Market failure needs a political response

Elaine Knutt

Remember the Barker Review? It was commissioned by the Labour government in 2004 in response to rising house price inflation (by far the highest in Europe), and declining affordability in the wake of historically low house building levels.

As well as recommending that output be scaled up to 260,000 homes a year to keep pace with household formation, Barker also pointed to the drag on economic growth that results from an undersupply of housing. As well as representing a missed opportunity to benefit from more development and employment, it also creates an overall brake on the economy due to decreased labour mobility.

Eleven years on, it’s really quite depressing that all the problems that were in such clear focus over a decade ago are still very much with us now. Of course, a severe downturn intervened, wiping out the modest gains in housing output in England that had been achieved 2004-07. But even so, many of the fundamental difficulties of 2004, such as the sluggish supply of consented land and lack of cross-border cooperation between urban and rural authorities, have proved remarkably consistent and resistant to planning policy changes.

That issue, in turn, seems to have frustrated many other worthwhile initiatives since 2010 that have sought to diversify supply and bring new players to the market. These include Build to Rent, custom build, and efforts to re-engage SME house builders that left the development market as their risks escalated in line with land values.

And it’s also meant that measures that concentrate on the supply side of the industry, such as shifting to more offsite production, or adopting new types of solid wall construction, have found it difficult to make headway in a market that’s been consistent in size, business model and management approach.

So with a new Housing and Planning Bill on the horizon and a national conversation on the issue, are we finally in position to lift output to 200,000 homes a year, or more? There would be few in the industry who would stake money on it: the housing sector is a veritable oil tanker with long lead-in times from planning to hand-over, and a whole host of vested interests resistant to change. Our arrested levels of housing output are a clear example of market failure.

But the market has failed because it has intersected with public bodies, the local authorities and public sector landowners, that lack incentives to cooperate, or a big picture overview that only regional or national government can bring.

Where we do have examples of promising growth strategies, such as in Cambridgeshire or Hampshire, it’s when regional authorities have chosen to cooperate across borders for the common good. Perhaps, then, the trend towards city devolution offers the greatest hope for accelerating house building levels. Let’s hope that’s true, for the sake of future generations.

Elaine Knutt, editor