Why we aren’t building enough houses to meet demand

We aren’t building enough houses, on that everyone seems to agree.

Two quick points to make on that. First, London is different. There, we seem to be in process of building more than enough. I’ve added the numbers up here before, but just to illustrate I have had another press release in this morning from property development group Ballymore.

It’s got three whopping schemes underway. There’s Arrowhead Quay in Canary Wharf; Phase II of London City Island on the Leamouth Peninsula; and Phase II of the “hugely successful” Embassy Gardens in Nine Elms. All in all, the three will create some 3,000 new homes and 250,000 sq ft of commercial, leisure and office space.

Add this lot to the other projects we’ve mentioned in the last year and it is clear, as one reader said to me this morning, that far from being a building desert, London is “seeing its greatest transformation since the Great Fire of London”. Not long now and there should be no supply problem there (assuming everyone wants a two-bedroom flat in a high rise).

So what of the rest of the country? The story we hear most often is one of dismal planning laws and land-banking housebuilders. But as another reader pointed out last week, it isn’t that simple. In fact, councils approve nine out of ten of the applications they receive. But some 400,000 homes in the UK that have been given planning permission have not yet been built. Why?

Ask a developer and he’ll tell you it’s about infrastructure. Getting permission is the easy bit. Negotiating to get a water supply and the like to a new development at a price that doesn’t wipe out your profits is the hard bit. Any reader expertise on this would be very welcome.

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39 Responses

  1. 20/05/2014, mr clyde wrote

    When the price of land with planning permission is anything like the same as the price of land without PP, then maybe I will consider the bleatings of hard-up developers.

  2. 21/05/2014, Tyler Durden wrote

    I’m getting slightly sick of this ‘not building enough homes’ rubbish. We have a sever flooding problem in this country that people have simply conveniently forgotten about. We also have over a million homes in this country that have been abandoned by local authorities in order to deliberately restrict supply.

    If we don’t have enough homes it has been engineered that way and there are simply too many people. As to what the demographics are in that is left as an exercise.

  3. 22/05/2014, mr clyde wrote

    I’m inclinded to agree. I’m not an expert, but it seems to me that the problem is not so much not enough property, but not enough in London at a price considered acceptable by ‘hard-working families’. Round my way there is plenty of property for sale starting at under £100k, but, judging by the demand for BTL, people still appear to prefer to rent rather than buy.

    • 22/05/2014, Greg wrote

      I don’t believe people prefer to rent rather than buy – ASTs provide little security of tenure and tenants cannot make a house a ‘home’ – it’s more a case of those with equity/savings are in a better position to BTL than FTBs – because of difficulty FTBs face raising deposit and Stamp Duty and they can no longer benefit from the interest only mortgages BTL purchasers enjoy (together with all the tax advantages). If BTL was scrapped average house prices would be more in line with average incomes and more people would be able to afford to buy their own home.

      • 22/05/2014, mr clyde wrote

        Greg – obviously you have expert knowledge – please explain why I had absolutely no interest in the purchase of my flat recently, whilst there was a queue of people down the street wanting to rent it!

        • 23/05/2014, Greg wrote

          Perhaps the estate agent wasn’t actively promoting it, or maybe it didn’t provide a suitable yield/potential for a BTL investor and/or was too expensive for FTB to afford to purchase?

          • 23/05/2014, mr clyde wrote

            Ans.. I was selling on a yield of 6% which as you suggested was too low for a new investor. However any one of the many interested tenants could have bought it on a 95% mortgage and saved money… but they chose not to. The point I am making is that, contrary to the assertions made by the anti BTL brigade, there is substantial, legitimate rental demand out there – they are not all bitter, frustrated would-be buyers being defrauded out of their entitlement.

