Finance News

Going 'Hulk' on house-builders

Patrick Bamford
14th March 2018
patrick bamford genworth
"poor housing supply affects all types of homeowners whether they’re looking for their first home, or a second-stepper, or older and seeking to downsize. "

Listening to the Prime Minister’s recent speech which covered the need for greater levels of house building, how this Government might achieve the numbers it wants to see built, and the level of ‘encouragement/arm-twisting’ it will give to house-builders, I suddenly had visions of David Banner’s warning before inevitably he would turn into The Incredible Hulk.

To paraphrase, he used to say something along the lines of, ‘Don’t make me angry; you wouldn’t like me when I’m angry’, before of course some criminal or bad guy would do the very thing he’d warned them not to do.

I’m not for one minute suggesting this Government could flip at the drop of a hat, turn green, and make things very bad for house-builders, but I do get the sense that as we progress those very same house-builders are likely to test the resolve of our PM and Government, and it might then be a question of whether there is the political will and resolve to go ‘Hulk’ on them.

As it stands however, my view tends to be that the large builders/developers are really in the ‘box seat’ here – to say there is a huge reliance on them to deliver the Government’s ambitions in this area would be a real understatement. Indeed, talk of 300,000 new homes per year by the middle of the next decade is only going to be achievable if the Government keeps the large builders and developers on side.

I wonder if there isn’t a level of bemusement amongst that cohort about threats to stop them holding onto land or threats to stop giving them planning permission, because I can imagine they will have all manner of reasons to trot out which might legitimately explain why homes have yet to be built. Add in that Government reliance and you might well question whether it’s in anyone’s interests to begin censuring the very group you are reliant on to build the most homes?

Now, that’s not to say that landbanking doesn’t exist and that some developers might prefer to hold onto that land, ‘collect’ the increase in the value of that land, and pass it onto their shareholders. If there have been promises and reassurances given that land will be developed and it hasn’t, then I suspect that a degree of coercion should be used to encourage developers to begin building. However, I’m not so sure the Government can level the accusation that this is somehow an affront to the British people – after all, in a free market, businesses are supposed to maximise their profitability.

What clearly doesn’t help in this ‘argument’ is the lack of small to medium-sized builders in the UK which were effectively shut down by the Credit Crunch and subsequent recession. Since then, we’ve pretty much had a monopoly amongst the very largest developers with no competition further down the chain, especially when it comes to smaller builders being able to deliver smaller-sized developments. In the last decade it has pretty much been large scale or nothing, and perhaps the Government in that regard might want to look at encouraging the smaller firms back to market.

It’s also interesting that, in her speech, Theresa May focused so firmly on the issues potential first-time buyers have in dealing with low levels of supply, because the reality is that poor housing supply affects all types of homeowners whether they’re looking for their first home, or a second-stepper, or older and seeking to downsize. Unless there is readily-available property then we don’t have the free movement of owners between those properties – this issue has also been exacerbated by the fixation on new-build so we now find that such properties are heavily in demand whereas the ‘second-hand’ homes are not so sought after. Again, this builds even greater pressure to deliver new homes because this is what buyers seem to increasingly want.

Angry Governments are one thing, but the Prime Minister also highlighted angry young people who can’t purchase without the help of mum and dad, angry people who are ‘forced’ to rent, angry people that have lower incomes and can’t afford either the deposit or the mortgage payments. Again, this is quite interesting because over many years – Governments of various hues – have been happy for this to be the status quo. Home-owning voters tend to vote with the party that is sustaining the value of their homes – however last year’s General Election appears to have shown that large numbers of non-home-owning younger voters can make a real difference, especially when they’re not voting for you.

Hence, this Government’s focus on helping first-time buyers and these most recent planning measures designed to increase supply, particularly of affordable homes. As we’ve reiterated many times, there is a mortgage funding argument that runs alongside any attempts to support first-timers onto the ladder – we know the deposit is the biggest obstacle and therefore the Government should also be encouraging lenders to deliver as many low-deposit mortgages as they are anticipating builders’ to deliver new homes. These are two sides of the same coin and unless this mortgage funding circle can be squared then this demographic is likely to be angry for some time to come.

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