Big house builders, Less houses, more profit

You know the argument so I won’t dwell on it. But we need more homes and yet we’re building less. I have argued before that the real problem is affordability not supply, but the government certainly does accept the need to build more. It has been keen to help by creating guarantees and grants and relief from regulation to make it easier for more homes to be built. Its recent initiatives to help house builders include:

• £20 billion housing guarantee plan
• £225 million to support large-scale housing sites
• New buy scheme providing subsidy to allow 95% mortgages on new build homes
• A holiday for house builders from their obligations to build social housing as part of large housing developments
• Requirement for all new homes to be zero carbon by 2016 watered down.

So is there any sign that this vast amount of public support for the house building industry is working? Nope. The latest government statistics show that house building is actually in further decline, with housing completions down 6% and housing starts down 10%.  The industry is unapologetic and is asking for yet more help inviting the chancellor to "refine and expand" the measures he's already introduced.
So how have the big builders faired during this (apparently) most  difficult of periods? Here is the latest profit news from the UK’s ten biggest house builders:

1. Barretts profits up 159% to £111m 
2. Taylor Wimpey profits up 135% to £78.2m
3. Persimmon profits up 65% to £98m
4. Berkley profits up 40% to £142m
5. Bellway profits up 57% to £103m
6. Redrow profits up £17m to £30M
7. Galliford Try profits up 80% to £63m
8. Bovis profits up 100% to £16m 
9. Crest Nicholson profits up £34m to £12m
10. Bloor profits up £18m to £40m

I suspect that most people would be surprised to hear this, but far from having a difficult time, many of these companies are making record profits. How? simply by building fewer homes for higher prices. In their results both Persimmon and Bellway even boast that their average house sale price is the highest it's ever been. It appears suspiciously like the large house builders have happily accepted government support and used  it to shore up their own profits by building a small amount of expensive houses for the small number of people who can actually afford their prices. If I'm right and affordability is the real problem, this hardly feels like the answer.


N.b. the profits data given here is the latest from each company and is a mixture of full and half year reports. Bloor only publish operating profit information for the holding company Bloor holdings.

A letter to Graham Jones MP

Dear Graham,

I’ve just seen your latest blog post, and seeing as you were good enough to mention us, I thought it deserved a reply. If I can summarise you make three points:

1. “It’s a false argument to suggest that those on housing waiting lists are in desperate need for these homes”
2. Your constituency has declining population and therefore demolishing houses is necessary.
3. That guacamole eating southerners like me are dictating national policy.

Perhaps I can start with the first point and refer you to the latest published housing statistics for Hyndburn  (source:https://www.gov.uk/government/statistical-data-sets/housing-strategy-statistical-appendix-hssa-data-returns-for-2010-11 )

Empty homes: 2565 (the 2nd highest rate in England)
Families on the housing register: 4001
Families housed by council: 96
New homes completed: 0
New homes granted planning permission:0
New homes built by the council:0
New homes built by Housing Associations: 0
New affordable homes built by others: 0
New affordable homes granted planning permission:0

Of course statistics never tell the whole story, and you may well have some more recent (as yet unpublished) data; but it’s pretty hard to support your claims based on this evidence. There clearly is a great deal of housing need, and much as you and I would like these people to be housed in nice new houses, there’s no evidence of any being built or about to be built. Your suggestion of knocking two houses into one is a good one, but I fail to see how demolishing houses in these circumstances helps anybody when there is so little building in prospect.

Your second point is that homes need to be demolished because there is a declining population. I accept this is the case in a few areas, (although the population of Lancashire is projected to rise over the next 20 years) but can you honestly say that none of these houses were decanted?  Can you also be sure that uncertainty over possible demolition did not cause people to move out? . I know if the council kept threatening to bulldoze my house I’d look to move to somewhere where they’d leave me alone. This is important, because if you can’t be certain of these points then it's equally likely that demolition plans have helped create the problem you now cite.

I am of course flattered by your implication that my colleagues and I are driving national policy. As it happens I’m not a southerner, I just happen to live here because (like you) I have a job here. But your invitation to have a debate in a chip shop in the north is perhaps your best idea here. I will however be careful to avoid the Peter Mandelson faux pas and remember that the green slimy stuff is mushy peas not guacamole.


Update 13th December in response to Graham Jones' reply

Dear Graham,

I’m very grateful for your reply. Funnily enough I agree with some of what you say, but perhaps that’s because you are rebutting arguments that I haven’t made.

