (Economic Affairs Committee Report)

Lord Sharkey Excerpts

Thursday 2nd March 2017 Lords Chamber

[Lord Sharkey (LD)]

My Lords, it is a pleasure to follow the noble Lord, Lord Forsyth, and I enthusiastically endorse his comments about making a Cabinet Minister of Gavin Barwell. I too am a member of your Lordships’ Economic Affairs Committee which, under the exemplary and firm guidance of the noble Lord, Lord Hollick, produced the report we are debating.

The report’s conclusions were in fact straightforward: that the housing market is obviously in crisis, and has been for a long time; and that the crisis is getting worse. In many areas of the country, people have no realistic prospect of being able to buy their own home. The UK-wide ratio of house prices to average income stands at 8:1 and prices continue to rise, last year by 7%. This morning, the IFS forecast that average incomes will not in fact increase at all over the next two years. It is not surprising that home ownership levels are in steep decline, especially among young people. As others have pointed out, the key reason for this is the lack of supply. There is not enough private housing, not enough housing association housing and effectively no local authority housing.

The committee’s report examined this failure to build and other aspects of the housing market. We concluded that it was vital that local authorities returned to building at scale and across all types of tenure. We made other recommendations to do with the planning system, the use of public land and the use and taxation of existing housing stock. These were all important and, we believed, helpful recommendations but we were clear that:

“Local authorities and housing associations must be incentivised and enabled to make a much greater contribution to the overall supply of new housing”.


We then said:

“Without this contribution it will not be possible to build the number of new homes required”.


Since the early 1960s, the private sector has on average built around 150,000 new homes annually. We saw no reason for the private sector as currently incentivised to increase its output. The builders made it clear to us in evidence that they are margin maximisers and not volume maximisers, for entirely understandable reasons, as the noble Lords, Lord Hollick and Lord Forsyth, have explained. This means that there is a significant supply gap that must be filled by the public sector. Housing associations can and do build around 50,000 new homes in a good year, which means a gap in supply of around 100,000 homes if we are to reach the recommended target of 300,000 per annum. That gap will have to be filled by the public sector.

The Government’s response to our report came in two parts, as the noble Lord, Lord Forsyth, has mentioned. The first was a preliminary and rather sketchy response; the White Paper was the substantive response to our report and it has a promising title, Fixing our Broken Housing Market. That blunt title and its acknowledgement that the housing market is broken were encouraging signs and so were the forewords by the PM and the Secretary of State. The Secretary of State said:

“Soaring prices and rising rents caused by a shortage of the right homes in the right places has slammed the door of the housing market in the face of a whole generation”.


That is true. The Prime Minister said of the proposals in the White Paper:

“We’re giving councils and developers the tools they need to build more swiftly”.


That is less obviously true and skirts around the crucial question of volume. Speed and volume are not necessarily the same thing. The White Paper says that:

“The consensus is that we need from 225,000 to 275,000 or more homes per year to keep up with population growth and start to tackle years of under-supply”.


If the private sector and housing associations between them manage to build 200,000 homes a year, the Government have a deficit on their own figures of between 25,000 and 75,000 homes a year. Who will build these required homes, and how? It has to be local authorities. The committee took that view.

We also noted the keenness of some local authorities to build and the obstacles in their way, the chief of which was money. We have the very odd situation where borrowing on the general revenue account is limited only by the well-understood prudential principle, but borrowing on the housing revenue account is generally not available or much more restricted. This means, as others have noted, that local authorities can borrow to build swimming pools but not to build houses—a ludicrous situation, given the gravity of our housing problem. We recommended allowing local authorities to borrow to build social housing, as they can for other purposes. We saw this as the surest and simplest way to increase housing volume. I think that the Government have rejected this proposal, chiefly by ignoring it. They agree that local authorities have an important role in delivering new homes but, in the absence of the ability to borrow on the housing revenue account, this relies chiefly on joint ventures financed through the general account. There is nothing wrong with that; in fact, there is a great deal to like about joint ventures through the general account, as we said in our report. Again, the question is one of volume.

These schemes have so far been disparate and sometimes very small-scale. What volume do the Government think will emerge? How have they modelled this number? What confidence can we really have that this kind of venture will produce the required 25,000 to 75,000 new homes each year and what similar schemes can the Government point at to show that this kind of scheme produces volume results in a reasonable time? These are important questions. Without these additional homes from local authorities, the Government’s housing plan will fail. I would be grateful if the Minister could address these questions when he replies.

The White Paper contains many other proposals, many of them important improvements on the current housebuilding regime. In particular, it recommends a proper assessment by local authorities of forecasting housing needs and requires a plan to show how these needs may be met. This is a very good idea in principle—at least the first bit is, even if I thought that local authorities were already in fact obliged to do exactly that. The second bit, showing how the need may be met, may prove very difficult given the current budget cuts under way if borrowing requirements are not relaxed and joint ventures are the only significant tool available. I welcome in principle, though, the notion of a new housing delivery test. Speaking of local authorities, the White Paper says that,

“where the number of homes being built is below expectations, the new housing delivery test will ensure that action is taken”.

In paragraph 2.49, it goes on to give some detail. The remedy for underperformance seems to be that,

“the presumption in favour of sustainable development in the National Planning Policy Framework would apply automatically”.

That really is quite opaque. Can the Minister explain how this would actually work to remedy a shortfall in building homes?

The section of the White Paper entitled “Helping People Now” reprises the problems with the housing market and recites the grim statistics that we have heard already this afternoon. It goes on to offer help and lists a range of demand-side schemes, which it says will help more than 200,000 people to become home owners by the end of this Parliament. We have seen such schemes before; they have been, in one form or another, a prominent feature of government tinkering with the housing market for a long time. All these schemes have two things in common: they do not address the fundamental flaws in the housing market, and typically help people who are already near the threshold of home ownership over that threshold. On what basis do these schemes provide value for the taxpayers’ money spent? Does not their narrow focus and inflationary effect mean that the money could be better spent on improving supply rather than increasing demand?

All in all, the White Paper is a bit of a disappointment or at least a curate’s egg. It contains some good things but they are all essentially second-order good things. It is not radical; in fact, it is rather timid. We have had a dysfunctional and socially harmful housing market for a long time and it is getting worse. It needs lots of reform, and there is some in the White Paper, but it needs radical reform if we are to bring real and sustainable improvements. What it needs is a lot more building by local authorities. The easiest, most obvious and most reliable way to do this is to relax the restrictions on borrowing on the housing revenue account. It is a pity that the Treasury seems to have prevented that solution going forward. This is a simple measure. It would work and greatly reduce the £9 billion of the housing benefit payment that currently goes to the private rented sector. Without the scale of local authority building that this measure would allow, it will not be possible to build the number of new houses required. That is a missed opportunity and it risks the perpetuation of a huge and socially damaging housing problem.