The role of central government in the homebuilding industry – “A swinging pendulum of intervention…?”

Earlier this week the Communities and Local Government Select Committee met to discuss capacity and skills in the construction sector, housing investment, productivity and the role of central government in the homebuilding industry.

Committee Chair Clive Betts MP led the questioning of a number of consultants and academics namely Mark Farmer, Author of The Farmer Review of the UK construction labour model, Philip Callan, Research Associate at ResPublica and Professor of Urban and Property Economics at Henley Business School, Michael Ball.

Unsurprisingly, witnesses took an early opportunity to highlight some of the biggest concerns facing the house building industry, not least land availability, tenure-diversity, lack of certainty in the market, local planning systems and the challenge of meeting the government’s target of 1 million new homes by 2020 in a sector seriously constrained by capacity and skills availability in the UK.

So what could government intervention look like?

National Housing Fund

Back in November Respublica released a report announcing the need for a £100bn housing fund to help build up to 750,000 extra homes. Read the independent think-tank’s full report findings here. In the Thatcher Room of Portcullis House, Callen continued to make the case for a National Housing Fund (NHF) arguing that uncertainty in the market is a major threat in London and the South East without imminent government intervention.  A National Housing Fund could for example address uncertainty and drive forward the pace of developments by say for example purchasing the first 100 homes of a developer’s proposed 500-unit site.

Committee Member and Advisor to Essential Living on housing, Mark Prisk MP certainly challenged Philip Callan on the idea that government could or would take on what he described as a “…rather large and risky portfolio of assets for the government as an investor.” Quite how government could justify such activity in terms of public spending was left to the Respublica Research Associate to explain.

In partnership with housing associations collectives, who are often knowledgeable local housebuilding experts, Government would raise the 50-year gilt. In Year 11, housing associations would buy the government’s 50% share and take on the remaining 40 years of debt effectively becoming the whole-shareholder. Debt would not be repaid until the end of the 50-year period, by which time the government would have been removed of that responsibility, some 40 years previously.

Policy as a driver for innovation and market enablement

Mark Farmer pushed the Members to focus on innovative policy which allows for market enablement. With 15 of the UK’s top housebuilders delivering 50% of all builds in UK, Mark described this position to be an unhealthy one when it comes to market stability. An intelligent policy direction could address the gaping hole in social housing by injecting fresh – not recycled – money into the sector. Innovation also has a role to play in creating a viable product that financial institutions could invest in. Something Mark suggests the sector is yet to produce. The NHF has the potential to create a pool of builders and developers who could then supply attractive PRS products.

Local Government

Local authorities are attempting to replicate some activity in the private sector going so far as to set up local development companies, some in-house, some not.  By working together across boundaries, local authorities can move away from project-led decisions and unlock opportunities driven by economies of scale while also benefiting from geographical bias. By operating tactically, local authorities do of course achieve best value for money as defined under public procurement but if local authorities were to work on a larger scale, the real opportunity begins to presents itself. Larger pipelines can be accessed with joined up approaches such as shared services and combined objectives outside of their traditional council boundaries.

Over the course of two hours, it was striking to witness how much of a chasm there is still to bridge between MPs, the housing industry and councillors. Perhaps owing to personal, party ideology or as a result of being burnt in the past, several MPs remained hostile to the industry’s call for government intervention. One Committee Member went so far as to reject the expert witness positions that access to finance was the predominant issue facing the sector.

The role local government has played and would like to in future was also not always recognised by MPs. While negativity in some cases may be deserved, it is not necessarily helpful to tarnish entire sectors.  The frustration evidently on show by all parties shows only too obviously how important an issue housing and the construction of it is in the UK.