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?