29 September 2024

The government can’t solve the housing crisis alone

By Pete Dockar, Chief Commercial Officer, Gen H

It’s a simple equation.

To ease the housing crisis, government estimates we must create 300,000 new homes per year.

It makes sense, right? People want homes. So if builders create 300,000 new homes, people will buy them. Then they’ll do the same thing next year, and the year after, until finally, problem solved: no more housing crisis!

But there’s a problem. The sale of new build homes priced in line with market doesn’t help the millions of aspiring homeowners who are already locked out by affordability or deposit constraints. Unaffordable is still unaffordable, whether it’s a new build or not.

This is a fundamental challenge to the “300,000 new homes per year” strategy that compounds the economic challenges faced by builders. Margins are already thin. Suddenly, that magic number doesn’t look so attainable.

Missing the mark

We are not on track to reach the government’s housing targets – we’re not even close. Savills estimates that only 200,000 new homes will be built in 2023/2024. They also predict that by the end of this decade, this number will fall to just 170,000 new homes per year.

It’s not just an abstract idea of homeownership at stake. Millions of people buy homes because this constitutes something of a retirement plan. Those unable to access wealth creation via homeownership may find themselves frighteningly unprepared for the costs of retirement and, not for lack of trying, unable to change course.

That people would rely on the future sale of a home to pay for a secure life in old age is a symptom of a broken pension system, and homeownership is not a universal salve for poverty in retirement – but what now, for those lifelong renters on average salaries with modest pension pots?

Labour will have to do things differently

We can withhold some judgement of Keir Starmer as yet. The new Labour government is still finding its footing. Yes, Starmer is somehow less popular than Rishi Sunak was. And yes, this grim reaper-tone struck by government since the election has many worried about looming austerity.

But there is still hope, and still time, for a plan that could solve the housing crisis. However, if one thing is clear, it’s that government can’t do it alone. We need a comprehensive supply- and demand-side plan for reform that protects and incentivises house builders as they build new homes and which enables people to actually buy those properties. We need collaboration with the private sector.

The public-private divide isn’t fit for purpose

It’s a failure of previous governments to have overlooked the private sector in addressing the housing crisis.

Lenders, intermediaries, and house builders alike are equipped to innovate in ways that government never could. The private sector has the funds, cause, and the imaginative capacity to fundamentally change how we approach lending; the creation and marketing of new build homes; and indeed homeownership in this country – for the benefit of everyone.

But this hasn’t ever seemed to factor into government’s plan. Instead, house builders continue to assume huge risk for every new site on which they break ground (and that’s if they make it through the Kafka-esque hurdles set forth by so many councils following the 1947 Town and Country Planning Act). When they can build homes, lenders’ outdated criteria mean few can afford them.

Lenders, as well, are not rewarded for finding new ways to lend to wider swaths of borrowers. They are wont to tick along with the same limited view of mortgageable people and properties – in fact, they’re actively incentivised to do so by regulation such as LTI flow limits, which prohibit lenders from offering loans bigger than 4.5 times salary to more than 15% of their new business regardless of product structure, affordability, or business model.

Given that the average house price in the UK is now 8 times the average salary, this is not at all fit for purpose. Lenders must change – but in many ways, legally, without buy-in from government or regulators, they can’t.

An equitable housing market requires collaboration

With the right top-down support from government, the private sector could drive the rapid change that people so desperately need. House builders could build 300,000 new homes per year (or even the 500,000 that experts estimate we actually need) and lenders could find new ways to lend, bolstering supply and demand, and enabling access to homeownership and the wealth it can bring.

New build homes are central to solving this housing crisis. But we won’t build 300,000 new homes per year and sell them while we’re siloed as we have been over the last several decades.

If we want to solve the housing crisis, regulators and government first must decide whether a generation of lifetime renters is a better outcome for society than a world where just 1.7% of people miss a mortgage payment – even during a cost of living crisis.

And when they arrive at their conclusion – hopefully the right conclusion, and hopefully soon – they’d do well to finally invite the collaborative approach that such a challenge requires.

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