Breaking the stranglehold

Last year some 840 new homes were started in Aylesbury Vale, adding 1% to the district’s stock of houses. In England, that qualifies as a building boom: in the country as a whole the rate of construction is almost three times slower. Stoked by government intervention, low interest rates, a nascent economic recovery and a lack of supply, house prices are rising across most of England and soaring in London and the south-east. In the final quarter of 2013 prices were increasing at an annual rate of 7% across Britain and 15% in London. Yet house building is still in a slump (see chart). The new development in Aylesbury helps explain why.

All of this has gradually reduced the amount of land released. And, says Paul Cheshire at the London School of Economics, it has pushed what building there is to the wrong places. Before the recession over half of new dwellings built were flats, often in northern cities. When mortgage finance dried up in 2008, these collapsed in value. The few suburban homes that go up are often far outside city boundaries, pushed out by green belts. Aylesbury is growing because it is just beyond London’s green belt (see map). The new residents of such places are stuck with long, expensive commutes.

Near successful cities like Oxford, or in the London green belt, land with planning permission can cost hundreds of times more than farming land, more than doubling the cost of a new house. The shortage of land also accounts for Britain’s uncompetitive building industry. Because land is so scarce, house-builders behave like speculators: they devote their resources to finding and buying sites that might get planning permission. Even a small rise in house prices feeds into a big rise in land values as bidding wars break out.

In such a tight market, deep-pocketed builders prevail. Since 2008 the number of small house builders—those that put up between 10 and 30 units per year—has fallen by 50%. The number of big builders has increased slightly. Weak competition means that builders have little incentive to invest in design, which may explain why new homes are often unlovely. And since these firms often operate as little local monopolies, they rarely cut prices: if prices are not suitably high, they tend to undershoot even the low targets set by councils.

To try to break the deadlock, the coalition government has pushed through planning reforms, which include a controversial “presumption in favour of sustainable development”. In practice this means councils deemed too NIMBYish by Westminster can be forced to approve more housing, or else risk uncontrolled speculative development. This modest reform has cost enormous political capital and tied the government up in lawsuits with unhappy councils. Yet it will merely neutralise another of the coalition’s reforms, says Adam Challis of Jones Lang LaSalle, a property firm. Soon after coming to power, the government scrapped the regional housing targets introduced by Labour, which had boosted building.

The Labour Party, whose voters are less likely to be homeowners, or to live at the edge of big cities, has plenty of ideas to get building going. It would let councils borrow more money to build social homes on their own land, and possibly subsidise their construction. It would also encourage pro-growth local governments. Not all councils hate new houses—but those that like to build tend to be heavily urbanised already. In places such as York or Stevenage, tightly drawn boundaries prevent growth. Labour would let them expand into their neighbours’ land.

The party’s most ambitious plan it nominally shares with the government: to build a new town somewhere on the edge of London. Yet while the coalition has gone soft on this idea, Labour has developed it. Lord Adonis, a Labour peer and former transport secretary, suggests that Ebbsfleet, a small town in Kent near a high-speed railway line, would be an ideal place. The development corporations that built new towns such as Milton Keynes and Stevenage in the 1950s and 1960s eventually made a profit for the public, he argues, encouragingly.

Bulldozing fields is not yet an election-winning strategy, but opinion is beginning to shift. Polling by Ipsos MORI shows that a majority of people now regard rising house prices as a bad thing. Bank of England officials hint that the failure to build enough houses presents a structural risk to the British economy. Falling home-ownership is beginning to affect some target voters: 874,000 couples with children now rent privately, up from just 274,000 in the late 1990s.

Yet the 1947 planning regime has lasted this long for a reason. The gains from lowering the cost of land and building more are broadly spread, whereas opposition is locally focused. And a majority of Britons are still home-owners—especially elderly voters in marginal suburban seats. Change will be slow. In the meantime Aylesbury’s boxy new houses will have to do.