Who’s to blame for crazy house prices?

After a decade of rising prices, the housing market in Britain seems to be out of control. Borrowing on homes is at record levels. Young people, key workers and villagers are being priced out of their areas.

On many occasions the New Labour government has demanded a step-change in house-building to increase the supply and so bring down house prices – but it has not come. After they marked out the Thames Gateway for new building, the number of houses started there went down, not up.

Now that the problems are stark, the search is on for someone to blame. At the Priced Out website the culprits are obvious: the buy-to-let investors. Homeowners agree. They let loose a flood of complaints against the buy-to-let blight in our towns and cities.

But the growth in the buy-to-let market is a secondary effect of the rise in house prices, not its main cause. People put their money into houses because the prices have been moving in just one direction. Ten years ago they put their money into dotcoms for the same reason.

There is more than a hint of homeowner snobbery about buy-to-let blight. It is less embarrassing to blame exploitative landlords for dumped furniture and overflowing rubbish bags than to say out loud that you do not like living next to students, or Poles.

But the buy-to-let investors are not the only people being blamed for ramping up house prices. A report from the Royal Town Planning Institute blames volume house-builders for sitting on land with planning permission. In 2004 the Barker report – a Treasury-backed study carried out under Kate Barker which reviewed housing supply in Britain – accused volume house-builders of trickling out new homes in order to keep prices high.

Now the Office of Fair Trading is investigating the house-builders to see if they have been fixing the market.

It is not surprising that the planners are pointing the finger at the developers, since they in turn are widely blamed for strangling the housing market. The free market think-tanks have all published damning reports saying that Britain’s rigid planning laws have slowed house-building. If only the restrictive laws were lifted, argue the free marketeers, the developers could respond to the unmet need and build more homes.

Sadly, the volume house-builders are quite comfortable with the excessive regulation of planning permission. Planning approval, Section 106 agreements, and now new rules on zero-carbon houses all add to the cost of house-building, and increase the risks to investors. That sets the bar very high for any competitors who want to take on the big developers.

As things stand, the big companies make four fifths of all new homes, and Barratt and David Wilson between them make half of those. With profits of around 47 per cent on capital employed, the house-builders have little incentive to roll out more than the 200,000 homes a year that they always have – even if that is far too few to meet the market demand.

All the same, the house-builders can hardly be singled out for blame. Indeed, they are usually attacked for building too many houses, not too few. The public mood has been deeply hostile to new building, with headlines screaming about ‘Concreting over the countryside’ and articles likening builders’ plans to the Nazis’ Blitzkrieg. The Campaign to Protect Rural England’s new president, the writer Bill Bryson says he wants to make the whole of England into a National Park.

Worse still, these NIMBY sentiments are enshrined in policy. The government adopted Lord Rogers’ Urban Task Force demand that new building be largely on Brownfield land – though only one tenth of Britain is developed. Local authorities, led by London mayor Ken Livingstone’s Greater London Authority, think themselves very clever for making developers’ fund schools and hospitals – as if adding new taxes will encourage more building. The government’s new White Paper on housing was supposed to fast-track planning permission, but all it has done is increase costs.

The volume house-builders like to say that they are acting in ‘partnership’ with the Communities and Local Government Office, and with the planners. But this partnership is too cosy. In fact, it is a barrier to building the homes we need. It is no good ministers pointing the finger of blame at the builders, when they are tying them up in bureaucracy.

Maybe the Office of Fair Trading should investigate the Communities and Local Government Office if it wants to know why enough houses are not being built – but do we really need yet another report? If we do not lift the controls on building now, our children will have no homes.

James Heartfield is author of Let’s Build! Why We Need Five Million New Homes in the Next 10 Years. (Buy this book from Amazon(UK))