Chris Blackhurst: Labour's 'use it or lose it' housing plan could build up to a major problem
Midweek View: Reducing home prices is only half the equation. Buyers still have to be able to rustle up the cash
At party conferences, there is nothing like a catchphrase or two to get the faithful going. It must be in the organiser's guidebook somewhere: give them an easily remembered slogan they can take back home and recite ad infinitum.
So here in Brighton, the Labour activists are busy repeating "use it or lose it". This is reference to the hierarchy's plan to build 200,000 homes a year by 2020.
Developers who choose to hog property, buying up sites then doing nothing with them, will be told to reduce these land banks, or else. Under the proposed "use it or lose it" law, councils would have the power to impose escalating fees which would act as an incentive to build on land with planning permission. If they still hoard the land, councils would receive new compulsory purchase orders to force them to sell or start building.
All this will form part of the remit of the new Rebuilding Britain Commission which Labour hopes will raise the current level of new homes being built from 87,000 a year to 200,000 in seven years' time. The commission is to identify sites for major redevelopment so that from day one of a Labour government, this transformation can begin. Ministers can overrule local planning objections so the whole process is not ground down in appeals and hearings. It's what Ed Miliband and his colleagues refer to as the "road map" to end Britain's housing shortage, and it's very commendable. But will it work?
Let's suppose the house builders respond in the way Labour would like them to – and release the sites stored up in their land banks. They put projects elsewhere on hold and focus on eradicating their land banks. They do this to get below the threshold, to qualify for the incentives that Labour's commission has dangled before them.
Suddenly there is a glut – instead of 87,000 homes, 200,000 are being built. House prices fall, which Labour wants, but actually that rocks the economic mood. Still, Labour is happy because more affordable homes are coming to the market.
However, reducing the prices of homes to bring them within reach of more people is only half the equation. Those potential buyers still have to be able to rustle up the cash to complete the purchase. Banks will refuse to lend above 75 per cent loan-to-value (the days of the 100 per cent or even 105 per cent mortgage that fuelled so much of the last housing bubble have long gone).
So the buyer has to find a deposit of 25 per cent. For many people that is a tough ask, even more difficult if property prices have not fallen far enough. House builders could easily find themselves with a surfeit of homes they simply cannot sell. What happens in that scenario? The banks, which aren't stupid and are not prepared to wait for a property collapse, pull the plug on them and they go bust. Values plummet and consumer confidence takes a dive. All round the country there are empty new housing estates.
That's if the house builders do as Labour hopes, and play ball. If they don't, the councils move in and compulsorily purchase the land. There's still a surge of sites coming to the market, supply continues to exceed demand, and prices fall.
In desperation, the Rebuilding Britain Commission is mandated to begin its own house-building programme. It funds councils to develop sites, but the actual building is carried out by those same property firms, as they're the only people with the expertise. So the bill for the policy climbs – first from having to compulsorily buy the land, second by having to contract out to build the new homes.
The loser is the taxpayer. We're funding homes that people cannot get the bank loans to buy. Property prices fall and we all suffer.
Britain is blighted by a re-emergence of 1960s-style housing estates, the result of ministers overruling local objectors. There are planning protests galore.
This may not occur, of course. I would be the first to hope it does not – Britain does have an acute housing problem that needs solving urgently. Unfortunately, releasing property from land banks is only part of the problem; another is the lack of ability of buyers to pay for houses.
Labour, too, is attempting to control supply and demand – to apply levers to the market – and that is always extremely difficult and fraught with danger. I'm not saying leave well alone, but be prepared for a rocky ride.
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