            • 23/05/2014, Greg wrote

              I’m not surprised many wouldn’t wish to buy an over-priced home – virtually all housing is currently over-valued…. and as a FTB I would not wish to get involved with the Govt’s ridiculous “Help-To-Buy” scheme which does nothing to HELP FTBs as it simply drives up demand and hence the cost of housing at could place them in a very difficult position in a few years’ time. There may be demand for rented accommodation but by choice most tenants would prefer greater security of tenure and the ability to make a house a home – and I’m also pretty sure that most people who are currently forced to take ASTs would rather be able to purchase a home. Notice my emphasis on the word “home”?

              • 23/05/2014, Greg wrote

                NB I am not a FTB – I’m lucky enough to own my own home. I’m OK with people adding value to their houses but I don’t think Govts should be encouraging speculation and BTL landlords – instead they should be building more council homes, encouraging new private housing development, including self-builds and getting companies to invest pension plans and profits into residential property with new long term tenancies and greater security of tenure for the tenants.

                • 23/05/2014, mr clyde wrote

                  I don’t disagree with a lot of what you say. I even agree absolutely that the government shouldn’t be encouraging speculation but demonising BTL is not the answer. I too own my own home but am working away on a detachment. I am renting out my home and renting somebody else’s. In my view the BTL market is an absolute necessity.

                  • 23/05/2014, mr clyde wrote

                    PS. The bloke who until very recently was renting from me was a university prof on a short term contract living away from home and extremely grateful to have my place. And so it goes on…

                    • 23/05/2014, Greg wrote

                      I disagree – I don’t demonise BTL investors, but I blame the Conservative Party for all their flawed housing policies – Right To Buy, Buy To Let and now Help To Buy. I believe BTL should be scrapped as it creates additional demand, drives up prices and forces those who would have otherwise bought into short term tenancies owned by others (who were fortunate to have joined the “property ladder” when houses were much cheaper) and as demand increases and more are forced into rented, rents go up and we, the taxpayers, end up subsidising/paying private landlord mortgages via housing benefit – that money would be better used paying for council homes. Also BTL mortgages are abused – they are used to purchase main homes in order to get the loan required (interest only- but effectively a sub-prime loan), also to purchase second homes/holiday lets and property to develop – the purchasers never intend to let them to long term tenants.

  4. 22/05/2014, DeeBee12 wrote

    The landed class will continue to sit on land in the UK with no incentive to do anything with it. They will continue to collect subsidies both direct and indirect for doing so. They will also continue to be in many cases anonymous. They will also use this collateral to secure credit to buy up any surplus stock in the available (productive) inventory.

    People will continue to borrow beyond their means to take a tiny sliver of the remaining land inventory. Until they max themselves out or are prevented by doing so by credit supply.

    Easy way around this. If you own any form of land, pay tax on it. Use it or sell it to someone who will.

  5. 22/05/2014, Greg wrote

    Infrastructure is no excuse. Developers release land for development and plots carefully to ensure maximum prices are achieved. This is why Government should be purchasing land outlined for development at agricultural prices (plus some compensation) and auctioning it to developers and self-builders, and a Land Value Tax would deter land banking as it would eat into profits.

    • 23/05/2014, mr clyde wrote

      Greg – perhaps you would be happier in Zimbabwe, land-theft by the government is already legal there. On a more serious note LVT is a very bad tax as are mansion tax and stamp duty simply because they try to tax potential gain in the future and therefore become conditional and create loopholes. On the otherhand Income Tax, CGT, Corp tax and even VAT tax gains that have already been made and therefore can be correctly calculated and collected from existing liquidity. I would suggest VAT on all new-builds and CGT on all land and property sales would be a lot simpler and universally difficult to avoid.

      • 23/05/2014, Greg wrote

        I’m not talking about “land theft” – the landowner would be paid its value plus compensation but not the windfall created by the council allocating the land for housing/development. LVT would be INSTEAD of many of the existing taxes – it would be much fairer – why should a private individual benefit from a windfall created by public expenditure for example in new infrastructure? All that your taxes would do is seize up an already flawed property market – VAT and CGT would simply make housing even more unaffordable and discourage people from moving.

