We must build more homes – but how?

When Ed Miliband announced Labour’s aim of building 200,000 homes a year by 2020 in England last September, the Financial Times reported that housebuilders had called it a ‘wild’ plan and that the party ‘fails to understand how real markets work’. So the task for everyone who wants to see the supply of new homes radically increased is to prove it can be done and set out practical steps to achieve that target within the lifetime of the next government. The Lyons Commission, of which I am a member, has been asked to prepare a road map to reach that target.

I believe the target of 200,000 homes a year is not only achievable, but absolutely necessary if we are to address our national housing crisis. However, it’s not going to happen just by talking about it; there will need to be a massive and concerted effort. Yes, targets can be criticised; it’s not enough, it’s too much, it’s too much of a focus on numbers and not enough on quality and so on. However, I think in this instance an end goal brings focus and attracts attention, and that’s important when we have so much to do.

But is it the right one? While some may say it’s unrealistic, others say it isn’t enough. After all, we’re expecting 221,000 extra households each year in additional demand to 2021.The last time English housebuilding topped 200,000 was in 1988. We have to go back 30 years to find a period when that target was being achieved regularly. We’ve now had four years when output has been only a little more than half that figure. So the obstacles facing even a 200,000 target are formidable. Providing we get the mix right, reaching it will be a very significant achievement – but we must regard it as a staging post to a sustained and higher output in the future.

There are several key issues we need to tackle. On land, Labour’s plan to penalise those holding onto land with planning permission is an interesting suggestion, and we could also look at the International Monetary Fund’s call for Britain to reform its property taxes, including increasing tax on vacant land. Both would need careful design and testing if they were to be taken forward successfully.

It’s also clear that we need new players in the housing market. Getting the numbers of homes we need in the right places will require all our current delivery models doing everything they can. But this alone will not be enough: we need to look at new and different delivery options too. Ideas we could explore include changing ‘Help to Buy’ to ‘Help to Build’, for example, guaranteeing finance to new entrants to the market to get them started, and looking to restructure the market to increase the number of small developers.

When it comes to the supply chain, a comprehensive range of government policies to boost supply for boosting supply in the longer term will help to provide confidence that the demand for products and skills will be sustained.

It can’t be right that private renting has grown so rapidly with virtually no investment in new homes. The coalition’s £1bn rolling fund to support schemes for institutional investment is set to support the building of 8,000-10,000 homes in its first phase, which looks like a sensible policy intervention. The Montague Report made some interesting suggestions about using the planning system to build in a commitment to homes being available for rent into the longer term, and the Chartered Institute of Housing (CIH) has called on the government to look at incentivising higher standards through creative use of the tax reliefs available to private landlords.

Building the right mix of house size and tenure is vital. There’s no point in more building if all we get are four-bed executive houses for sale. Much has been made of the obstacles supposedly created by section 106 requirements, where developers have to make a proportion of the new housing ‘affordable’. But we should remember that a decade ago a very substantial proportion of new housing association homes were coming via planning gain. So those arguing that it stops housebuilding need to be asked – why didn’t it 10 years ago? We should restore section 106 requirements and insist that planning authorities should be able to require a proper mix of houses, tenure and price range. Properly constructed 106 agreements can give builders certainty and help generate valuable cash flow.

Financing government grants to support the development of new homes is also crucial. Currently £23.5bn a year is spent on housing benefit and only £1.5bn on capital support. Without new homes, housing benefit is just subsidising rents, with no guarantee of increased supply, especially in the private rented sector. The current investment model for affordable housing is not sustainable in the medium to long term, if we are to increase the supply of housing across all tenures. And the early evidence of lettings at affordable rent is that tenants are even more dependent on housing benefit.

In the view of CIH, grant-led subsidy for social housing is essential. While affordable rent may have a role, it can’t do the same job as a social rent building programme, not least because the homes produced can be hard to afford especially for working households on low incomes. More generally, local councils could also have a bigger part to play. They could build an extra 12,000 homes per year if the borrowing caps imposed on them were to be raised or removed.

In addition, we need to look at the potential role of new towns and garden cities. To get effective long-term supply that builds towards balanced, environmentally sound communities, new settlements or major extensions will be essential but there is much to be learnt from past experiences. Finally, it is down to everyone in the industry to make the economic case for investing in housing. Housing drives growth with a speed and effectiveness that few industries can match. Every affordable home built creates 2.3 jobs in England and generates an additional £108,000 in the wider economy. Every £1 invested in new affordable homes generates an additional £1.41 for the wider UK economy.

The scale of our task is clear. If we are to build the homes and places that Britain needs there is much to be done. There is no silver bullet, but the alternative, a continuation of the misery produced by the housing crisis, and the drag on our economy that it produces, is simply not an option. Instead, we must see the target of building 200,000 homes a year as a stepping stone towards a longer-term ambition; to get to a place where we are actually building enough homes to house everyone decently and affordably in places where they want to live. Surely this is not such an outlandish aspiration?

Grainia Long is Chief Executive of the Chartered Institute of Housing and a member of the Lyons Commission. This piece first appeared in the Fabian Society pamphlet “How Labour can change Britain“