Volume housebuilders cannot sell 160,000 new homes, let alone 240,000, at local market rates

I dreamt of multiplying our speculation by redeveloping Chelsea Barracks at 130 homes a hectare.

Then I woke, having excitedly lost track of all the zeros we’d made. I then remembered the waking nightmare of the ‘real’ housebuilding industry and the dreamlike policy to make sustainable communities affordable, popularised by the ex-Housing Minister Yvette Cooper.

This policy assumes, wrongly, two things. First, a steady increase in annual housing production in England to 240,000 by 2016, or an increase of about 8,000 a year on the 160,000 new house and flat completions in 2006. Second, that building 240,000 new homes a year would make housing ‘affordable’.

Britain’s housebuilders are expected to work faster than the Candy brothers to meet the government target of a 50% increase in production. They are also expected to build at higher densities than their customers want. Around 150 homes a hectare was once the measure of residential overcrowding in London, but is being promoted on increasingly expensive brownfield sites. Often far from prime locations, builders are competing with registered social landlords (RSLs) to secure any land. There is a brownfield seller’s market across the country for development at ‘super-densities’.

The problem is that RSLs have government money behind them to develop crammed regeneration projects at level 3 or 4 of the still voluntary Code for Sustainable Homes. Planners would like to push for level 6 – zero-carbon. Central government-funded RSLs can specify green nonsense and local government planners believe the eco-hype. Private sector housebuilders, meanwhile, have to look at commercial land deals with onerous planning conditions many years before the cost of higher and probably mandatory code ratings can be known.

The technical uncertainties within the code are more manageable for volume builders with plenty of staff. It is the multitude of smaller builders who find the policy push to ‘super-dense-zero-carbon’ more nightmarish. What’s more, the cost of construction is a small proportion of uncertainty in the overall equation, reduced to a third of any unexceptional housing development. The other two thirds is an argument over public subsidy and private profit after the land deal.

A new home now costs far more than any capable builder would charge per square metre of floor area. Newly built homes are potentially lucrative to their builders because they enter the existing housing market. The money is in land which has been granted ‘benefit of planning approval’, not in construction.

But it is no good building homes that can’t be bought. Most new and existing housing is unaffordable to most people today. What is giving the volume housebuilders the night sweats is not being able to sell 160,000, let alone 240,000 new homes at anything equivalent to the local market rates for existing housing. It is the existing over-valued housing market that interests the government, because that is where the majority of the home owning electorate lives.

Yvette Cooper knows that the existing housing market must be sustained from the Treasury. Interest rate cuts might bring some short-term cheer to jittery volume housebuilders, but the fundamental problem remains. People can’t afford new or existing housing if they have to buy the land too, which is held in artificial scarcity by the planning system because the existing housing market cannot be allowed to collapse for fear of wiping out some of the £4 trillion it is valued at. Cooper’s nightmare is estate agents dropping their house prices everywhere except for places like Chelsea.

If sustaining house price inflation means Cooper’s government has to watch the new house and flat building industry go to sleep, then so be it. Builders with the capital to buy land earmarked for super-densities can forget their attempt at ‘volume’, and dream of building an increasing scarcity of ‘zero-carbon-sustainable-communities’ on over-valued brownfield sites that speculators like the Candys wouldn’t want as locations.