CONSPIRACY theories about the death of Princess Diana perhaps excepted, Britain’s tabloid newspapers like nothing more than house-price stories. They have plenty of material. The housing market, which slumped in the financial crisis, is at last picking up. In August official statistics showed that prices have increased by 3.1% overall in the past year, and by 8.1% in London. Shortly afterwards, the Council of Mortgage Lenders announced that gross mortgage lending had increased by 29% in a year.
Unusually, though, this has brought little celebration. Instead there is lots of muttering about the wisdom of a government scheme announced in March by George Osborne, the chancellor of the exchequer. “Help to Buy”, which guarantees mortgage borrowing for housebuyers, may inflate prices and prove hard to unwind. Interest rates have already been pushed down by “Funding for Lending”, another government scheme. The worries are justified. Yet the Treasury’s policies should be judged largely on whether or not they stimulate new building.
Britain needs more houses. Thanks to a baby boom, immigration and the fact that more people are living on their own, the number of households in England alone is rising by roughly 230,000 per year. And yet the number of new homes built in England in 2012 was just 107,820, the lowest figure since before the second world war. Those that are built are tiny: since the 1920s the size of the average new house has halved, reckons the Royal Institute of British Architects. They are unusually costly, too. Per square metre, housing costs more in London than anywhere else in Europe except Monaco.
Construction, which accounts for 6.3% of GDP, has fallen far more than services and manufacturing since the financial crisis. Boosting house-building would help nudge the economy along. And yet forcing up supply is remarkably difficult. Between 1995 and 2007 real house prices in Britain rose by far more than in almost any other developed country (see chart 1). But private building peaked at just 192,170 a year in 2007 (see chart 2). Many of those were gaudy flats, built in places where few people want to live. High prices redistributed money from first-time buyers to downsizers and speculators, but achieved little else.
Rising demand seems unlikely to push construction even to pre-recession levels any time soon. Some marginal sites will become viable, and some builders will bring forward construction on existing sites. But even with cheap mortgages, many people still cannot afford new homes. Adam Challis of Jones Lang LaSalle, a property consultancy, reckons that the net effect will be perhaps 10,000-15,000 more homes this year than last.
The real problem is not a shortage of demand but a shortage of suitable land. Thanks to Britain’s strict green belts, developers are all but banned from building on the fringes of big cities. New construction on fields means getting planning permission from local councils, which, thanks to fierce NIMBYism, mostly do not want to give it. In some places—around London or near Oxford and Cambridge—land with planning permission can cost 200 times more than agricultural land.
That forces developers onto ever more marginal “brownfield” sites. The Ebbsfleet Valley development in Kent, where planning permission has been granted for 10,000 homes on the site of a former quarry, illustrates the difficulty of getting such projects going. The site looks like a moonscape, pockmarked with craters, and yet it is full of rare wildlife which will have to be moved before building. There are few shops or restaurants nearby. Even after much wrangling, the developer must pay around £25m ($39m) towards infrastructure. Unless prices skyrocket, not much will be built there soon.
The government’s planning reforms, passed last year, ought to force councils to release more land. Nick Boles, the planning minister, says that to judge by the squeals of protest they seem to be doing so. Yet he admits that the effect will be slight. That may be just as well. Even if it were politically possible, flooding the market would wipe out many existing housebuilders, who are sitting on still unrealised losses on land bought before the economic crisis. New projects would take time to begin, and existing ones such as Ebbsfleet Valley would become even less viable.
That leaves two sorts of solution: modest and visionary. Mr Boles reckons that making it easier to turn offices, shops and agricultural buildings into housing could add 10,000 homes per year. Encouraging councils to make it easier for people to build their own homes, as happens in Germany, could add a few thousand more. Shelter, a housing charity, adds that councils could build 12,000 more social homes per year if a cap on their borrowing was lifted. The government has so far rejected that option.
Lord Adonis, a Labour politician, is keen on the idea of building whole new towns. By buying up land at agricultural prices and then selling it to developers, the government could extract value to pay for infrastructure. The Conservatives and Liberal Democrats are keen on new towns too, in theory at least. Ed Balls, the shadow chancellor, proposes subsidising 100,000 new social homes. Alex Morton, a researcher at Policy Exchange, a think-tank, proposes neighbourhood votes on whether to auction agricultural land for building, with the profits used to soothe NIMBYs.
Sadly, the more likely outcome is a long slog. If planning reform gradually increases the supply of land and the government succeeds in managing demand so that prices remain at least stable, then, in time, housebuilders will invest more. Only then might Britain’s tabloids be able to write about a construction boom rather than another leap in house prices.
This article appeared in the Britain section of the print edition under the headline "Road blocks"
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