Government does not have a leg to stand on in criticising the delaying tactics of construction firms

Given the Government’s decision to roll back from public investment in housing, it cannot expect a few firm words from its housing minister to have any meaningful effect

A number of factors are driving Britain’s housing crisis, but the most significant is also the most simple: we are not building enough homes. As demand for decent housing goes up – along with population growth – so does the market price for prospective buyers and tenants.

Since his election in 2010, David Cameron has recognised that housing is a priority for the electorate, but has failed to translate this into the right kind of action. In fact, the number of new homes started each year – 136,320 in the year to June 2015 – remains virtually static, despite the fact that the number of planning permissions granted has risen sharply under Conservative leadership.

Though major developers are securing land and obtaining the necessary planning agreements to develop sites, they are actually building properties at a very slow pace. Brandon Lewis, the housing minister, reports that some developers are taking 20 weeks to build a single home, while others can do it in less than four. 

There may be some mitigating reasons for this. Builders complain of a skills and materials shortage, and the absence of trained staff – a legacy of the downturn, when jobs were shed and there was no investment in a future construction workforce – which is a genuine problem for the Government to address.

But building slowly is also a sensible tactic for construction firms. By delaying development and sale of new homes, they are making a larger return on every property they build as the price of the land goes up. In central London, where land values and corresponding property price rises are among the most rapid in the country, land banking by large developers is very rare. Here developers have no incentive to delay. While the housing minister is right to shine a light on what some might consider poor ethical practices, there is nothing intrinsically wrong with the choices developers are making. They are behaving in an economically rational way within a free market. 

Mr Lewis, and the Conservative Government, cannot have it both ways. The party has deregulated the planning system, meaning that many more sites are now ready to build upon, but it places no burden of responsibility on a private industry that is free to build as and when it knows it will be valuable to do so. It is the Government that has set up a model of development that has enabled builders to behave like this.

So what can be done? There are carrots, and there are sticks – and yet neither seems effective. Projects which offer one-off bungs to encourage faster development, such as David Cameron’s starter homes initiative, have so far made little difference to housing numbers. When the team behind Sir Michael Lyons’ 2014 review of housing, commissioned by Labour, looked at the possibility of a “use it or lose it” clause on undeveloped land with planning permission, it didn’t trouble developers at all; their profits were significant enough to write off any losses.

It has taken investing public money in housing to boost development in the past. Local authorities are desperate to build and are struggling to finance that ambition, and could play a significant role in developing homes of all tenures including for private sale and private rent. They are prevented from doing so by the ideological forces of free-market conservatism. 

Given the Government’s decision to roll back from public investment in housing, it cannot expect a few firm words from its housing minister to have any meaningful effect on the behaviour of private, profit-making house builders.

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