Britain needs industrial housing revolution to tackle housing market failures
The world is moving from uncertainty to instability. Economic, political and social “flashpoints” include the US, EU, China, North Korea and the Middle East. While the UK has reasonable economic targets – 2.5% growth, 2% inflation, £ 1 trillion in exports by 2020 and improved public finances – progress is mixed. We must determine success for ourselves through excellent execution, not blaming our failures on others.
The failure of our airport strategy is a failure of self-determination, but the regeneration and devolution of power to our big cities and the construction of 250,000 homes per year are results that we can succeed in self-determination.
The limited supply of housing prevents access for young and old – this has created massive intergenerational injustice. My generation’s Nimby policies, which included preventing brownfield development and converting brownfields to greenbelt, caused much of the problem. However, so does the massive hoarding of land by central and local government, the NHS and the Department of Defense.
We support the government’s plan to put 60,000 homes – half of which are starter homes – into service on these sites by 2020. Tackling the land scarcity problem is a positive step, but it will not be enough. to her only. Huge problems of production, financing and cultivation must be solved simultaneously in order to build the 250,000 houses we need each year.
My generation was proud of the excessive inflation in house prices and rents, but both are bad for society. Last year’s 9.5 percent was a particularly bad result. More and better housing supply is essential both to curb inflation, which makes homeownership unaffordable for so many under 40, and to end annual inflation rents of 5%, which consumes a growing share of the population’s income.
In the post-war period and into the 1960s and 1970s we built over 250,000 houses a year, but since the late 1970s we have experienced a depressing market failure. What typically happens in markets where there is excess demand, shortage of supply, excessive inflation, and monopoly profits is that new entrants emerge. It hasn’t happened yet. Legal & General has made some modest progress, acquiring CALA Homes with the intention of tripling its revenues over four years, investing £ 1.8bn in student housing, affordable and key worker housing, and nursing homes, and we recently announced our entry into the private rental sector.
But this is only the beginning. Others need to step up their efforts in 2016 and beyond – 250,000 homes by 2020 is an achievable goal.
There are shortages of materials and skills: not enough bricks, not enough masons, roofers, dry-liners, plasterers and electricians. More vocational training is needed for the next generation.
Traditional construction, with materials brought on site separately and assembled by specialists, is not the only solution. Modern, modular construction with off-site assembly already works well for commercial buildings and would revolutionize residential home construction as well. Increasing manufacturing to, say, 170,000 traditionally built modular homes and 80,000 modern modular homes by 2020 is probably the only realistic way for the government to achieve its goal.
The business model of traditional home builders suits them well. But that limits the supply: the classic “build ten, sell ten” approach, rather than building on a large scale. It is not necessarily the only model. Long-term investment with a significant long-term balance sheet could ease financial constraints, industrialize the sector and massively improve the supply of housing, both for sale and for rent.
Our strong homeownership culture is also a constraint. Almost all government housing announcements are aimed at getting people up the ownership ladder, rather than improving the rental housing stock. But leasing is here to stay and needs to improve.
“Generation Rent” must become “Generation Choice”.
Building good quality rental housing for key workers, like nurses, on underutilized NHS land is more socially useful than using that land for low cost apartments for first time buyers. The use of long-term funds with known commitments to finance rental properties would make it possible to cap rents for particular categories of housing.
Our culture of ownership also means that private capital becomes tied to home equity rather than contributing to the growth of the economy as a whole. This is often combined with under-occupation, especially for the elderly. Those over 55 have around £ 1.3 trillion in property equity, and a third want to scale up to improve their income and quality of life. But we need much more suitable housing, built in the right places, to give them that choice.
Helping first-time buyers is necessary, but not sufficient. We need a housing construction revolution to increase supply and quality for all forms of tenure, and all income and age groups, from students to retirees. Institutions like Legal & General can regenerate not only residential housing, but also towns and cities in which houses are built. Infrastructure, jobs and local economic growth are all essential to creating thriving communities where people want to live.
It’s a big agenda: but in 2016, large-scale institutional engagement can help address this market failure: housing construction should be much more than a literal or metaphorical cottage industry.