When ministers come up with a bright idea to promote home ownership, it’s usually time to worry. David Cameron has written for the Mail on Sunday today and it says that, on Thursday, he will detail yet more policies to help the housebuilding industry. CoffeeHousers will be familiar with the argument: England needs 230,000 extra homes a year to meet demand but only 124,000 homes were completed last year. This is holding back the recovery. The market has failed, so government must step in. In his article, the Prime Minister presents Nimbys as the main problem and takes aim at them.
‘A key part of recovery is building the houses our people need, but a familiar cry goes up: ‘Yes, we want more housing; but no to every development – and not in my back yard.’ The nations we’re competing against don’t stand for this kind of paralysis and neither must we.’
Two of the nations we’re competing against, Ireland and Spain learned the hard way that the idea of building lots of houses to stoke the economy is an illusion, the economic equivalent of the Penrose Stairs. It makes sense on first glance, but not on further inspection. Both countries, new and half-built property is everywhere, memorials to the years of hubris. The objection in Britain is not ‘not in my backyard’ but more ‘the market is midway through a crash, why would we build now?’
Britain’s biggest housebuilders already have land with permission to build almost 300,000 homes but they’re not doing so. A large part of the reason why is that, like many companies, they are holding on to their cash thinking that worse is still to come. When governments try to rig this market, unintended consequences usually follow.
House prices are holding up okay in London, where our policymakers live and work. But outside, property prices are falling and have been for a while. This does not seem to be properly appreciated in Whitehall where plans to ‘help’ first time buyers continue. But why should government coax young people into a falling housing market? When you add the impact of inflation, and also that QE has also artificially inflated assets (according to the Bank of England) the real fall of UK housing market is more striking still.
So Cameron ought to be wary of the superficially attractive plan to boost housebuilding. It is easy for him to be deceived. Governmental attempts to buck the property market, using subsidy or artificially cheap debt, is what got us into this mess. Ask George W Bush how his sub-prime policy worked out for America. When the UK recovery comes, then so will the houses, helped by the bold and necessary planning reforms already enacted by Cameron’s government. But he can’t speed this along: if he tries to, it will end in tears.
PS: The planning approval the Prime Minister should be worried about is those for free schools. In the opening paragraph of his piece, he says:
‘Hundreds of new Free Schools and Academies are opening every year,’
If only. The real figure is 68: the Academies are simply changing their name. It is, to me, worrying that the PM gets this wrong. There ought to be hundreds opening, we need 400 a year to keep up with the rise in pupils. But mainly due to the Nimbyism of government, these schools are not being given the permission they need. They are opening in their dozens, not their hundreds – and this one property problem that government can fix.
PPS: Ruth Porter from the IEA emails to say that government’s affordable housing regulations are also a factor holding Housebuilders back. She cautions that the 300,000 figure can be misleading as ‘in some areas of the country they are sitting in them because they need a pipeline and planning so restrictive future permissions are uncertain’.
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