How not to get Britain Building

As I promised recently, it’s time to blow the cobwebs off Labour’s farcical pledge to build 1.5 million new homes during it’s (possibly) 5 year tenancy of Number 10.

Labour promised a building boom, yet every scheme and so-called initiative is mired in tax implications and planning stasis. Land value capture alone has brought most projects to a juddering halt. More importantly – and the actual builders have already worked this out – building anything like the numbers Labour have suggested will actually bring about a fall in the value of housing stock. Think of turkeys voting for Christmas.

The Government’s  idea of “brownfield first” is an excellent one, but it needs the cooperation of councils and willing builders. At the moment brownfield land is financially unviable. The tests and planning requirements are such that no one in their right mind would attempt to use them. Proposed landfill tax reforms would impose a single flat rate, but Labour’s instincts are to ban any wiggle room and reliefs which automatically makes it cheaper to import landfill than to recycle it.

As a result, anything north of the Midlands becomes unbuildable on brownfield sites. The consequence is that more pressure is put on greenfield. That alone guarantees long-winded and costly planning and environmental reports. It has been reported that the tax rise contemplated could be of the order of 30 times which would halt any potential for building anything. 

First Time Buyers saw a deadline driven frenzy in April last year when the Stamp Duty Land Tax (SDLT) threshold was reduced. The short-term rush was followed by a slump in market confidence. Guess what? Adding thousands in upfront costs that can’t be mortgaged, may have been a bad idea. Second homes buyers have been hit with higher SDLT surcharges too. And councils’ war against second home owners has condemned lots of nice places to a completely dead – and falling – market, with no benefit to existing locals. It also leads to councils collecting less tax and local shops suffering a serious fall in sales. Wonderful planning.

Now Labour is flirting with scrapping primary residence exemptions for Capital Gains Tax (CGT). That means when you sell your house you will have to pay tax on the increase in value. That means that moving to a bigger house, if you need it, will become almost impossible and longer term will almost certainly kill the Great British Belief in property ownership. That will have profound longer term effects not least on people’s pension arrangements, where the value in one’s house has for a long time been the fall back for inadequate pension provision – not to mention the iniquitous depredations for care homes.

As ever, Labour’s proposals are ideological and not driven by economics, investigation or empirical evidence. Housing mobility  - one of the important pillars of economic growth -will be reduced and less revenue will be the result. It is forecast transactions will fall more than 12 per cent year on year. When transactions fall, housebuilding falls. No one will build unless they have a market allowing them to make sales – and that dirty word, Profit.

The 2019 Land Value Capture Act changes provide nothing but further issues – sadly a Tory measure. House prices have risen sharply while land prices remain flat or falling, particularly in urban areas. The problem is the spectre of compulsory purchase and land value capture means there is little or no incentive for people to be proactive in seeking out opportunities to better people’s lives.  There has been yet another enquiry into tightening these proposals, which has only exacerbated the problems. Things have got so bad that vendors no longer wish to make sales which do nothing to give them a profit – why would they? As an economist will tell you, remove the profit motive and you remove enterprise.

London in particular, which pretty reliably built around 10,000 houses per year, fell to less than half that last year, with no visible uplift in the next few years. The Mayor is clearly inadvertently helping keep prices up in London. And that is in a city of 9 million people with near enough 300,000 people living in temporary accommodation and 100,000 children too. What is wrong with us? One of the ways to get growth again ion the economy would be to build the proportion of houses relevant to a City with 15% of the UK population. Want to build 300,000 houses per year? That means 45,000 in London alone.

There is a belief that “the cost of land is one of the main reasons that house prices are rising so rapidly”. It is complete nonsense. It is the legislation and taxes which disable growth and enterprise. What is happening is that transaction costs keep rising making the production of profitable housing more and more difficult. Values fall below tradable levels and nothing gets built. We aren’t the only country going down this route. I have a daughter who lives in Sydney Australia. According to her, government costs account for more than 50% of the cost of a new house. For absolutely sure, governments have not bothered to speak to industry players who are the people who actually have to invest the money to make it all work. Sadly, Governments like to be seen to be  “doing something”, even if it actually makes no sense.

In case you haven’t noticed, housing starts are actually on a downward trend all over the country. And all we get are platitudes and sound bites which achieve precisely nothing.

Labour have left builders in a desert lacking clear guidance on tax, on policy and on rules relating to investment. And in case you hadn’t guessed, the increase in employer National Insurance costs have both squeezed margins and pushed builders to at the very least not add to this workforce where 250,000 additional workers are needed to increase output and in the right environment would be easily employed. The other killer is the uncertainty about Business Property Relief. This is a total ideological mess whereby companies are forced to sell equipment to pay a tax bill.  It doesn’t take a genius to see how a downward spiral would set in. What is needed is stable, long-term certainty about tax and legislation which would hopefully enable decisions to be taken for the future without having to worry about them being chopped and changed. But the problem is this Government has shown no ability to stick to a policy at all. Especially as far as land and housing is concerned because their ideological bent is to hate people who have anything they worked for.

Schumpeter believed that Capitalism and markets were a learning mechanism. It is incredibly sad that the interference people insist on blanketing markets with is busily destroying the learning required to improve things.

In case you haven’t worked it out, 1.5 million homes over 5 years is 300,000  a year. To date the total has been about 300,000 since July 2024. That’s just about 190,000 per year, and on a downward trajectory.  Compare and contrast with France which has averaged more than 325,000 per year for more than 20 years. Even Germany, under the cosh at the moment, has managed more than 265,000 per year. It really doesn’t bear thinking about.

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