The houses that Jack can’t build

A week ago today an article appeared on the AdamSmith website, authored by Whig, entitled: “The mirage of affordable housing.“. It is, as they say, with respect I have to take issue with some of that written.

Firstly, “affordable housing”and “social housing” is one and the same thing: everybody in the business knows that and knows what they are talking about, so if the writer thinks he is contributing to the debate by stating that “There is no doubt that this confuses the debate…”, he isn’t; he is wrong, there is no confusion.
 
There are few houses being built at present because they can’t be sold, neither to private buyers who can’t get mortgages, nor to housing associations who have no government funding.  Moreover, S106 agreements usually require a proportion of dwellings on a site to be for social housing and, importantly, require the social housing to be sold to housing associations before a substantial proportion of the private houses can be occupied.  Consequently, if there is no-one to buy the social housing, there is no point in starting work on site and building private houses which can’t be occupied.
 
The article states: “Most of the debate over the report actually seemed to concentrate on a proposal to relax local government requirements on developers to build ‘affordable housing’, as this is imposing higher costs on them as they are forced to sell at below market rates.”  Therefore, whoever is taking part in the “debate” doesn’t understand the house-building business.  House-builders know clearly that social houses will be sold for lower prices than private houses; this is taken into account in the price to be paid for land and social housing can therefore be just as profitable as private housing.  Moreover, there are no marketing costs, no uncertainty on timing of sale, no finance costs where housing associations enter into “package deals”, and so when the private market is slow, social housing can enable house-builders to maintain volumes, retain personnel, survive.  The problem is that there is no money for social housing, so a relaxation of local government requirements won’t help because the slack can’t be taken up in the private market.
 
Finally, it is true that the planning system has had a long term adverse effect on building volumes, but the planning system is not the problem right now. As intimated above banks aren’t lending, plus there is another factor which would appear to have escaped the notice of commentators. Those leaving university, who no doubt would dearly love to get their feet on the property ladder are starting out with thousands of pounds worth of debt already hanging round their necks – just how are they supposed to save the required deposits let alone afford repayment of a mortgage?

 


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18 Responses

  1. Antisthenes says:

    As an ex property developer I suggest you do not have a clue as what you are talking about. The key to affordable housing is land prices and relaxing planning laws would go a long way to achieving that goal. As for social housing that is a different matter altogether best left to the likes of housing associations although deregulating planning could make those type of institutions obsolete. Mixing of housing between low and high priced is nothing but social engineering and developers would prefer not to do it but are forced by government to do so.

    • david says:

      While I would agree with you that mixing low and high-priced housing is but a form of social engineeering, might I suggest your views as expressed in the remainder of your comment is probably why you’re an ex-property developer?

      Might I respectfully suggest that you return to my article and read it again – and again?

      • Antisthenes says:

        Social housing and affordable housing in this context is not the same thing. I have re-read your article and I am of the same opinion. Land costs are the only reason and no other why insufficient houses are being built now and at any time. Bring down house prices dramatically and they will sell and banks will lend. As to your comment of me being an ex property developer that is nothing but a cheap shot and says more about you than it does me. You have no idea why I am an ex anything, I am retired perhaps that is a bit of a clue for you.

        • david says:

          On reflection perhaps my original comment was a cheap shot and therefore in the spirit of friendly debate I withdraw same.

          I too am retired and I too worked in the property field and prior to writing my article I took the time and trouble to talk to a friend of mine who is currently involved in the housing business at CEO level – and he confirmed all the points I made.

          Land costs are not the only reason for the shortage of housing as I thought I had intimated – perhaps we must agree to disagree on this point.

        • Peter C says:

          While it is not my place to defend David and I am quite sure he is more than capable of looking after himself, I really must say that to accuse someone of using a ‘cheap shot’ when the very first line of your own comment was, “As an ex property developer I suggest you do not have a clue as what you are talking about” is the height of hypocrisy, not to mention arrogant.

          That said, while you are correct in that land prices and regulation are critical components in regard to affordable house prices, it is wrong to call it the key. High house values are a deliberate consequence of government policy, both regulatory and economic policies. And it is high house values that have driven up land values. If we had a proper and sustainable economic policy in operation we would not have had the low interest, easy credit, who cares about collateral financial circumstances that drove house prices to double their real value, nor would we have the inflated land prices. It wouldn’t have done a lot for property developers either.

          There are, of course other things involved. I have seen reports that suggest were we not to have the levels of divorce and single parenthood prevalent in our society around 15% of housing demand would be eliminated overnight. Even the historical standard whereby many households catered for two or three adult generations in the same property had as many social and financial pluses as negatives as well as reducing housing demand. Then, of course, adding 5 million net immigrants in a generation has put huge pressure on housing demand, especially when the majority locate to already stressed areas.

          There is much, much more to this problem than land prices.

          • Antisthenes says:

            Yes that was a rude remark for which I apologise and yes there are many factors that determine the level of house building. Ultimately though the current planning laws and their effect on land prices are to blame. Bring land prices down and other factors pale into insignificance.

  2. Property prices in London are ridiculous for several reasons, but as Antisthenes says, the primary problem is the price of land, there is a massive sort of doughnut of pretty useless farmland where NO building is allowed… ahem… unless you are a government and you want build a nuclear power station or a nice little earner like an M25 or something.

