Changes needed to address housing supply shortage

24th April 2018
By: Co-Ownership

Opinion piece by Chief Executive Mark Graham

In Co-Ownership I have the opportunity to meet and work with a wide range of house builders, both those that build private housing and the housing associations that build social housing. They do in some ways think very differently about building new homes. Private developers build to sell and they build at the rate that the market can absorb. Housing Associations as not-for-profit organisations primarily develop the housing that the market cannot supply. Behind these differences however there are many common challenges that houses builder face. The developers I speak to, both private and not-for-profit, recognise the need to build more housing here and they share many of the same frustrations about the things that get in the way.

There is broad agreement that we need to build more houses in Northern Ireland. There have been just over 5,000 private housing starts each year over the last 5 years. Even with the reduced estimates of household growth this is well short of the 7,000 new private homes we should be building each year and many would argue this estimate is much too low. Social housing is also behind in delivering the 2,000 new social homes that are a needed each year.

So why are we not building the numbers of houses we need? The last major initiative to try to address this was the Housing Supply Forum which made a number of recommendations in 2016 to improve housing supply.  In the forum it was clear that the private and social sectors face many of the same challenges; land availability, the slowness of the planning system, a lack of infrastructure in some places, access to finance, the capacity of the local SME construction sector and the availability of skilled labour.  The forum made a number of sound recommendations, which if implemented, should help but there is growing consensus that there are more fundamental issues to be addressed.

Arguably the most critical issue is land. The planning system is meant to ensure that sufficient land is zoned for housing and that a proportion of this housing is affordable. Councils putting local development plans in place here is therefore critical and these plans must ensure that an appropriate area is zoned for affordable housing. Better use of surplus public sector land and more support on infrastructure would also help. But these things are already in place in GB and have proved insufficient to address the housing shortage. Increasingly more radical ideas are being proposed and interestingly similar ideas about land use are coming from all areas of the political spectrum.

Land in the right place for housing is a finite resource. Its supply depends primarily on private land owners who are perversely incentivised to hold on to sites until the value has been maximised. Arguably therefore the main beneficiaries from house price growth since the 1990s have been land owners and it is the case that house price inflation is almost entirely caused by land price inflation. This not only impacts on private developers, but it has also made social housing much more expensive to develop and has therefore reduced the amount of social housing that has been built. High land prices not only squeeze out social housing they also skew housebuilding towards higher-value properties.

There is increasingly a view that what is needed is a fundamental change to the incentives that operate in the land market if we are going to build the homes we need. This is not a new issue, proposals to tax the landowner’s windfall and incentivise them to release land go back to the early part of the 20th century. New towns in the 1950s were developed when local authorities had compulsory purchase powers to acquire land at its agricultural value. More recently making developers contribute a proportion of affordable homes in large housing developments has in effect been a way of the public sector capturing some the land owners’ windfall. It is worth noting that unlike GB and the rest of Ireland we in Northern Ireland have never implemented a developers’ contribution policy.

In Co-Ownership our role is to help more people afford home ownership and over the last 12 months we have helped over 800 people and we expect to help around 900 over the next 12 months. In an economist’s language we stimulate demand, but if house supply remains constrained and as a result property prices rise the reality is that with a finite amount of money available we will in the longer term be able to help fewer people.

Radical change is needed to address the underlying issues that constrain supply, especially the issue of land. It will be interesting to see if government here (I am ever optimistic) regards housing as a sufficient priority to consider radical proposals.

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