Comment: ‘Generation rent’ needs radical solutions

Only new builds escape 20 per cent VAT. Picture: Getty
Only new builds escape 20 per cent VAT. Picture: Getty
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ANOTHER party conference and another big pledge on more house building. Last week Prime Minister David Cameron promised a “national crusade” to build homes so that “generation rent” can become “generation buy”.

Heard it all before? New home “targetitis” has long been the rage. Gordon Brown when prime minister set the national housebuilding target to 240,000 a year in 2007, insisting it would be a “national priority”. But fewer than 153,000 homes were finished in 2009-2010.

In 2013-14 the number of new houses completed was down at less than 141,000. The last Labour government promised to build 200,000 homes a year – a pledge it repeated in the May general election. Then David Cameron promised that the coalition government would get the market moving. But the number of houses completed fell back from 147,000 in 2011-12 to 135,500 the following year.

So, despite all those earnest pledges and annual outbreaks of “house building targetitis”, home ownership across the UK has fallen from 70.9 per cent in 2003 to 63.3 per cent – and is now even below that of France – the nation of nonchalant boulevardier rentiers – at 64.3 per cent

Across the UK, housing completions have averaged less than 120,000 annually since 2010, far short of the 250,000 needed to cope with demographic pressures, let alone the political pressure to allow more immigration.

Among 25 to 34-year-olds, alarmingly, home ownership has plunged from 68 per cent to 39 per cent. Only seven per cent of 16 to 25-year-olds own a property, down from 37 per cent little more than a decade ago.

Here in Scotland, the number of homes being built remains 40 per cent down on 2007, with only 15,541 completed last year.

The 2014 Scottish Household Survey revealed a six per cent fall in home ownership levels between 2009 and 2014.

And it is more than two years since Audit Scotland highlighted the need for half a million new homes over the next 25 years. Decisive action was needed, said Homes for Scotland chief executive Philip Hogg. He urged the Scottish Government “not to wait any longer and take the bold and decisive action which is long overdue and needed now on planning, land availability, funding and help for SME builders to ensure we have enough homes in the right locations to properly house our growing population”.

Yet by now we should be in the throes of a house-building boom. Real after-inflation earnings are rising. Home loan rates have seldom been lower. And the pace of mortgage lending is rising. So what is the problem?

The causes of this persistent gap between new house-building targets and actual achievement are many. The industry is notoriously cyclical – it is normally the first to be hit in an economic slowdown when banks throttle down on lending to builders and mortgage supply to home buyers is reduced.

The 2008-09 financial crisis hit many house-builders – and mortgage supply was severely cut. At the same time pay growth fell back sharply and household confidence suffered a notable fall. Recovery from such blows is neither quick nor easy.

But these are by no means the only factors that explain why house building targets lag political aspiration. There is a marked disquiet, particularly in towns and rural communities across southern England, about the large housing development targets visited upon them by central government. Those unaffected are quick to level the charge of “Nimbyism”. But many local authorities are meeting resistance from those who have legitimate fears over saturation, pressure on local amenities and loss of historic character.

And a contributory factor remains inefficiencies in the planning system, despite measures to speed up approvals. The latest Scottish Government figures on planning performance show the time taken to decide major housing developments for the first three months of the financial year is now at its slowest yet at over 64 weeks.

This is four times the statutory period of 16 weeks and, compared with the same quarter last year, represents an increase of over 80 per cent, whilst the number of applications determined actually fell by 40 per cent.

Even when stripping out four abnormally lengthy decisions, the median is still 37.6 weeks – two weeks longer than the same time period last year. 

Nicola Barclay, director of planning at Homes for Scotland, says: “My main concern is around the use of processing agreements, the whole point of which is for all parties to agree up front to a realistic and achievable timescale. Of the nine major and seven local applications using such agreements, only half met the agreed programme. This is extremely worrying and must improve if partnership working is to be encouraged and supported.

“Whilst the statistics for smaller developments are better, it is glaringly obvious that the system needs to gear up significantly if Scotland is to provide enough homes to meet the diverse housing needs of its growing population. This demonstrates the scale of challenge facing the independent panel tasked with undertaking the current ‘root and branch’ review of the planning system.”

Meanwhile, more could surely be done to encourage the repair and refurbishment of existing property. Pressure on new build is intensified by a tax regime where it is free of VAT, while it is imposed on renovation and extension of existing property. With a 20 per cent VAT rate, this makes new build a no brainer for many. Yet many existing rundown properties on brownfield sites can be attractively restored at accessible prices for young buyers. Why not scrap VAT for home upgrade and expansion in inner city areas?

And the fact remains that people in Scotland still have a strong preference to own their own home. Philip Hogg points to recent Scottish Government research and a Bank of Scotland report earlier this year highlighting that the main priority for 18 to 34-year-olds is to own their own home. The successor to the Scottish Government’s Help to Buy shared equity scheme, which will be aimed at assisting affordable home ownership, could, if targeted and funded appropriately, he says, “be one of the solutions to helping Scots achieve their housing aspirations.” And solutions we certainly need. «