Thursday 20 February 2014 8:43 pm

The only solution to the housing crisis: build, build and build

BRITAIN is building again at last – or so the government would like us to believe. On the face of it, it has a point: the latest homebuilding statistics reveal that starts on new homes in 2013 totalled 122,590, up 23 per cent on the previous year, and the highest since 2007, according to the Department for Communities and Local Government.This sounds encouraging, at least until one digs down deeper into what is happening. The UK is facing a catastrophic housing shortage, with the population in London and the commuter belt growing especially rapidly and yet very few new homes being built. The result is that prices have rocketed, destroying the homeownership hopes of millions and forcing many others to live in cramped, inadequate conditions. It a social scandal and an economic nightmare: companies will soon start to find it too diffi- cult to find staff in London, or have to pay them more, inflating costs.In the short-term, of course, one reason why prices are being pushed up is still low interest rates and silly, counterproductive schemes like Help to Buy, which should be abolished immediately. Some commentators also like to blame the housing crisis on speculators, buy-to-let investors, second home owners and foreign buyers – but all of these explanations are faulty.The long-run problem is overwhelmingly one of supply: if we built far more homes, of the right kind and in the right place, prices would fall back, affordability would return, rents would go down and we would stop worrying about the fact that a few homes are left empty or that some wealthy Europeans are snapping up exorbitantly priced flats in Kensington. In every other market, high levels of demand is met by increased supply; but not in housing, hence why everybody is fighting over an artificially scarce resource.The reason for this lack of supply is entirely political: there is no free market in housing, merely a rigged one. The government continues to ration land with planning permission. Yes, housebuilders have a pile of such land, but that’s because they need a couple of years’ worth of stock to be able to plan, and because they know that rationing means prices will keep going up. If the market were flooded with buildable land, its price would collapse and a much healthier housebuilding model would emerge, where the added value came in producing high quality homes rather than gaming the planning laws.Sadly, while housebuilding is increasing, it is from a dreadfully low base – and completions, which lag new starts, actually fell again last year. Just 109,370 homes were completed in the 12 months to December 2013, five per cent lower than the previous year. It is a scandalous figure.Last year’s starts did shoot up but were still 33 per cent below the peak in the year to March 2006 – and even the numbers in those days weren’t very high by historic standards. Annual housing starts, which were just 140,000 in the 12 months ending March 2001, peaked at 183,000 in the year ending March 2006, before stabilising until the beginning of 2008. They subsequently crashed disastrously and despite last year’s rebound remain far below their recent peak.But even during the “good” years for UK housing, planners ensured the “wrong” homes were built – too few family houses with gardens, too many tiny flats. The share of houses collapsed from over 80 per cent to just 50 per cent across the UK between 2001-02 and 2007-08; two-thirds of completions were houses last year but the proportion in and around London remains tiny. In any case, the “good” years were pretty pathetic: in 1934-5, when far fewer people lives in the UK and the industry was still deregulated, the private sector built 293,000 homes, mostly semis. That is the sort of housebuilding we should be seeing today. The government needs to stop boasting, and start liberalising.allister.heath@cityam.com Follow me on Twitter: @allisterheath

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