Local government has rediscovered its commercial expertise since 2010. Now it’s time to turn those skills to one of the biggest economic challenges the country faces: housebuilding.
The problem is well-rehearsed. New homes provide a significant boost to the economy by providing jobs and reducing the cost of living for workers. But rather than get on with the business of building, developers are sitting on vast tracts of land waiting for an upturn so that they can achieve the 30% margins the market expects of them.
The losers are young people struggling to get on the housing ladder and communities who increasingly are seeing fewer social benefits from new development.
The economics of the matter for the big companies is simple: it is better to defend their margins in the medium-term than to build now and reduce the unit price of new houses.
Rather than pointing the finger at planners – who for all their faults are currently approving 90% of new housing schemes – the Government needs to think carefully about how it can use policy to help councils get back into the housebuilding game.
Many authorities are already building small numbers of new council houses, and this could be radically accelerated to help local government form joint ventures with the private sector to deliver commercial homes as well.
This kind of JV would be able to undercut the big developers and introduce more competition into the oligarchic housebuilding business in a way that free-marketeers should applaud.
Ministers need not be worried about the implications of more council borrowing. The
Government can unlock new development by repurposing the £3.5bn help-to-buy scheme, which would be better spent on new homes than on inflating the price of existing ones.
Prudential borrowing and joint ventures with housing associations could do the rest.
The British housing industry is suffering from an all-too-clear case of market failure and when that happens, it is time for the state to step in
Simon Parker is director of the NLGN