I’d like to challenge a few points though. Firstly your declining population point: Lancashire county council’s population projections don’t agree with you. They show a slow but steady increase in population for Hyndburn over the next twenty years. But perhaps they haven’t factored in the council’s demolition policy, which, as I’ll come onto, may be a self-fulfilling prophecy.

I’d also like to correct you on our policy on demolition. It isn’t actually true that we're against it on principle; I think it’s a sensible approach sometimes where obsolete housing needs to be replaced. What I’m against is speculative clearance. Knocking people's houses down in the hope that the cheap land it frees up will lure in a  private developer to build something.  

I’m not in favour of public subsidy footing the bill for renovating all empty homes. I do think its pragmatic for government to invest in refurbishing empty homes to create affordable housing. As you know there was a grant program this year that did just that, but I see Hyndburn didn’t apply. However,  another bidding round has just opened, and I’d be more than happy to help the council make an application.

I see that you didn’t comment on my questions about how the houses you want knocked down became empty in the first place. It’s important to point out that a lot of empty houses in ex housing market renewal areas were decanted and the program caused blight leading to many others becoming empty.  Of course the housing market was weak in the first place, but the HMR program poured £2.5bn of taxpayers money in with little obvious benefit, and left a lot of problems like the scale of housing vacancy we are discussing here. . 

You are right on this point, I accept that refurbished empty houses might not be the aspirational choice for all the 4001 families on the councils waiting list, but at least the houses exist and can be readily made into decent homes. Your proposal of knocking them down combined with the area’s nonexistent house building programme would mean that most of the 4001 families won’t get a house at all. Faced with this, what do you think they’ll do? I think they'll move somewhere else, which is why your policy probably is a self-fulfilling prophecy.

The Great British Property Scandal

Tonight Channel 4 will broadcast a new Great British Property Scandal TV programme. It follows the progress that has been made over the last eleven months since the original series was broadcast and investigates new scandals that it has uncovered of properties left empty when people need homes. 

These TV shows matter. Even the English housing minister admitted it: “we’re in a housing crisis”. Simply put, there are more people who need homes than homes available to live in. Yet fewer homes are being built at any time since 1928.
The Great British Property Scandal TV series could not have come at a more important time. By late 2011 there was consensus that British housing supply was in a mess, and calls for building more homes were sounding increasingly hollow. But one idea was gaining momentum: if we can’t build enough houses, why not get Britain’s million empty homes back into use? It was not a new idea, my own organisation has been campaigning on this issue for 20 years with some success, but never before had the idea been put so forcibly to the British public, and so publicly to the government.

George Clarke was the man to do it, and over the course of a week in December last year he told the scandalous story of how 1 million homes were lying empty when so many people were left without a decent home at all.

The scandal George exposed was not just that homes were left unoccupied, but that public money was being used to systematically empty and demolish perfectly good houses. Standing in a wasteland that had previously been a street of houses, George berated the system that has left us with 2 million households in housing need and a million homes lying empty.

Of course government policy was never intended to create the housing problems we now face, but there is no escaping the fact that some government housing policy has failed. The Housing Market Renewal Programme started in 2002 aimed to clear streets of old houses in areas where the housing market had collapsed. The aim was that the cleared land would attract developers who would build new homes. Perhaps predictably the cure turned out to be worse than the disease. The acquisition and demolition programme blighted already troubled areas, and the 2008 economic downturn caused developers to lose interest in building replacement houses. With thousands of houses emptied and many more flattened, government funding for the programme was withdrawn last year. Many cities in Northern England are left with a patchwork of derelict land and empty houses.

The scale of the problem should not be doubted. If building new houses was proving difficult this would be no easy fix either. But George’s campaign has attracted huge public support and triggered off action in government too.

In the year since the first Great British Property Scandal series was broadcast, the government has introduced an empty homes grants programme and has helped us set up the National Empty Homes Loans Fund. Low interest loans to help get empty homes back into use in an affordable way will be available, through us, early next year. In the last year similar funds have opened in Wales, Scotland and there will soon be a fund in Northern Ireland too. Councils are being encouraged to charge higher council tax on empty homes to incentivise owners to get them back into use - and councils themselves are being rewarded when they get empties back into use.

Most important of all, other new empty home refurbishment programmes are starting to spring up. The grants and loans programmes are making it possible for long term empty homes to be brought back to life, providing affordable homes for those in need.
The new housing minister has yet to say it, but there can be little doubt that we are still in a housing crisis. Nevertheless the progress on this one issue over the last year has been nothing short of remarkable.

