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Think tank calls for reform of 'dysfunctional' house building industry

The government must overhaul the “dysfunctional” house building industry to prevent the UK housing market from stagnating, a report said today.  

The Institute for Public Policy Research’s housing supply report also says the government’s housing strategy – due to be published next month – should promote the use of local authority pension funds as a source of investment for house building, and calls for the expansion of the Green Investment Bank (GIB) into a fully-fledged National Investment Bank to include house building and other infrastructure.

The IPPR says England faces a shortfall of 750,000 homes by 2025, with the worst supply and demand mismatches in London, the South East, East of England and Yorkshire and Humberside. The think tank says the UK needs to build 250,000 new homes every year.

Calling for structural reform and “competitive pressures” for the development industry, its report, Build now or pay later: funding new housing supply, refers to a developer ‘cartel’ that makes large profits on small volumes, “crowding out choice and competition, and so creating chronic inelasticity in supply which exacerbates dysfunctionality in the market”.

It accuses Barratt, Persimmon, Berkeley, Taylor Wimpey, Bovis, Redrow and Bellway of “too often” banking land, rather than building on it, creating an artificial shortage and driving up prices.

The report also suggests local authorities make their land available to developers, free or at a discounted rate, in return for an equity stake in the development. And it says councils should adopt a more assertive ‘use it or lose it’ approach to privately held land in their areas, including time-limited planning permissions and compulsory purchase orders.

It also says the strategy should control housing benefit expenditure with a ‘stepped’ taper to discourage the use of expensive properties.

IPPR authors Andy Hull, Graeme Cooke and Tony Dolphin, also urge government to focus on domestic insurance and pension funds to finance new homes, in particular local authorities’ pension funds.

One source at a major housebuilder said the IPPR had correctly identified the challenge in terms of housing numbers, but said the stance on developers is ‘ludicrous’ and ‘unhelpful’.

He said land availability remains the major challenge but that the state is the “monopoly supplier” of land in the UK. He added that the Office of Fair Trading dismissed land banking claims three years ago, when it said developers need land banks as part of their development pipeline.

Readers' comments (1)

  • Of course the Housing companies manipulate the system, they are there to make Money after all !
    The Goverment should step in somehow though, an agressive Home building program would also put many currently unemployed construction workers who are on benefits AND not paying any taxes into the economy!

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