Housing developers 'sitting on sites to raise prices'

Britain's chronic shortage of new homes, and the exorbitant prices buyers have to pay for properties, are in part due to house builders sitting on land without developing it in order to drive up prices, according to a government review published yesterday.

A combination of planning difficulties and developers' reluctance to be speedy in building on land means Britain is now so short of new houses that an extra 39,000 would have to be built each year just to keep up with population growth, according to Kate Barker, a member of the Bank of England's Monetary Policy Committee.

If Britain wanted to build as many new homes as in Continental countries, it would need an additional 145,000 every year, her report added.

Ms Barker, commissioned by the Treasury to investigate the state of residential housing supply in Britain, said many house builders "trickle out" new homes, in order to control supply and boost profits.

While Ms Barker upheld some of the criticisms that have been levelled at the property industry, she also attributed some of the blame for the hold-up in homes being built to Britain's highly complex planning system.

She said local authorities, which are in charge of granting planning permission, too often succumbed to "nimbyism" from residents and green groups who did not want large developments in their area.

If the Government did not take decisive action to boost the number of homes coming on to the market, Ms Barker warned, there would be "less economic growth, spiralling house prices and more people at the bottom of the scale going into temporary housing".

However, she stressed she was not suggesting any solutions to the housing supply problem at this point because her report was only at the interim stage. She will come up with a list of recommendations ahead of the Budget.

The drying up in the number of homes built from new or created by renovating old buildings has been getting worse in the past 30 years, the review found.

In 2001, about 175,000 homes were built in Britain, the lowest level since the Second World War. The lack of supply has inevitably had an impact on house prices, with the cost rising 2.4 per cent a year in the past 30 years. That compares with annual increases of just 1.1 per cent on the Continent over the same period.

"If UK house prices had risen in line with the European average since 1975, the UK economy would have been £8bn better off," Ms Barker said.

An increase in supply would clearly lead to an easing in house prices, but only gradually, she said. The MPC would not view that as a bad thing, especially as first-time buyers particularly had shown signs of being priced out of the market.

Ms Barker's recommendations next year are likely to focus on ways to encourage planning authorities to be quicker in considering proposals for planning permission, although she will stress that the quality of building should not be compromised.

She said yesterday she was looking at possible changes to the VAT regime, probably to encourage developers to use more brownfield sites.

The House Builders' Federation denied its members sat on land without developing it, instead pointing the finger at the planning regime. "To solve the housing crisis the Government must ensure people's housing needs are not thwarted by local authorities responding to anti-building pressure," a spokesman said. "It is not right for 70 per cent of people who own their own homes to dictate the fortunes of the remaining 30 per cent who would aspire to the same things."