UK government housebuilding targets: 1.5 million houses or bust…is it really feasible ?

 

Starmer’s latest 'hobby-horse', which was given an outing in the media recently by his housing minister and deputy Angela Rayner, would seem to be setting his party up for failure….. 

Almost everyone with any knowledge of the house-building industry seems to agree that under the circumstances we’re likely to see during the remaining 4 years of Labour’s term, building this many houses just isn’t feasible. The majority of our Local Authorities, who will be directly responsible for achieving the target in their areas, endorse this view. 

Starmer is thus either a) just not listening or b) convinced that he is right and everyone else is wrong (or indeed both!)….Moreover, by setting himself and his party a fixed target such as this, he is virtually guaranteeing his government will be found wanting come the much-awaited ‘reckoning’ before the next election.

So much for the continued ‘crazy’ politics then….but what about the feasibility of building this many houses – why does the plan appear so impracticable to the pragmatists among us  ?

For a start, nothing like it has been achieved in UK before – there have certainly been phases of rapid house-building at intervals during the past century, notably between the two world wars, and again post WW2, when a lot of the dreadful concrete pre-fabs, that needed so much improvement in the '80s and '90s to make them habitable, were put up. These were followed by the infamous 1960s 'eyesore' tower blocks that proved so unpopular with their tenants. As an added ‘legacy bonus’, many of these blocks are now generating fire risks due to their shoddy construction (and of course the cladding fiasco), and are blighting the lives of their unfortunate leaseholders. So rapid housebuilding is possible...but should we really try to do it at this headlong pace, and what is likely to be the result ?

At the very least, we should look back on this unfortunate period of history and learn the lesson: You can’t rush house-building, and that any housing you do build must be a) fit for purpose, b) affordable and c) built where it’s really needed...and certainly not on active flood plains! Despite the Tories’ focus on increasing house-building during their last term, the best they ever managed was around 178,000 per year, with the lowest around 106,000 at the start of the Austerity 1.0 era in 2010. They never achieved their own nominal target of 300,000.

Is our building industry ready and willing to take on such a huge challenge ? In a word, no…we need to look at some recent history to explain why.

Thanks to post-Brexit restrictions on EU immigrant workers, on which the building trade depended before 2021, and a decline in UK recruiting to the industry since then, numbers entering the building trade have declined. We simply don't have sufficient of the many trades-people with the wide variety of skill-sets needed to build the houses and the infrastructure that supports them. 

The Blairite obsession with sending everyone to university, which first became rampant in the early noughties and has continued ever since, has a lot to answer for here. It deterred young people from taking up trades in favour of mediocre qualifications which gave them little or no advantage...and a whole lot of personal debt. The construction industry workforce was briefly a bit more buoyant at the peak of building in 2022, relying largely on immigrant labour,  but still only managed less than 200,000 houses that year. We would therefore need to build up the industry again to well beyond the 2022 level even to attempt the 330,000 figure that would be required every year to meet Starmer’s ill-conceived target. This will be impossible in the face of new much tighter rules on immigration - few foreign graduates will want to come here to become brickies ! 

As mentioned above, the old class-prejudice against ‘trades’ generally still remains, and this can deter would be candidates from choosing building-related occupations. This societal prejudice, combined with a marked reluctance of our young people to make a career in any occupation involving manual abour, makes Rayner's vision a tall order, to say the least. 

An additional problem the industry faces is that the remaining workforce it still has is an ageing one, with many already over 50 and set to move into less physically exacting jobs and / or retire from the industry altogether whenever they can. Even 'our Angela', impressive a figure though she undoubtedly is in her hard hat and Hi-Vis jacket posing for the cameras, won't be able to make any impression on this hard reality. I have even heard talk of co-opting those on long-term sickness benefit to help out – anyone with any experience of the skills and the sheer physical stamina required in being a ‘brickie’ will realise how daft that idea is!

But there is yet another very significant issue which is likely to confound the plan. It stems from the fact that government must rely on the private sector to take the leading role and ‘make it all happen’. There is no ‘public sector’ building industry as such. This means that any housebuilding expansion programme will have to be profitable for the house-builders for them to agree to, and then implement at the rapid pace required. No amount of government edicts and threats of retribution to leaders of our hard-pressed LAs will alter the fact that the private sector is ultimately in control, and will find ways of building where, when and how it chooses.

The typical ‘mix’ of housing that tends to appear on most new estates nowadays is clearly designed to achieve maximum profit yield for its developer, and is largely composed of 3-5 bedroom detached and semi-detached, with a relatively small proportion (ca 15-20% max.) of so-called ‘affordable’ 1-2 bed terraces/flats. (These so-called ‘affordables’ still cost upwards of £200k in some areas, so the term is arguably already a misnomer anyway). Most of the developer’s profit is made on the more expensive properties, with the ‘affordable’ ones effectively being unprofitable; these are usually included at the minimum level required to secure planning permission. Now that planning approval for any development is virtually guaranteed under Labour's new rules, we should therefore expect fewer, rather than more, of them in planning submissions.

