Why Javid and Hammond have got it wrong on the housing crisis

By Charlie Richards

  • Phillip Hammond has just pledged that under the Conservatives we will start to see a stripping back of austerity – promising to spend more and invest funds into vital areas of the UK economy.
  • In line with the Chancellor’s sentiments, Sajid Javid (Communities Secretary) promised that the Tories will introduce the “largest state-backed” housing program since the 1970’s – spending £5bn with a view to build around 200,000 new homes.
  • However, with experts suggesting that we need around 300,000 new homes a year to keep up with demand, the policy falls woefully short of what is needed.
  • To get serious about the housing crisis, the government must allow the private sector to function properly by repealing restrictive regulations for planning in key areas – not by borrowing.

“A country that works for everyone”. These are the words at the forefront of the current Conservative Party Conference (CPC), and the new(ish) Conservative government. Life after Cameron is starting to take shape for the Tories – gone are the days of ‘deficit hawks’ Cameron and Osbourne, talking of cuts and austerity. Now we have Hammond and May’s ‘fiscal discipline’, with talk of ‘sensible’ and ‘informed’ investment.

In contrast to their predecessors, this new-look Government is getting behind the idea of spending to grow the economy, with Hammond scrapping targets for deficit reduction as well as jettisoning the idea of a surplus by 2020. Austerity has become the bogeyman of UK politics in the past decade, and the Conservatives seem very much aware.

Following on from these sentiments, Sajid Javid (Communities Secretary) outlined plans for a huge, government-backed, investment into new housing. In his plans, Javid announced the Government would be putting £2bn into the ‘Accelerated Construction’ scheme – encouraging firms to build on publicly-owned ‘brownfield’ land – as well as pumping £3bn into the Home Building Fund, a fund providing loans to developers.

All in all, we should see around 200,000 new homes within the next 10 years. This sounds good but is this enough?

The short answer is no. Even though this is fantastic political posturing by the new-brand Conservatives, it doesn’t hold up when you look at the numbers.

A mixture of rising house prices and a stagnation in real wages means that it is becoming increasingly difficult for people to get on the housing ladder.

The reason for rising house prices is simply a cause of market forces – the demand for housing greatly outstrips supply, with experts suggesting that to compensate we need to be building around 300,000 new homes a year. A little way off the 200,000 new homes a year that Javid is proposing.

The Conservatives are clearly trying but I feel that they still have a way to go on this issue. Instead of trying to spend their way out of a crisis, it would be more efficient to relax laws surrounding development and encourage private investment.

Planning permission is hard to achieve in areas that don’t need homes and impossible to achieve in the areas that do. Take London for example; the average house price in London is £500,000, compared to the national average of £272,000 – the high price being a signal by the market that supply is too low.

In this case houses should be built, bringing the price back down, but due to fears of London growing too big, regulation has been introduced to halt new development. Disastrously, this leads to a vicious cycle of ever higher prices and ever lower prospects of home-ownership.

A prime example of this type of restrictive regulation is the ‘green belt’ – the area around London that is protected from private development. The zone covers over 60,000sqkm of land surrounding London, many of which is prime to become part of the commuter belt. However, due to the desire for urban containment, the land remains untouchable for developers.

If deregulated and auctioned off, the land would not only generate an immediate income for Government, it would also help us reach that magic number of 300,000 new homes a year. Not only that, but the freeing up of land would lower the price of land overall, attracting investment elsewhere.

So, if the new Government was truly committed to being pragmatic about housing, it would ditch the attempts to subsidise developers and focus on letting the private sector function as it should.

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The views expressed in this article are that of the author and do not necessarily reflect the views of Conservatives for Liberty