Britain’s woeful undersupply of housing at an affordable price can be partially blamed on shareholder handouts paid by the country’s biggest housebuilders, a new report claims.

Research published by Sheffield Hallam University found the eight largest UK housebuilders have paid £16billion in dividends over the last 18 years, with investors handed the equivalent of £22,000 per new home built in 2022 alone.

The researchers say dividends paid between 2016 and 2021 alone exceed the £8.8billion the Government spent on its major affordable housing programme over the same period.

The researchers argue tens of thousands more homes could have been developed if dividend cash had instead been ‘reinvested in productive activity’, and demand reforms to ‘curb excessive shareholder returns’, which they say would ‘directly benefit the millions of households currently struggling in the housing market’.

But housebuilders argue that payments to shareholders are not what is holding them back from building more or better homes. Most are keen to take potshots at the planning system instead.

Not enough homes: The UK has a shortage of housing - but what is responsible?

Not enough homes: The UK has a shortage of housing – but what is responsible? 

Builders argue their current building slowdown is due to economic pressures dampening demand from home buyers, as well vocally complaining about Britain’s creaking planning system. 

It is also undeniable that private companies are still building far more homes than the public sector. 

Analyst Anthony Codling says developers are currently looking after margins, commenting: ‘housebuilders slow build to protect price.’ 

So are ‘greedy’ housebuilders protecting profits and delivering big payouts to shareholders really to blame for the inadequacy of Britain’s housing supply? 

Housebuilders have become more profitable - and shareholders have enjoyed the spoils

Housebuilders have become more profitable – and shareholders have enjoyed the spoils 

Buyers’ budgets are squeezed

The private sector is still building far more homes than housing association or local authority counterparts – and higher mortgage rates and cost of living pressures this year have dissolved some of the demand for new properties. 

This has led to the housebuilding industry slashing forecasts for how many homes it will build in the next year.  But rather than explicitly say they are protecting their profits, many have used recent results to complain about the planning system.

Figures from PwC suggest residential new-build activity will fall by 21.1 per cent in 2023. 

Housebuilders have witnessed a sharp fall in demand sparked by the impact of 14 consecutive interest rate hikes on mortgage affordability and availability.

It is true that there are planning bottlenecks around the country but this has been the case since at least the pandemic. In many cases, this year’s home building and next year’s  expectations for number of homes delivered are below 2021 and 2022.

New builds demand a price premium to existing housing stock, and home-seekers are already hampered by often-sky-high house prices, mortgage rates and rent, particularly in higher-growth regions like the South East.

Recent figures from Halifax suggest that the typical home now costs 6.7 times the average salary, compared to around 4 per cent two decades ago. 

Separate ONS figures suggest that, in 2021, the average home cost as much as 9 times the typical income. 

And the ONS’ 2022 Housing Purchase Affordability UK report shows only the top 10 per cent of households can afford an average-priced home with fewer than five years of income.

There are now around 8.5 million people in the UK with ‘unmet’ housing needs, according to the National Housing Federation, as continued weak supply has been exacerbated over the last 20 years by a growing UK population.

House prices vs income: While affordability has improved slightly in the last year, buyers are still paying many more times their salary than they did in the past according to Halifax

House prices vs income: While affordability has improved slightly in the last year, buyers are still paying many more times their salary than they did in the past according to Halifax

House prices have become much less affordable since 1997, according to the ONS

House prices have become much less affordable since 1997, according to the ONS

How many homes is Britain ‘missing’?

Britain has historically delivered fewer new homes than its European peers, whom policy and research institute Centre for Cities estimate built 15.4 per cent more homes between 1955 and 2015.

By this measure, the UK has a backlog of 4.3 million homes ‘missing’ from the national housing market.

This means it would take 654,000 new builds per year for the next decade to make up the shortfall, or at least half a century under Government plans to build 300,000 homes a year.

The most recently published Office for National Statistics data shows there were 210,320 dwellings completed in the year to March 2023, 174,600 of which were in England.

There were 44,570 new properties being built in the first quarter of this year, down from the 65,120 underway during the post-lockdown boom of the second quarter of 2022, but in line with the 45,380 under construction in the first quarter of 2020 before Covid-19 restrictions shut work down.

The data also shows the number of completions noticeably increased from the second quarter of 2017 to the end of 2019, returning to its pre-2008 financial crisis volumes.

The private sector builds far more homes than their housing association or local authority counterparts

The private sector builds far more homes than their housing association or local authority counterparts 

Some 51,130 homes were completed on average every quarter over the period and the industry has kept pace post-Covid, with an average of 52,580 every three months from April 2022 to March this year.

And private enterprise provides the large bulk of dwellings completed in the UK. 