        • 23/05/2014, mr clyde wrote

          No it wouldn’t. Which is the point I was making at the top of this post. Example: A farmer has a acre of land agricultural worth £10k. A developer decides he can get PP and sell the houses for £1m and make a decent profit if he can get the land for £250k. But now he has to pay 20% VAT (£100k) on the sale of houses so only offers £150k to do the same deal. Farmer still makes £140k and pays £56k CGT. So farmer makes a profit, houses get built at no extra cost, and Gov gets £156k to subsidise public housing. No new taxes – simples.

          • 23/05/2014, mr clyde wrote

            Oh yes – and because we have abolished stamp duty a FTB on a limited budget has a better opportunity to buy one of those houses and won’t have to pay any tax until they actually make something out of it i.e. when they pay CGT (if any) when they sell.

            • 23/05/2014, Greg wrote

              I don’t believe homeowners should be taxed for improvements – as I mentioned before I feel it would discourage people from being creative and improving their homes and the aesthetics of the neighbourhood. If people were taxed when they were to sell they might think twice about removing ugly stone cladding or uPVC windows on a Victorian terraced property, for example – or might think twice about selling which could restrict the supply of second hand homes. I don’t agree with Stamp Duty either as it’s effectively paying for someone else’s Capital Gain, can restrict demand and the banding distorts the market – that’s why a favour a Land Value Tax – it’s based on the land not the buildings and it encourages the most efficient land use and people to be as creative as they possibly can to maximise value without being taxed anymore for it.

              • 24/05/2014, mr clyde wrote

                Home owners are already taxed for improvements, they pay VAT – new builds do not. Which is one of the reasons green fields are a lot more attractive than renovation projects.

                • 24/05/2014, Greg wrote

                  I do not agree with taxation on expenditure – I would rather see VAT scrapped – as it is many pay cash to avoid it. Better if the amount that would be raised was included in the LVT.

          • 23/05/2014, Greg wrote

            My point here is where planners decide where housing is going to be allocated – by doing so the planners increase the value of the agricultural land (not the speculative developer) – neither the developer nor the land owner should benefit from this “windfall” – it should go back to the community – the money raised would pay for new council homes on the developments and/or help pay off national debt.

            • 24/05/2014, mr clyde wrote

              I agree and with VAT the planners gain a substantial % of the subsequent gain in the value of the land when the houses are sold. I made a error in my math – in my example with vat @ 20%, and a gain of £240k, the farmer would get £40k on which he would pay CGT and the gov would get £200k 0f the ‘windfall’ – isn’t that enough for you? If you start charging LVT just because someone has some land how do they pay unless it is productive? and how do you know what its value is if it isn’t in the market? And why should someone have to pay tax because they choose to own land instead of a work of art for example? LVT is a bad tax.

              • 24/05/2014, Greg wrote

                You do not understand how it would work – that is the point of LVT. LVT would encourage land to be used productively (that would be governed by the planning system) and efficiently, so if land is allocated for housing and the owner chooses to do nothing with it he would pay a higher rate of tax which would encourage development of the land. If it’s agricultural it would be subject to hardly any tax – and land which could not be used for anything other than amenity would not be taxed at all. It would be relatively straight forward to determine the value of land based on Land Registry prices – what other land has fetched. Why shouldn’t people pay tax for owning land? It is far better to tax land than anything else – LVT is the best tax that does not affect the market like any other taxes and was advocated by Adam Smith, Winston Churchill and many others. http://www.landvaluetax.org/what-is-lvt/

                • 26/05/2014, mr clyde wrote

                  I understand exactely how LVT works and by your own description it is in effect State confiscation of land. I give up!

                  • 28/05/2014, Greg wrote

                    I don’t think you do, because that is not what it is at all – why would a free market economist like Adam Smith advocate such a tax if that was the case?