The problem is that we would need a completely different housing mix to satisfy the real need we’re faced with in UK. To meet the demand at the first-time-buyer entry level, approx. 40-50% of the 1.5M proposed would need to be affordable, and these would need to be priced much more reasonably at say £100k-£150k to enable the people who need them to obtain adequate mortgage funding. This combination would simply not be profitable for the developers, who just wouldn’t agree to it, and would either decline to build or go out of business altogether. 

But couldn't the government just force the industry to comply ? 

Well no, not really…it’s unlikely they would attempt to use new legislation to force this through, for legal reasons if nothing else. As private enterprises, as we've alluded to above, private sector developers are entitled to choose where and what they build, subject to planning approval, and any attempt at mass-coercion would be counter-productive, and simply lead to the industry dragging its feet at best. As a trained lawyer, and former DPP, Starmer of all people will be aware of the dangers of allowing his government to get mired in endless legal disputes with the very people he will be depending on to get his houses built.

As discussed above, Labour’s own efforts since July have given Local Planning effective ‘joke’ status i.e. anything Whitehall wants, happens...no 'ifs', no 'buts' from Local Planning. Thus there is no effective brake on unsuitable developments and the restraining influence of the ‘Green Belt’ of old is no more. Developers can virtually build where they like, including on flood plains and prime agricultural land, and the housing 'mix' will be geared to maximising profit. There is very little consideration of the long-term implications of building on a site, and the recent regular bouts of widespread flooding have just shown once again how poorly sites for many new homes have been chosen...and approved.

A more likely scenario that might be considered to force 'the project' through is some form of government subsidy to maintain profitability, either in the form of a direct grant for each purchase, or via tax concessions. And make no mistake, this would cost the exchequer…big-time. 

Just to take our example of ‘sponsoring’ a reduction in the price of every affordable house from £200k to £150k, with a 50% affordables ratio and a total of 1.5M new-builds, this would require an extra £37.5 billion from the treasury, dwarfing the ‘Black Hole’ in the finances we’ve heard so much about for the last 6 months, and the highly controversial extra tax-take already introduced to cover it. The remaining housing in the ‘mix’ would then need either to be subsidised as well, or sold at an even higher price to maintain profits at an acceptable level in the face of the reduced level of profitable properties.

As we have been advised by politicians of all allegiances in recent years, there is no 'magic money tree', and Reeve's strict borrowing criteria will apply. Thus we, as taxpayers, would be the ones to fund all this out of…yes, you guessed it.….ever higher taxes, which this time would have to be levied as personal taxation, rather than on employers or via other 'stealth' taxes such as threshold freezes. Reeves and Starmer know that doing this in the wake of October's disastrous budget, (which they promised wouldn't be repeated), and the recent surge in Government borrowing costs resulting from it, would be politically suicidal, so the likelihood of it happening is virtually nil. 

There is another, perhaps less obvious, issue that follows on from this, and that is the availability of the funding needed for purchase, particularly for the first-timers Labour is targeting. 

Many of the younger members of society who would love to own their own house, but have no chance of getting onto the housing 'ladder' at present because they are, basically, skint. Due to a combination of low starting salaries, zero hours contracts, cost of living crises, Covid pandemics, etc, etc. they have virtually no savings, and a very uncertain economic future. Most would be very unlikely to be able to raise even the small deposit required to purchase, even with a partial government subsidy. Moreover, getting any mortgage funds at all to cover the rest, let alone the 90-100% required, with their poor financial prospects would be difficult. 

We all saw what happens when lenders are too free with mortgage funds in 2008; I suspect our mortgage industry would just not be prepared to accept the enhanced risk of default involved in providing the truly immense amount of capital required to buy 1.5 million homes at current prices (assuming any of them actually get built !). 

The average cost of a home as of Jan 2024 in the UK was around £282k, with England topping the £300k mark, and will have risen significantly since then. Many of the new builds on our new estates now weighing in at upwards of £350k, with the bigger properties having list prices of half a million or more  - I'll leave it to the reader to do the maths.......There is no possibility of the government stepping in with cash grants here, of course – the vast sums that would need to be under-written are just too mind-boggling.

Is there a practical solution to the housing crisis ? Yes, but it would require time, more effective control of our population gowth…and a large element of joined-up thinking.

We do need more houses, certainly, but a large part of the problem is that our population is already too large. The hard reality is that just to maintain our standard of living, let alone improve it, we must put a hold on UK population growth, and the only way to do this is by restricting immigration, at least down to the tens of thousands per annum, and identifying and deporting all our illegals. This would allow the natural decline in birth rate we’re already experiencing in western europe generally to start taking effect, and eventually stabilise UK numbers at the ‘steady state’ figure of around 60 million that might actually be sustainable for our small island kingdom long-term. The problem will just get worse if we don’t do this, given that many of the additional immigrants likely to arrive on our shores this year (legal and illegal) would be likely to swell the demand for the ultra-scarce cheap ‘affordable’ accommodation even further. 