Don't Build More Homes

My article was published on the Guardian's website earlier in the week with the slightly unfortuante title "Don't Build More Homes" The point I'm making is not that we shouldn't build more homes. I'm convinced we do need more in the South East and a few other parts of England,  the purpose of the article was to examine why they are not getting built.   In my view the current low house building rates are a symptom, the core problem is affordability. Here is the article:

Am I alone in getting bored with the "build more homes" answer to every question in housing? We hear it daily from politicians, housebuilders, and lobby groups as if it were a mantra. Whatever the housing problem, it seems, the only answer is to build more homes and the way to do it is for government to provide more subsidy to housebuilders. In theology, mantras are not supposed to be questioned, but I think it's time we subjected this one to a bit more scrutiny.

Let me first point out that I'm not saying we don't need more homes; quite clearly we do in some parts of the country. But addressing it by finding new ways to subsidise housebuilders has not only failed (housebuilding has fallen to 100,000 units a year), it is counterproductive.
I've visited three countries in the past couple of years that have had big housebuilding programmes: Spain, Ireland and Portugal. What I saw there saddened me. Not only do their building booms appear to have worsened their economic situation, the new homes they produced appear to be having little social benefit.
It strikes me that the major housing problem in the UK is not supply (technically there is a million house surplus in England), but people's ability to afford housing. Median house prices are more than six times median earnings in England – double what most experts think is sustainable.

Essentially people's wealth has not kept up with house prices. Why? Obviously not enough people have seen their incomes rise, but I'd argue that government policy, introduced with the best of intentions, has made the other side of the equation worse. Subsidies to housebuilders, artificially low interest rates, mortgage rescue, bailing out failing banks and subsidies to social housing have all either helped house prices rise faster than they would have done otherwise, or prevented house prices dropping.

The fallacy with building your way out of the problem is that people still can't afford the houses you build. This is what Spain, Ireland and, to a lesser extent, Portugal found. In fact to get the building boom going in the first place they had to offer builders big tax breaks and subsidies, and then offer further subsidies to help people buy them. There is a large lobby in this country to do the same here. Apart from whether we could afford such an approach, I just don't think it works. Housebuilders following subsidy guidelines in Spain and Ireland built houses that people didn't want and couldn't afford. People didn't buy the houses, even when they were subsidised. They remained empty and now, most galling of all, some of them are even being demolished.

You might argue that it's different in England, but it's happened on a small scale here too. The last government's strategy of brownfield development aligned to subsidy programmes like housing market renewal led to a large amount of inner city flat developments. Much of what was built sold slowly and required government bailouts to prevent whole scale abandonment. Even now there are hundreds of empty flats in town centre developments in places like Ipswich. Places which then, and still, claim to have a housing shortage.

It appears that no politician can face it, but the only answer is to let house prices drop to their natural level in relation to incomes. That would require a less-interventionist approach, ignoring the appeals of the housebuilding lobby and having to deal with the consequences of what would undoubtedly be serious human impact through repossessions for example.But after this had happened house prices would be in balance with incomes and people would buy houses again. This would create the demand that would get builders building again.

Stalled development and long walks for the milk

I like this blog, although its rather odd name fails to explain what its about. The pint of milk test was as far as I can remember first coined by think tank IPPR as a theoretical test on the accessibility of new developments to local services. The implication was if it took you more than 10 minutes to walk from the development to a shop where you could buy a pint of milk  it really was cut off and badly located.

Somewhere that almost certainly fails the pint of milk test is IYLO, an unusual building built on a traffic island a good 15 mins walk from Croydon town centre. The glossy website brochure describes IYLO as "Inspiration for Life"  and "the only 100% private development of its size in London" ( a euphemism that I'll explain later). What it fails to mention is that the block of 182 flats is unfinished and 100% empty. Work on the building stopped in 2009 when the developer went bust, it briefly restarted last year but the new owner went bust too.  In an attempt to get things going again the council agreed to drop its social housing requirements (hence the 100% private tag). It apparently worked,  the building was recently sold to a Chinese development company for a knock down £10m (£55k a flat). If you are feeling confident, and don't mind a long walk for the milk you can buy one now, if enough people do the same work will no doubt restart. If not Inspiration for Life may still be a long way off in Croydon.

5,000 demolitions make no sense

Does this make sense to you?  Over 5,000 houses are set to be demolished under a programme that was supposed to be for re-housing people.

