JLL Residential

Housing Solutions For A New Chancellor

By Adam Challis, Head of Residential Research, JLL

The housing affordability crisis is vexing, not least because the solution seems clear.

"Build more" says I - and most other commentators, neatly tucking in the roles of planning, land, alongside the chose-your-own hobby-horse of SME builders/ Private Rented Communities/ housebuilder expansion amongst a host of other notable solutions that ought to get the job done. Sadly while all of these private sector-led solutions have merit and all will help; none will be the silver bullet.

Ramping up ambition further, many see the allure of a new generation of publicly-funded housebuilding as too attractive to ignore. Signals from the new Chancellor suggest we may well have seen the end of strict austerity. Could this be the harbinger of a new era of strategic housing investment?

This big idea would of course allow us to dodge the thorny problems of trying to induce the private sector to ramp up delivery. Maybe we could even re-engage direct commissioning, as we all know that housebuilders 'just don't want to build more.' Ah, were it just that easy.

Housebuilders deliver to a margin, not a volume. Unless sales rates ratchet up to twice the current pace, housebuilders cannot reasonably be expected to double output. How this simple truth continues to be overlooked is baffling. There is no reason to expect a serious step change from this group.

Direct commissioning sounds like it may have more promise, as it could carve out some of the profit margin to deliver higher volumes at lower cost. Great stuff, except that it requires a new legion of quasi-public sector workers to manage and direct procurement into a supply chain that is, to be candid, about half the size that it needs to be. Oh - and relying on the same supply chain means we're no further forward, just creating greater risks for existing private sector players in the market, further dis-incentivising private sector expansion, particularly from those SMEs.
"Housebuilders deliver to a margin, not a volume. Unless sales rates ratchet up to twice the current pace, housebuilders cannot reasonably be expected to double output. How this simple truth continues to be overlooked is baffling."
Adam Challis

Head of Residential Research, JLL

OK - let's assume that over a short few years that the public sector is able to ramp up investment to sufficient levels. At the same time, the industry develops the confidence in this new public sector programme to invest in capacity and is in the position to deliver on this policy promise. Is this even possible? If it is, would it be the answer to our collective prayers?

Yes - those are very big assumptions but no, unfortunately they are not the biggest problem.

Proponents of a new wave of council house building 'just like we did in the 50s and 60s' are overlooking the real elephant in the room. Back then, in the post war era, the UK was in post-war reconstruction and expansion mode. House building enjoyed widespread support and philosophically, there wasn't a NIMBYist in sight.

Today, that's not so true.

To double the rate of construction requires - broadly - a doubling of available development land. Until the country is united in the universal truth of the need for more homes, alongside a pro-rata responsibility to absorb some of this stock locally, it will make little difference whether the schemes backers are public or private sector; existing communities will be having none of it. In the face of localism, I say good luck with that.

Chancellor For a Day
If I were Chancellor, and eventually I was able to turn my attention to housing, the first thing I would do is to stop misleading the public with ambitious, nonsensical targets. Can't happen, won't happen. Stop breeding policy short-termism and focus on getting the fundamentals in place.

Push harder on the public estate and let those cash-strapped public bodies - especially local authorities - keep more of the upside from land sales.

Controversially, I also happen to think the London Mayor is on the right track. Moving towards a higher rate of AH delivery, linked with permissions in principle, is a savvy way to move with the grain of the market to achieve public good objectives.

For what it's worth, a bit more direct investment in affordable housing would also be on the cards.