It is only once we’d achieved this population adjustment, that we’d be able to adopt a more measured and realistic approach to house building. We could then focus on accommodating those who are entitled to live here, and are actually able to afford home ownership, by building the right type of houses....where they are really needed. We'd also need to make sure there is no ‘stigma’ attached to not owning your own house, and ensure that there is enough affordable rented accommodation for everyone who opts out of ownership. 

Penalising legitimate buy-to-rent landlords and boosting tenants' rights to the nth degree certainly won't help with that, and will just lead to many of the buy-to-renters that are still hanging on opting to sell-up. The shortage thus created would drive a thriving ‘black economy’ in the rental sector with even more ‘rogue’ landlords taking advantage of high demand...and breaking the rules with impunity, leaving tenants actually worse off. Both the private rented sector and Local Authority housing must be adequately supported to stop this happening.

All this would of course take time, and require continuity of government support. Mercifully, the likelihood of a second term for Labour is declining daily, so we should expect a more right-leaning administration from 2029 with different housing policies. The need for housing won’t go away, though, so the policies adopted now must be acceptable enough to make the transition between political regimes successfully, if continuity is to be achieved.

Update: 31.1.25: The announcement yesterday of the house-building tally for 3Q and 4Q 2024 demonstrates clearly the virtual impossibility of 'Starmer's promise' being met. Not only did the numbers for Labour's first half-year fail to get anywhere near the quota required, but they actually fell significantly compared to the same period in 2023. The staggering thing is that UK.Gov don't seem to understand why this is the case (or at least they're not admitting to). The reasons are crystal clear to anyone with a grain of common sense who hasn't been living on another planet for the last year. Labour spent the first 6 months of their tenure actively 'talking down' the economy and telling us all how much additional tax and spending reductions we would all have to put up with 'to get the economy right after those profligate Tories ruined it'. Little wonder then that we all cancelled all planned major purchases (except holidays, apparently...I wonder why ?!) and resolved to save as much as possible for the financial 'storm' ahead. Couple this with a building industry programmed to respond to projected falling demand, and suffering from an acute shortage of skilled workers, and you have a recipe for the sharp slowdown in construction...which we now see playing out. 

To get the full picture, we need to look in detail at what's actually changed. The following data for July-December 2024 (percentage changes vs 2023 in brackets), obtained via the link above, may shed some light...

Houses started: UK: 31660 (-60.3%); England: 25510 (-64.8%)

Houses completed: UK 51960 (+9.1%); England: 44550 (+10.7%)

Two things are apparent from this: 1) We're not completing anything like as many houses as we would need to to achieve targets and 2) Developers have put a brake on new starts, and I suspect won't increase startups until they see a decent prospect of being able to sell, and profit from, their efforts. The last thing they want is to produce a glut of houses they can't sell, since this will depress prices...and their profits.

I rest my case.....

Update 25.5.25: The ineptitude of this government beggars belief...

The latest brainwave of our esteemed deputy PM is to threaten developers with loss of their land if they are seen to indulge in 'land banking'. This is the practice of buying and land and obtaining planning permission for it, then 'sitting' on it until the developer feel the time is optimal to build. The practice is widespread, and an important part of a developer's strategy for optimising profits. Why, you may ask, do they do this ? The answer lies with the balance between supply and demand. Developers are acutely conscious if they flood the market with too many new houses, supply will outsrip demand and prices will fall. Result: lower profit margins, poorer dividend returns for shareholders...and lots of unsold houses. 

And what are likely to be the consequences of outlawing the banking of land with existing planning permission ? Developers will either:

1) Buy up the land and not apply for planning permission until they intend to build OR 

2) Not buy up the land at all unless they see it as profitable to build on it straight away.

Option 1) would actually save developers a lot of cash - planning permission is costly to obtain, with a sizeable parcel of land reputed to cost up to £2M. Conditions applied to current planning consents usually include a requirement to build within 5 years, after which permission is automatically revoked and they need to re-apply from scratch. The main problem if this approach is widely adopted is that it would inevitably introduce an automatic delay in building programmes - no matter how permissive and streamlined the new planning regime might be, its internal processes will still take months or even years to complete, thereby delaying the down the start of construction unnecessarily.

Option 2) would act as a deterrent to building in UK at all. Internationally-based developers would simply 'take fright' and transfer their efforts to other territories where the 'climate' was more favourable.

And what would be likely to happen to any land developers were already holding with planning permission ? It's very unliekly that Rayner would be allowed to make the legislation retrospective. If she did this, developers would rush to sell off the land before it's permission expired and it was confiscated by the local LA, causing a major upset in housing development generally. There would of course be huge legal challenges if this were ever introduced, and such a move would inevitably prove terminal for the offending government.

However you look at it, any significant interference by UK.Gov with the housebuilding industry would be likely to force a slow-down in the building programme and induce a much more wary approach in developers. This would be hard to reverse. The only beneficiaries I can see would be any LAs who were fortunate enough to grab the land from defaulting developers...and they wouldn't get to do that very often.....or for very long !

An cracking 'own goal' if ever I saw one......

First Published 17.12.24 

Revised 25.5.25