Government housing strategy: Falling short

This week’s announcement of a new government housing strategy is an admission of just how badly the housing market has been performing recently. The figures speak for themselves. Output has plummeted from 207,370 net additions to the housing stock in 2007/8 to only 121,200 in 2010/11. This is not just the lowest level on record, but also only half the number required to keep pace with demand.

Even more worrying is the lack of growth over the past year. The start of recovery that we saw in late 2009/early 2010 was abruptly halted by the government’s austerity budget in summer 2010, since when the market has been stagnant. There are four reasons. First is a widespread lack of confidence in the economy, and specifically the housing market. People who are fearful about their job prospects are unlikely to risk buying a home or moving into a new one.

Even where people are prepared to take the risk, the highly restrictive policies currently being operated by the mortgage lenders represent a serious barrier. Unless people are able to put down a 25-30% deposit, they are likely to face prohibitive interest rates.

The third key factor is the government’s maladroit meddling with the planning system, which has resulted in a collapse in planning consents for new homes. Only 25,171 homes were consented in the latest quarter, 23% down on the previous year, and massively below the level required (60,000 a quarter) to meet demand.

To add insult to injury, the deep - 60% - cut in the Homes and Communities Agency’s housing investment budget will seriously affect the levels of affordable and social housing that can be anticipated over the next few years. The housebuilding pipeline takes a relatively long time to work through, so we are still seeing the completion of social and affordable homes planned and funded under the last government. However, as that pipeline runs out, we will be left dependent on the very uncertain prospects of the new so-called affordable housing programme which is predicated on much higher rents (up to 80% of market rents) to offset the much reduced government grant.

The present government’s high rent policy is a return to the approach adopted in the eighties when housing benefit was expected to “take the strain”. But this time the government is cutting housing benefit at the same time as higher rents are making low income households more dependent on it. No minister has been able to explain how these two policies pointing in opposite directions can possibly work together.

So, the housing market is in trouble, with no immediate prospect of recovery, and current housing and planning policies are making the problems worse not better. Clearly there is a need for a new approach. But will this week’s announcement make a difference?

One element in the new strategy should certainly help. The mortgage indemnity scheme directly addresses the problem facing first-time buyers without substantial funds for a deposit. This could well help to increase sales to this group of potential buyers.

But on the other points the new strategy falls short. There are insufficient measures in it to help stimulate wider economic recovery, or to reverse the rising tide of unemployment which is casting such a long shadow over the housing market.

The planning system is mired in uncertainty and will remain so until the government accepts the need to rewrite the deeply flawed National Planning Policy Framework.

Social and affordable housing output will also remain on a downward trajectory without adequate direct funding for councils and housing associations. The various initiatives announced this week - the umpteenth announcement on the release of public land, yet another empty homes initiative and the over-hyped and under-performing New Homes Bonus - will not make a significant difference.

But the greatest cause of concern is that the housing minister Grant Shapps is completely out of touch with what is actually happening on the ground. For him to claim that “housebuilding starts are up by a quarter”, at a time when they have fallen below 100,000 a year, and when his own department’s figures show they are down 7% in the latest 12 months, is an indication of the problem.

Until the minister wakes up and smells the coffee, rather than deluding himself that things are better than they appear, we are unlikely to see a serious and credible response to the huge challenge we face.

Nick Raynsford MP is a former Labour construction minister