    Basically, what I am suggesting is that whatever government gets its filthy hands on, it destroys whilst simultaneously not solving a non-existent problem… Mind you, it has made a lot of very rich landowners… councils, dukes and so on, with their green belts.

    Something related was brought to my attention, that I find really frightening…

    After more than a thousand years of relative success for the tort law of trespass, the government has moved in and made squatting illegal… The next thing you know, there will be pigs storming through people’s illegally occupied houses. probably causing more damage than the squatters, and the next thing you know will be all sorts of laws about what sort of wallpaper is hanging, and whether smoking is “allowed” in private homes, because government officials might have to enter your property on “official” business.

    Thin end of the wedge.

    • david says:

      You appear to confuse the price of resale with the cost of new build. The former are based on what anyone is prepared to pay for a certain property, regardless of any professional valuation. In respect new build, I can but refer you to my response to Antisthenes.

      With regard to your last paragraph, in the care home my mother lives residents are assured that their room is their home – but West Bderkshire Council forbids any resident smoking in their room. At present none of the residents do smoke – but one day there will be a new arrival that does. I can’t wait to see the result!

  3. Peejos says:

    In local government the terms affordable and social housing are synonymous and as they hold the key to their provision, nothing can be done about it. True for most people the concept of affordable means that they could manage to buy such a property,but that’s not the reality.

    Local authorities carry out social engineering by rote, nowhere more evident than Rural Exception Sites. These are pieces of land where permission to build would never, ever be granted, yet by encouraging every parish in the country to enthusiastically identify such a piece of land as ‘village homes for village people’, the planning system is circumvented. Even National Parks and Areas of Outstanding Beauty are not exempt; half a dozen new houses in every parish ensures affordable homes to accomodate the general expanding national population, without appearing above the horizon.

  4. Robin says:

    As Peter C says 5 million extra via immigration (I would hazard a guess and say more ).
    This would have a huge effect .
    But has it been a declared government policy ?
    If not , how has it happened ?

    • Peter C says:

      It has been government policy since the 1950s. Yes, I know they all deny it, claiming to be doing everything to control it, that it is out of their hands for this reason or that, it was the other lots fault, blah, blah, blah. However, if that was true immigration would not have risen on average every year from 1945 on. Nor would immigration still have been around half a million a year in the last two years. And quite frankly the present government target of ‘limiting’ immigration to 100,000 a year might be ‘controlling’ it, but is still a policy for promoting immigration to the ultimate detriment of the country.

      • Robin says:

        That`s one good reason for a constitution that forbids civil servants enacting any policy that is in contravention to the declared poloies of any government .
        If a government says one thing , then secretly instructs the civil service to do the opposite , then under a new code there would at least be a law to investigate .
        Likewise if a civil servant decided off his own bat to implement a policy that was in contravention of declared government policy he would be liable to criminal proceedings .
        If a civil servant was instructed by his superiors to implement a policy counter to the declared government policy at least the chain of command could be investistigated until the final culprit is found .
        This is more important than Referism and Direct Democracy cannot exist without it .

        • Peter C says:

          Good point, Robin, but not workable in practice. Take my example above, everyone thought Cameron and his cabal had said they were going stop Labour’s open-ended immigration policies and reduce immigration to the tens of thousand at the most. This was reported as a pledge to limit immigration to 10,000 a year, but the weasel was in the words, ‘tens of thousands’ because the official target is 100,000, not that they have made any significant progress toward that figure. Political sleight of hand backed up by lazy or incompetent journalists safely defuses things while they carry on just as they have before. It is just possible they will create real cuts in the year before the next election to ensure it will all be a non-problem, then they can open the floodgates again after and it will be another decade before people start to make waves again.

          • Robin says:

            Peter I think such a codein the constitution could work .
            Lets take the example of Bulgarians and Romanians who are living and working here openly and without fear of being deprted .
            The Government said and made a law that although the Romanians and Bulgarians are in the EU , they cannot work here .
            So who is isuing them with National Insurance numbers and why ?
            Has a government minister ssecretly instructed the civil servants to quietly do this contra to the stated policy ? Has a very senior civil servant issued orders to those below him without telling the goverment ? Has a middle ranking or lower civil servant been doing this wwithout orders from on high ?
            We ought to know , and have the means to make an authority , maybe the police , investigate and prosecute whoever iss ultimately responsible .(It could be made an offence for miniters to declare one thing but secretly make a civil servant do another ).
            What with open government the days of TPTB acting against us would be severely diminished or even stopped .

            • david says:

              Robin: Good points you raise and it is something that Harrogate will have to address further down the line, but at the end of the day remember that that national constitution and the local constitutions will be subject to public assent at the end of the day – and methinks that with this new found ability to actually partake in politics there will be sufficient of the public that will indeed sort out questions such as this.

              Theoritical possibly, but one that I feel theory will turn into actual!

  5. chris edwards says:

    Maybe a point is being missed here, there is an economic disaster looming and house prices will need to adjust downwards by a huge amount, the job market is drying up, England hardly makes anything any more and about half the country works for the government one way or another. Affordable housing is always there for people who want to work and save, forget university, the easy get degrees are worthless and they need to cut back uni places by more than half and make degrees mean something again. Affordable housing seems to be an euphemism for cheap, I knew so many who bought their council homes at 60 to 80% discount but only knew one who did not spend the equity and land up back in rented, so I doubt cheap housing has any real value!

  6. Andy Baxter says:

    Great stuff guys…….

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