John Hayes MP: Of hearts and homes - why Brown is barking up the wrong tree

Until recently John Hayes MP was Shadow Housing Minister.  He is also a leading member of the Cornerstone Group.  He is now Shadow Minister for Vocational Education.  A speech he gave on 'the home' in May 2004 was a key inspiration for the formation of this blogsite.

We plant trees for those born later. And we should build houses for them too. Homes matter. They matter to the young couple looking for their first shared property; they matter to the family desperate for more space; they matter to the children trapped in temporary accommodation for want of a place of their own. Homes matter because they are evocative of love and security, of warmth and certainty. We think of home when abroad. And there is no more reassuring image than a homecoming – redolent of all that is familiar and welcoming. Homes have become harder to come by in recent years. People have had to stretch much further to climb onto the property ladder. For many the ladder is beyond reach – a home of their own is but a distant dream.

So, Gordon Brown’s fascination with housing is unsurprising. Indeed, beyond the downgrading of his growth forecast, perhaps the most significant aspect of his pre Budget statement was what he said about his plans in this regard. Mr Brown is such an admirer of Kate Barker’s study of housing supply that since its publication in March 2004 he has a dedicated a Treasury team to work on how its principal recommendations could be implemented.

Mrs Barker proposed a massive expansion of house building to counter the problem of house price affordability, which has left aspirant homeowners in 8 out of 10 British towns unable to mount the property ladder.

Her approach to housing affordability appeals to the Chancellor. They share views about a supply side solution. They are both wrong.  As we begin a new political year it is worth studying why Labour’s housing policy is so inadequate.

Demand side factors such as interest rates, the relative unattractiveness of alternative investment vehicles; the level of borrowing secured by housing equity; and uncontrolled immigration drive up and hold up house prices. If the supply of houses was greatly increased, of course, eventually prices would be affected. But a supply side solution of the kind Barker envisages would be slow and inexact, with significant undesirable consequences for land use, the character of existing communities and aesthetics of the built environment.

Certainly, we need to build more houses. After all, under Labour the construction of social housing has halved – leaving 100,000 desperate people trapped in temporary accommodation. But housebuilders tell me that many of these could be built on brownfield land. Barratt Homes report that nationally 80% of their developments are on brownfield land, rising to 90% in the South East of England.

That’s why the policy I developed before the General Election explained how we could maximise brownfield development. Countless town and city centres are scarred by derelict sites that resist redevelopment simply because local authorities have reserved them for employment use rather than for housing. Inner suburban decay is blighting many parts of Britain. A Conservative emphasis on regeneration would mean that the designation of land for employment purposes will not prevent its redevelopment as housing. Our emphasis within local development plans must be on flexible designations that facilitate the mixed work, housing and leisure uses essential to give birth to genuinely sustainable communities that provide both the means to support a good standard of living and the joys necessary to achieve a good quality of life.

The shift from green field to brownfield development would also be accelerated by streamlining planning permission for brownfield sites. However, dictating to local authorities how they should fast track development is likely to lead to more red tape and a lower quality development. Rather, Conservative policy should result in planning duties that fix an expectation that local authorities will streamline the planning process for brownfield sites.

However, action to reduce and simplify the planning regulations will not alone ensure that the supply of brownfield sites is fully utilised. Decontamination costs, for example, mean that in some cases re-development would still not be economically viable. Action is needed to provide additional incentives for re-development. A Conservative Government should look at ways of making sure the tax system encourages the redevelopment of brownfield sites.

The Chancellor is right about the theory of Real Estate Investment Trusts (REITs), but wrong about the practice. The American experience shows that investment in real estate is stimulated by strong incentives. The Treasury’s extraordinary idea that a significant difference can be made without that kind of financial stimulus – i.e. that REITs can be introduced on a revenue neutral basis is at best happily optimistic, at worst hopelessly so. At the very least investment in regenerative development might attract fiscal support.

The Chancellor is wrong about planning gain tax – also favoured by Kate Barker. Previous land development taxes have failed, partly because of their complexity, but also because developers speculated against political change. Given the profits to be had, people will hold back development in the expectation of a change of policy, or a change of Government. That would mean less land available for development, house price rises and the dream of home ownership becoming a ever more distant for a new generation of Britons.