The programme is the Housing Market Renewal(HMR)Transition Fund. The guidance for the fund (down load avaialble here) said “ It is intended to fund acquisition of homes/ relocation of individuals (with some funding for linked costs eg. relocation expenses) and at the margins some site security or clearance costs.”

Launching the fund, and commenting on the predecessor HMR programme that he had wound up Housing Minister Grant Shapps said “There was widespread public controversy over anobsession with demolition over refurbishment, the lack of transparency of thePathfinder quangos, large profits by developers, the demolition of our nation’sVictorian heritage and perverse incentives being given to run downneighbourhoods.

He added that councils "should not be pursuing large-scale demolition"

And yet that is exactly what councils are doing. Information obtained by Empty Homes under the Freedom of Information Act shows that councils have been awarded funding for demolishing 5,125 homes and renovating just 113.

In our view this is in itself a scandalous waste. Many of these homes could be brought back into use, and the £70m of public funding that is being poured into this exercise could have paid for renovation instead.

What on earth is going on?  Despite the guidance, and despite what ministers have said, councils seem to have got a completely different idea. A source at Hull City Council told Inside Housing “It could not have been made any clearer: this(transition fund) was intended for demolitions.”

Made clearer by whom? According to Inside Housing "Grant Shapps is understood to be concerned by the move, and has ordered a review of how the funding is being spent."

Pathfinder - and you thought it was over

Housing minsiter Grant Shapps has made his views on Housing Market Renewal very clear. He didn’t like it. In fact he disliked it so much that he brought the whole programme to an early end last year.... Or so we thought.

Housing Market Renewal or Pathfinder as it was more commonly known was a large government programme that aimed to regenerate the housing market in nine of the poorest areas of the North and Midlands of England. Between its inception in 2003 and its end last year it spent £2.3bn on demolishing 30,000 houses and causing 15,000 to be built.

Quoting SAVE Britain’s Heritage Shapps said “From the start, pathfinder showed an appetite for destruction....The classic English terraced house was demonised as “obsolete”. Whole neighbourhoods were declared surplus at the keystroke of a consultant’s laptop. Bureaucratic arrogance reduced communities to inmates of a “Zoo”—Zone of Opportunity—for house builders. Statisticians assumed compulsory purchase and eviction for demolition were acceptable measures for householders in a property-owning democracy. Quite predictably, the cure turned out worse than the disease.”

The decision to end Pathfinder was one we supported, although public investment in some of the poorest communities in England should be welcome, the use much of it got put to was in our view counterproductive. The programme that was originally intended to regenerate communities ended up demolishing them. It was also ineffective in reducing the levels of empty homes, despite that being one its major aims.  There are still about 40,000 empty homes in pathfinder areas, about the same as when the programme began.

But stopping Pathfinder has not proved as easy as it sounds. Local authorities had a pipeline of properties lined up for demolition. First an area was “red-lined”, many residents moved out voluntarily, owners were then bought –out , the reluctant ones subjected to compulsory purchase. This land assembly process took years, and so to stop it any point left thousands of people and homes part way through the process.

After strong lobbying from pathfinder councils, the government eventually agreed that simply turning the funding tap off was not enough. They agreed a transition fund that it announced would allow an orderly wind-down and allow people stuck in the middle of it to be re-housed. The fund originally £30m (later topped up to £35m) was agreed for the five worst affected areas: East Lancashire, Hull, Merseyside Stoke, and Teesside. Applications were approved late last year. 

Announcing the funding Grant Shapps was again strident in his criticism of the pathfinder programme:“Under the previous controversial scheme, local communities in some of the most deprived areas of the country were told they would see a transformation of their areas. But in reality, this amounted to bulldozing buildings and knocking down neighbourhoods, pitting neighbour against neighbour, demolishing our Victorian heritage and leaving families trapped in abandoned streets. This programme was a failure and an abject lesson to policy makers."

Given the language and the tone that surrounded this fund, you might very well expect that it would be made available for reversing the pathfinder policy. But to most people’s astonishment the government’s funds are to pay for more of the same. Charles Clover writing in yesterdays’ Sunday Times said   "The bid for Merseyside, which Shapps approved, goes far beyond rescuing isolated households. Under this “exit strategy”, councils on Merseyside will demolish another 2,369 homes by 2018, on top of the 4,489 destroyed already. There are no proposals for refurbishment.”

The approved Teeside bid sets out its ambitions clearly “the individual local authority forward strategies for the majority of these areas in the short-medium term is demolition followed by grassing over until market conditions improve.”

 Pathfinder it seems is far from over.