At first you wonder what the hell the Coalition are playing
at with regards to housing, and why their rhetoric is so different to what is
happening on the ground, but gradually it all starts to make sense when you
realize that it is essentially being dictated by the major housebuilders.
The Coalition listen to the Housebuilders, partly because
they are massive contributors to the Tory’s coffers, but probably (I hope)
mainly because they are seen to be experts on housing (rather than anything
dodgy, heaven forbid).
But their aims differ from that of the country as a whole: a
housebuilder’s aim is, quite rightly, to increase the profit of housebuilers.
The Coalition are very keen to pay lip service to the idea
of increasing the number of houses built, as their vote is in danger from key
constituents of their base, as the baby-boomer property owners who benefited
from the massive property boom are starting to reaslise that their little
Tobys, Tobias and Tobs’s are not moving into their own homes.
This is, as we all know, as they are unable to obtain
mortgage finance – and thus are cluttering up baby-boomer housing despite the
fact that they are sometimes pushing 35. Banks won’t lend to high LTVs as they
realize that there is a significant danger of house prices dropping
significantly, and this would decimate their already precarious loan books,
cause LIBOR to shoot through the roof, interbank lending would cease and banks
would seize up and we’d have GFC part II – Director’s Cut, bank runs etc.
Most people have a basic grasp of economics and think: high
prices = shortage of homes, ergo, more homes = lower prices = Tobias moving out
at last.
Of course, this is ignores the very basic reality that every
single piece of empirical evidence suggests that high house prices have nothing
to do with a shortgage of homes, and in fact supply outstripped demand/population
growth (yes, including immigration) for the whole of the period 1997-2008 by
several percent a year. But let’s ignore that as no one ever believes it – because
it is repeated constantly by everyone that there are not enough houses, the
proof being HOUSE PRICES ARE TOO HIGH! THERE MUST BE A SHORTAGE! – obviously
nothing to do with the fact that mortgage lending increased by 500% during this
period, it MUST BE BECAUSE OF A SHORTAGE not our fractional reserve banking
system ploughing billions into pumping up hard asset classes etc etc no one is
listening…
But I digress. The Coalition aim to increase house building
somehow, or at least be seen to be to satiate their core vote – but the
housebuilders don’t want to, but want to pretend
to as it’s good PR. De Beers don’t flood the market with diamonds or they would
lose billions – prices would fall. Same with Housebuilders. They realize the
market is precarious – only foreign money coming into London, combined with
massive bank forbearance and historically low interest rates, are keeping
things alive – prices are dictated at the margins, so if you can maintain low
transaction numbers at a decent level you can pretend price stability is being
maintained.
Actually the government probably do know what needs to
happen to normalize the market (they are probably not that stupid) using simple
supply-demand principles - but it would be completely unacceptable to them of course
– the solution would be to put interest rates up to historic norms, ie 5%,
watch 2 million people lose their homes with vast, enormous misery and 6 months
of absolute turmoil and Armageddon and then a return to normal growth. The
longer that is put off, the worse it would be – but they are choosing (and who
can blame them, really?) years of, they hope, managed price decline and debt
stagnation. Is this better? Maybe it is. Two decades of gradual decline versus
six months of devastation and ten years of growth? Which would you choose?
So what to tell government to do, if you’re a housebuilder?
After all, they will do what you tell them to do, you ARE the expert. Why,
reform Section 106s! Now, Section 106 agreements are a fairly stupid but almost
workable solution where a housebuilder building, say, 100 flats has to set
aside a certain number for affordable housing, as the council doesn’t want to
build these themselves – they have all their money tied up in much more
important things, like final salary schemes for local government workers etc - so let's make housebuilders do it all, after all they have massive yachts and you should see the cost of that guys watch I met from...etc etc
Housebuilders still manage to make massive profits despite
doing this, but if they didn’t have to then they could make even MORE profits!
So seeing as they're asking, let’s get the government to get rid of 106s, which they are doing, and
replace them with a Community Infrastructure Levy (CIL), which they are doing,
and which means that housebuilders no longer have to build affordable homes and
shoulder the cost entirely themselves – but the cost of this type of similar, social
development is spread evenly among the whole community, among all developers –
ie people who are bolting on extensions, basement dig outs etc.
Result: no small scale development as it becomes vastly more
costly more for small scale players = housebuilding increasingly concentrated
in the hands of developers = no increase in houses being built but bigger
profits for the housebuilders. Winning!
Have you ever heard of the CIL? No? I hadn’t until recently,
and I’m a surveyor! And yet, for a basement dig out a client wants to do I was
told today the new tax is £50,000. Result = no basement dig out.
Well done government.
