Lord Best: UK risks being held to ransom by 'too big to fail' housebuilders

Posted On: 
11th January 2018

There is no sign that housebuilders will double their output and enable government to hit its new target of 300,000 new homes a year, says Lord Best.

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For about fifty years the private sector housebuilders have built something in the region of 150,000 homes a year. There is no sign that these firms will double their output and enable government to hit its new target of 300,000 new homes a year. Indeed, it is not in the interests of this industry to end the scarcity of homes that has driven up house prices: the stock market valuation of Britain’s largest housebuilders rose by 342% over the five years to 2013 while housebuilding nosedived to a post-War low.

Moreover, the shape of the industry has changed since the banking crisis: the SME builders have seen their market share drop from about 37% of new homes to around 12% today. There are just half as many small and medium sized builders as there were ten years ago.

Not only is it crystal clear that private sector housebuilders will never get us anywhere near the 300,000 homes we need, but dependency on this sector now means relying on a very small number of huge firms. And this oligopoly brings the danger of the “too big to fail” phenomenon that means we can all be held to ransom.

Sadly I believe most major “volume” housebuilders have let us down. Too often the companies appear to do whatever it takes to secure the land, often concentrating on pristine greenfield sites. They then promise plenty of affordable housing and developer contributions, but, once planning consent is granted, they then renege on agreements made: in particular by reducing drastically the number of affordable houses previously pledged. They are accused of using bog standard national pattern-book designs, unsympathetic to local circumstances; of shoddy workmanship and poor customer care; of the scam of selling houses on a leasehold basis with fiercely escalating ground rents; and of building out only at the speed that maintains prices at inflated levels.

Productivity in the industry remains very low with a chronic lack of investment in modern technology or new materials. There is a disgraceful rejection of the need to replace the ageing indigenous workforce and train a new generation, instead relying heavily on imported labour – which may well be a scarce commodity post-Brexit.

Government is responding with a range of measures to support alternative providers: to bring back those councils who are up for it, as direct housing providers; to boost further the output of housing associations; and by giving life to the more specialist providers like Community Land Trusts, custom housebuilding projects and a new generation of Garden Town Development Corporations.

There are also a range of new measures to bring back the smaller, local housebuilders who are well suited to handling small sites and more specialist schemes.

I am recommending that funding for these alternative routes to building new homes should come from government phasing out its multi-billion-pound Help to Buy subsidies. When government announced its £10b extension of the scheme it put nearly £1bn instantly onto the share prices of the big builders, reflecting a view in the City that these subsidies help builders more than buyers.

It is obvious that our planning system is frustratingly under-resourced. Higher fees and some grant aid to planners should now help but central government needs to be supportive of resolute behaviour by local councils, in particular using the review of the National Planning Policy Framework to abolish the specious “viability” test that is the subject of widespread abuse. My recommendations support the government’s Public Sector Land programme but go further in proposing that first option on all such sites be given to those who can offer added social value. A revival of – hopefully streamlined – compulsory purchase powers is needed too.

Finally, the recommendation for a New Homes Ombudsman to handle the catalogue of complaints from consumers needs progressing. But if this Ombudsman is to stand up to the mighty housebuilders, they will need sharp teeth and proper resources.

Lord Best is a crossbench peer in the House of Lords

The National Federation of Builders have responded to Lord Best saying: "It is extremely positive to see Lord Best identify smaller, local housebuilders as part of the solution to the housing crisis". Read their full comments here