David Cameron’s housing construction shake-up fails to build market confidence: Experts disagree residential planning overhaul is game changer

Madeline Ratcliffe
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The cost of a home has jumped by 45 per cent in London since 2010
Housing developers had a bit of a rollercoaster ride last week. First the Budget rocked shares, with changes to tax relief on buy-to-let mortgages – and then, on Friday, the government unexpectedly put house building at the centre of its plan to boost the UK’s productivity.

With the cost of a home jumping by 45 per cent in London since 2010, according to Halifax data, it seems clear that something has to be done to level the playing field for aspiring first-time buyers.

Cue business secretary Sajid Javid, who announced a series of changes to the planning process, including granting “suitable” brownfield land automatic approval and bringing in sanctions for councils that do not deal with applications fast enough.

But will this be enough to lift the UK’s housing shortage and prevent low supply from causing even greater jumps in prices? The response over the weekend was cautiously optimistic.

“This looks very positive,” the Home Builders Federation said yesterday. “It’s great that local authorities must abide by their responsibilities bringing brownfield land forward, and reducing decision time, so we can get started on building. It’s early days, but this is a big help.”

Builders believe a lack of land and a sluggish planning system have been holding back growth in the housing market for years.

Dame Kate Barker, a non-executive director at Taylor Wimpey and former member of the Bank of England, says that housebuilding is unlikely to exceed 200,000 new homes per year. Some experts have said the UK needs an extra 230,000-250,000 houses each year to keep up with demand.

“It is difficult for government to solve problems from the centre,” Barker told City A.M.. “So much of what goes on is local argument.”

Barker believes prices could “hold steady” if 200,000-220,000 new houses are built per year, but some economists are more cynical. Scott Corfe from the Centre for Economics and Business Research (CEBR) predicts that British house prices will continue to rise above the rate of inflation.

“I don’t think the plans go far enough in solving the housing crisis,” Corfe said.

“If you look at housebuilding in the UK since World War Two, the only times we’ve built a significant amount of houses have been when there was significant building by local authorities. Since the 1980s, the UK has consistently failed to build enough houses.”

The Tory government was careful to stress last week that its new housing plans would not threaten the high level of protection given to green belt areas, such as that surrounding and on the outskirts of London. A sensitive political issue, some economists and housing campaigners argue that some extra building on the green belt must be allowed if cities such as London are to become more affordable.

“More should be done to allow building on bits of the green belt – much of which is not particularly ‘beautiful’ despite common perception,” Corfe added. “Encouraging development on brownfield land is unlikely to be enough to solve the housing crisis.”

Other worries over the Tory plan concern the extent to which it will apply to areas of the country – such as London and the south east – where housing is in especially high demand, and where prices have rocketed the most. “The real test will be how much land is freed-up,” said Savills’ housing market analyst Neal Hudson. “How much is in the right location for housing demand – a lot of brown-field is in north west rather than the south east, and not viable.”

Perhaps this is why some developers and analysts alike have warned that greenbelt land will have to be used eventually, if councils are to fulfil their commitment to providing enough housing.

Given this considerable obstacle, it is not surprising that Howard Archer, chief UK and European economist for IHS Global, said the government’s reforms would not be enough for him to adjust his GDP growth or house price forecasts over the next two to three years.

IHS’s current UK house price growth forecast for 2016 is five per cent.

“It will have a modest impact on boosting house building but as the shortage in housing is so marked, it will take some considerable time for the gap between demand and supply to be significantly closed,” Archer said.

Last week’s announcement was undoubtedly positive for housebuilders, pushing shares higher. It should mean that small builders will be less tied up in red tape, and free some projects to take off quicker than they may have otherwise done. Few will argue that this is a sea change for UK house construction, however – or a signal for significant price drops in the future.

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