Building the homes we need: Why we don’t build enough homes, and how to fix this.

Housing has now become a truly national crisis with the shortage of homes touching all corners of the country and millions of people on low and middle incomes. Homeownership is now at its lowest level in 30 years and the number of families with children renting privately has doubled in the last decade. Despite working hard and saving, they are increasingly trapped in unstable and expensive private renting.

Housing has risen up the political agenda in recent years, driven by increased voter anxiety not only among those directly affected, but among parents concerned about their children’s prospects. That’s why housing was a top four issue during the election and frequently polls ahead of crime, education and Europe.

Shelter helps three million people a year struggling with bad housing and homelessness. At the root of all of the problems we help with is the shortage of homes in England. Few would dispute this, but at the moment we’re not delivering anywhere near the number of homes we need.

The Housing and Planning Bill does not meet the scale of the challenge we’re facing. Tweaks to Compulsory Purchase Orders are welcome and should encourage more private housebuilding. But with the introduction of Starter Homes and the forced sale of council homes, the Bill represents a focus on home ownership products for the better-off at the expense of affordable homes for people on lower incomes. Meanwhile the underlying drivers of the crisis are perpetuated.

Nor are further changes to the planning system the answer. Constant chopping and changing increases uncertainty for developers and investors, slowing things down. And the government mustn’t contemplate a return to excessive mortgage lending. This would risk inflating a new bubble and exposing first time buyers to the risk of arrears and negative equity.

Only bold action to address England’s massive housing shortage will ease the pressure. As well as boosting public and private investment, supporting a new generation of garden cities, and increasing competition among builders, our national effort should focus on reforming the system to provide more land at cheaper cost. The private housebuilding market as currently constituted is simply unable to fully meet demand for more homes. It hasn’t filled the gap left by falling public investment, despite increased demand. In fact private housebuilding has ratcheted down over generations, with every turn of the boom-bust cycle.

At the heart of this is the high cost of land. Because land is inherently scarce, developers compete with each other to pay over the odds for it (usually pricing smaller builders out). The more they are forced to pay, the more they have to squeeze down the size, quality and affordability of homes. They are incentivised to try and wriggle out of affordable housing obligations and to hold on to the site and wait for its value to rise, rather than promote it for development and sale. Simply put, the cost of land ensures it doesn’t become rational for developers to build the homes we need, when we need them.

The only way we will get more homes built is to take bold action to get more land at lower and more stable prices into the hands of people who want to build. Here’s how we can do that:

1. Supporting ‘New Home Zones’. Local authorities or development corporations should be given powers to zone an area for low-cost development. They would negotiate land at a lower cost than developers can, using the credible threat of compulsory acquisition at existing value as a last resort. Once the land is purchased, it would be sold on to builders who would compete for it on the basis of the quality and affordability of homes they wish to provide. For this to be achieved, CPO law must be changed to be made fairer and more efficient.

2. Unlock stalled sites. Sites with planning permission would be unlocked by a ‘carrot and stick’ approach. First, funds for infrastructure should be provided (from the regional growth fund, for instance) to get the site moving. If the site remains undeveloped, council tax should be levied as if the home were built. This requires greater tax powers for local authorities.

3. Promoting land market transparency. Land prices and ownership by site should be published in an easily accessible format. This would create a level playing field so that small builders and new entrants can find sites more easily.

Shelter’s award winning entry to the 2014 Wolfson Economics Prize (with PRP, KPMG LLP, Laing O’Rourke plc and Legal & General) shows how this can be done. For more information, see the full submission at http://www.policyexchange.org.uk/item/wolfson-economics-prize.

Although none of this will be simple, the worst option is doing nothing. Inaction means accepting continued falls in home ownership, year-on-year rent rises, further increases in the housing benefit bill, and many more people living in overcrowded, substandard accommodation – or even facing homelessness. With rising anxiety about the problem, declining Nimbyism and an emerging consensus in the housing sector on how to build the homes we need, there is now a once in a generation opportunity to solve our housing crisis.