Perhaps there is no genuine intention to introduce the tax at all! The effect of an annoucement that the Government intend to consult on the possibility of such a tax may itself be enough to push developers into exploiting their undeveloped land bank. If the Chancellor achieves his aim of freeing up land and so boosts the levels of building, the consultation might be intentionaly fruitless.

The fundamental problem with Labour’s approach to housing affordability since 1997 has been its focus on buildings rather than people; subsidising the construction of property to rent rather than directly helping people to afford the home they long to own. This policy by failing to respond to popular aspirations so contributes to the growing mismatch between provision and need.

Housing policy should be in tune with people’s aspirations. It must fulfil ambitions – make dreams come true. An important way that home ownership can be made more widely available is through the extension of shared equity, a central plank of the policy we developed for the election. Professor Glen Bramley of Heriot Watt University estimated that if shared equity were widely available it could help an additional 12%-15% of households in the South of England to buy. Labour have falteringly – and in Mr Prescott’s case grudgingly – journeyed towards a new position. They now appear to understand that rapid growth in home ownership can be best provided by an equity revolution.

As well as helping people to buy their home, shared equity schemes have a number of advantages that make them the best way forward for social housing support. Shared equity schemes provide affordable housing at substantially less public cost than social rented housing. This is because a substantial proportion of the market value is funded by the purchaser. For example, if the budget for the development of social housing for 2003/04 has been divided 50/50 between housing to rent and shared equity it would have financed 33,000 homes, almost 12,500 more than were actually built. Shared equity also generates funds, as the purchaser increases the size of their stake, which can be recycled to provide further support. Research suggests that current schemes are generating around 140 – 160 million pounds a year.  As shared equity is people rather than property centred it can potentially apply to any home. Even on new developments, affordable homes are usually distinguishable from other properties by their size and design. Shared equity arrangements might as easily apply to a four bedroom family home as to a two-bedroom terrace. The range of properties offered with a variety of equity options broadens market accessibility.

Given the Government claim that the point of increasing supply is to reduce house price inflation it’s odd that the Treasury’s own consultation on Planning Gain Supplement states:

‘It has been suggested that PGS [Planning Gain Supplement] could affect the cost of housing. PGS is not expected to increase the cost of housing because new supply accounts for only 10% of housing transactions. Since existing housing is a good substitute for new housing, the price of housing therefore tends to be set by the existing stock [emphasis added]. PGS is part of a package of reforms to increase the supply of housing and improve affordability’

If the price of housing is set by the existing stock, how can an increase in supply improve affordability? How can the Treasury say on the one hand that a tax on new development will not increase prices while, on the other hand, justify a rapid increase in development on the basis that it will make housing more affordable?

Perhaps affordability is not Mr Brown’s prime concern. The Chancellor recognises the macro-economic advantage of stimulating the housing market. He also understands the political appeal of creating new homes. Maybe the Chancellor believes this is Labour’s great new cause. Though Mr Brown seems to understand the problem, he doesn’t appear to understand the solution. His approach, like Mrs Barker’s, is rooted in the tired dogma of central planning. Post-war experience of the imposition of depressing buildings on monstrous estates has dramatically changed popular perceptions of development. Whereas new houses were once seen as welcome symbols of a hopeful new age, experience has taught us to resist the bulldozer, which heralds another catalogue-designed maze of shoeboxes.

A wiser generation knows what house building on a massive scale will mean. They know that to achieve his aims the Chancellor will remove powers from local authorities to resist development by transferring the competence for planning to regional bureaucrats and drive through the ill judged Communities Plan with the consequent despoliation of the countryside, blitz of time honoured towns and villages and creation of monotonous, soulless new settlements without the economic capacity to sustain themselves.

Conservatives know that it is through a better match between housing provision and need; by encouraging incremental environmentally sustainable development through a shared equity revolution; and by encouraging our world-class builders to rejuvenate our towns and cities that a better Britain can be built. All that we build must add to what is there: homes that enchant in places where people long to return. Lovely homes in neighbourhoods that make us feel good about where we live are the reasonable expectations of a noble people. This is a modern and compassionate vision. A Conservative vision of homes fit for Britain.

I could not be more delighted that the work I began in this area is being taken forward by my friend Michael Gove.  I wish him every success in his new role as Shadow Housing Minister.