                    • 10/06/2014, ChrisF wrote

                      Not to mention John Stuart Mill, Galbraith and Milton Friedman !

  6. 22/05/2014, Kent man wrote

    Seems a bit of a strange excuse, big developers must arrange services all the time. When they buy a parcel of land I would be rather surprised that they hadn’t already checked out where existing adjacent services are. Therefore they should have a good idea of likely connection charge when they buy. Whilst some sites may come in rather higher than average, others should come in below.

    • 23/05/2014, Angela wrote

      Part of our problem is our reliance on big developers to provide housing. The local authorities and their planners strongly prefer big developments because all the infrastructure problems are in the lap of a single provider and they do not need to get involved beyond overseeing compliance.
      The vast numbers of houses built in the UK in the mid 20th century were built by lots of small builders. As the big developers gradually came to dominate the industry the numbers of new homes dwindled markedly.
      So we now have a situation where Planners loathe small developments, and big developments provide over-developed rabbit hutches barely fit for human habitation, at enormous prices.

      • 23/05/2014, Greg wrote

        I concur Angela. Plus there is no incentive for developers to be creative with design and aesthetics – the legacy will be one of the most boring periods of architecture in history…

        • 23/05/2014, mr clyde wrote

          Ah yes – but one person’s aesthetic is another person’s eyesore! I agree that the current planning system is a major impediment to improving the country’s housing stock, but this is a different issue to the rational taxation of property.

          • 23/05/2014, Greg wrote

            Agreed aesthetics is subjective, however because of the lack of self builders and small developers being able to put their stamp on a development most new estates are bland and boring – and even if they try to add “character features” to make them look old they are usually not historically accurate and look odd! You cannot honestly say that pastiche architecture is a good legacy to leave behind?

  7. 24/05/2014, mr clyde wrote

    I’ll let someone else argue about aesthetics and pastiche architecture.

  8. 24/05/2014, Cross Country wrote

    I think everything is far too centralised on London and the south-east. I would move all public sector jobs that did not absolutely need to be in the south-east to other parts of the country, where I believe there is far more affordable housing.

    I’m also in favour of modern, affordable high-rise city centre developments, where possible. We should have learnt a lot by now from the mistakes of the 60s and 70s.

  9. 24/05/2014, Realist wrote

    I’m also in favour of high-rise city centre developments……the more people they keep in the cities and out of the country, the better.

  10. 24/05/2014, Realist wrote

    Obviously the BTL is a lucrative business, which is why the government should be building houses, renting them out and paying off the national debt, instead of the BTLers sitting back, taking the money and not contributing to the ecconomy.

  11. 10/06/2014, ChrisF wrote

    Might it be the case that people are beginning to realise the prices have maxed out, and that it’s likely to be downhill from here ? I’m currently renting in central London, and while I have a sufficient amount of cash to put down a deposit on a new place, I think anyone buying at these levels is taking a very large risk… it’s hard to see what’s going to drive prices higher from here. Far safer (imho) to wait for the inevitable reversion to mean and snap up a bargain in a few years.

    • 10/06/2014, ChrisF wrote

      Grrr, sorry, that was in reply to Mr Clyde’s question, “please explain why I had absolutely no interest in the purchase of my flat recently ?”

  12. 13/06/2014, Paul wrote

    It’s clear we need more housing, we don’t have enough for our own population let alone 1000′s of new immigrants coming in.

    However, London builds many new properties but these are being snapped up by wealthy investors many of whom come from China and Russia etc plus Buy to Let investors for their own financial gain. These properties are taken out of the available stock plus they are so expensive, it does nothing for our own property market except increase the mean average price. It also increases rents to the unaffordable levels we see.

    Who ever dreamt up a HLB scheme that allows buyers to buy £600k homes with an average income in London of £81k was plain daft it’s those on lower incomes who need help?

    No doubt introduced to gainTory votes in the next election!

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