Budget 2017: what impact will the Chancellor’s plans have in tackling the housing crisis?

The Chancellor has trailed some good ideas ahead of the Budget – but not the substantial reforms needed to address housing shortages

No other issue has received more attention ahead of the Budget than housing. While housebuilding is at its highest rate for over a decade, the net increases of fewer than 220,000 a year last year are not enough to meet the minimum needed to stabilise prices (around 270,000 homes a year).

Tackling this problem doesn’t require “one more heave” from builders or Government, but fundamental reform. In particular, policy makers need to recognise that addressing this issue is not just about building more houses, but taking tough decisions about where they should be built: our growing, high productivity cities, where affordability is lowest. High housing costs are stunting the growth of these cities, creating a drag on the national economy. It is also affecting living standards for residents, and limiting opportunities for people who want to move to them but who can’t afford to.

In recent days, the Chancellor Phillip Hammond has hinted at a few of the measures he will announce on Budget Day to meet his pledge to build 300,000 homes a year – a more ambitious target than set by previous Governments. These include measures to invest in cleaning up brownfield land, helping small housebuilders, stamp duty reform and launching an inquiry into land banking.

But will these measures help to address the housing shortages in our most unaffordable cities? And what other options should the Chancellor consider instead?

Stamp Duty and Taxation

Hammond is said to be considering cutting Stamp Duty for first-time buyers, bolstered by analysis from the Centre for Economic and Business Research and the Adam Smith Institute (ASI) which argues that this is blocking hundreds of thousands of transactions.

Stamp duty is a problematic tax that reduces mobility to growing cities and prevents downsizing by older households, but it is progressive and raises £11bn a year in revenue. Moreover, it is not clear that abolishing it would do much to increase the construction of new homes.

Allowing a specific exemption for first-time buyers is a similar wheeze to Help to Buy – a demand solution to a supply problem, and one that will distort the current market even further. Subsidising housing for a few does not lead to more homes being built, and many of those who would benefit would otherwise become homeowners anyway.

A better reform to increase mobility while being revenue-neutral and retaining the progressive structure of stamp duty would be to reduce stamp duty for all transactions while updating council tax from valuations and bandings that were last changed in 1991. This is similar to one of the options laid out by the ASI, and it would fix some of the problems with stamp duty and council tax while also minimising the unequal revenue impacts for different cities of abolishing stamp duty. Alone however, this won’t lead to many more new homes.

Building more social housing

One option for the Chancellor, supported by senior Conservatives such as Communities and Local Government Secretary Sajid Javid, would be to expand the role of the state in supplying new housing. Indeed, public sector building has growing support across the political spectrum, with Javid proposing a £50bn fund for home building, while Labour is saying they would build 100,000 social homes a year.

Some public subsidy is necessary, and it is true the positive effects would be concentrated on those with lower incomes. However, an enormous amount of provision would be needed to make a serious dent in the housing crisis. And while we need to build tens of thousands of additional homes a year, not all of them need to be social housing.

What’s key for social housing is the geography of where it is built. In particular, we need more social housing in our growing cities. Improving the access people on low incomes have to the jobs and opportunities we have in these cities should be the priority for more investment in social housing.

Improving skills in the construction sector and supporting small builders

Ahead of the Budget, the Federation of Small Businesses has called for the role played by small builders to be expanded. There have also been warnings about skills shortages in this construction sector, with Mayor of London Sadiq Khan highlighting particular concerns about the impact that a post-Brexit exodus of skilled European builders would have on the capital’s housing issues.

The Chancellor is apparently keen to address both these issues. Reports have suggested that he will commit significant investment into improving skills in the construction sector. He has also indicated that he will introduce measures to help small builders too, by letting local leaders allocate small pockets of land for development by small builders, and guaranteeing loans by banks to small housebuilders.

These measures would help to boost productivity and supply. For instance, smaller builders are more likely to work smaller plots the big developers ignore, and the number of homes registered by small builders has dropped by more than half since 2007.

However, they are unlikely to have a large impact on the number being built. Construction costs are not why we have a housing crisis. The shortage of land on which homes can be built – which has led to a quadrupling in the value of land since the 1990s – is the real issue. Small builders build small numbers of houses on small plots, but what is needed is the release of large amounts of land for new homes.

Making land available and green belt development

Brownfield land is the classic politician’s proposed solution to making more land available for housing. Who could argue with repurposing former industrial space or wasteland for new homes? As such, it is unsurprising the Chancellor is vowing to subsidise clean-ups of contaminated industrial land. In reducing land costs for supplying new houses, this might unlock some cheaper housing on key sites – but, again, the numbers will not be very many.

That’s because after 25-30 years of brownfield first-policy, there is far less brownfield land than there used to be, and not all is appropriate for housing. Our research shows that Cambridge has capacity for fewer than 2,500 homes on brownfield land in the city limits, and Oxford not even 2,000. Worse, subsidising brownfield construction could end up concentrating new homes in struggling post-industrial cities where housing demand and prices are already low.

Nor is the Chancellor’s plan for an inquiry into landbanking needed, especially given that the Communities and Local Government select committee published one last year.

Instead we need substantial planning and land reform. More than anything else, the Chancellor needs to rethink his pledge not to consider building on the greenbelt. Concerns that doing so would mean the gains from new building would be captured entirely by current landowners could be addressed by reforming compulsory purchase orders to allow local authorities to buy land below speculative “hope values”, as Civitas have suggested. Our research shows that releasing just 5 percent of the green belt close to existing infrastructure around the ten least affordable cities would unlock land for 1.4 million homes where we need them.

 

These are the kind of numbers we need to be talking about to solve the housing crisis. Though some of the Chancellor’s ideas have merit and will increase supply, even in combination his proposals will not be able to deliver the amount of housing that cities and the economy need. Only comprehensive changes like green belt reform or replacing our discretionary planning permission system with maximum-use zoning could supply this many new homes.

When cities like Tokyo are building more homes a year than the whole of England is, it is clear there is something fundamental about the wider system we have chosen behind our crisis in housing. Our unaffordable cities can build more housing – but the Government has to give them the tools and powers they need to do so.

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