Private companies have built an average of 40,748 homes each quarter since January 2017, though the ONS does not publish the data for April 2020 to March 2022 when activity effectively shut down. 

This compares to an average of 9,028 homes per quarter built by housing associations and just 920 built by local authorities.

Local authorities now build far more homes than they did for much of the noughties, when they might build just 60 dwellings nationally in a single quarter, but far less than during the nineties when they might be expected to build more than 6,000. 

In the late seventies, local authorities generally built more than 20,000 homes a quarter.

Shortfall: It would take 654,000 new builds per year for the next decade to make up the number of homes needed in the UK, according to the Centre for Cities

Shortfall: It would take 654,000 new builds per year for the next decade to make up the number of homes needed in the UK, according to the Centre for Cities

Right to Buy ‘compounded housing shortage’ 

The impact of the Right to Buy policies of the 1980s are also apparent, with British housebuilding slowing down rapidly in the time since the era of the post-war Town and Country Planning Act (TCPA) of 1947.

The TCPA came into effect in July 1948 and became the foundation of modern town and country planning in the UK, establishing that planning permission is required for land development – rather than just ownership.

The Town and Country Planning Act 1990 and the Planning and Compulsory Purchase Act 2004 now form the main statutes in England and Wales, but critics argue substantial reform has not happened since the 1947 TCPA.

The Right to Buy scheme, which stopped applying in Scotland in 2016 and Wales in 2019, gave tenants of councils and some housing associations the legal right to buy the council house they are living in at a large discount.

While the policy allowed a generation to achieve the dream of home ownership, critics argue it has compounded the housing shortage by eventually paving the way for speculators to buy up large volumes of former council property.

In fact, a 2013 report published by London Assembly member Tom Copley found 36 per cent of homes sold under Right to Buy in London were being rented back by councils from private landlords. 

There has been a sharp decline in housebuilding since the 1980s

There has been a sharp decline in housebuilding since the 1980s

What’s happening to housebuilder profits?  

Housebuilders have enjoyed a bumper few years, with profits soaring on the back of a Covid-induced boom in demand, higher prices and a temporary tax duty holiday.

However, they are now slashing profit forecasts and projections for the number of new homes they expect to build, with house price growth falling, and high interest rates and the cost-of-living crisis severely dampening demand.

Mortgage rates are beginning to moderate, with five-year fixed rates expected to edge closer 4.5 per cent by the end of October, but remain high compared to the levels of recent years.

Builders are also suffering an intermittent shortage of workers, higher materials costs and infrastructure delays.

Redrow profits have more than halved and MJ Gleeson’s have fallen by 43 per cent this year, while Crest Nicholson recently cut earnings expectations by more than 30 per cent after a steep fall in reservations.

Barratt Developments was forced to cut its dividend after the number of homes it built and sold this year fell by 702 to 17,206, warning this week of an ‘uncertain’ outlook.

Berkeley Group, which saw its reservations rate fall by 35 per cent, boasted that its pricing levels had remained resilient because of the significant shortage of housing stock in the UK.

Bellway expects to complete around 7,500 homes for the 12 months ending July 2024, a significant fall from 10,956 in the previous year.

UK housebuilders are slowing the rate at which they build homes to protect house prices 

Anthony Codling, managing director for equity research at RBC Capital Markets, said: ‘UK housebuilders are slowing the rate at which they build homes to protect house prices. Our Home-fi data shows that 2023 has not seen the traditional autumn selling season pick-up in activity. Hatches are being battened.

‘The number of new build homes for sale and the number of sites coming soon is falling as housebuilders slow build to protect price.

‘The housing market is not in free fall, and the reduction in build today will impact 2024 more than 2023 as homes being built this late in the year are typically for delivery in 2024.’

The Letwin report: Identikit estates not the answer

Codling’s comments chime with that of the Letwin Review, published in 2018, which looked in detail at how developers deliberately build slowly to control the balance of supply and demand and not bring down house prices in the area.

Letwin, however, did not find a problem in housebuilders holding onto land until its maximum value can be realised – a process known as land banking.

'Not the solution': The Letwin report said building large estates of identikit new builds was not the best way to address the housing shortage

‘Not the solution’: The Letwin report said building large estates of identikit new builds was not the best way to address the housing shortage

Instead, Letwin identified the ‘homogeneity of the types and tenures of the homes on offer on these sites’ as being a key driver of excessively long build out rates – the time from planning approval to completion.

The report found 115 large sites in areas of high demand with a median figure of 15.5 years.

About 6.5 per cent of the overall number of houses planned get built each year, and it is thought tens of thousands of new homes are held up in the planning system despite having been given a green light by local authorities.

The Letwin report suggests mixing up styles on developments, including architecture, interior design and landscaping, or tenure, such as social housing, build-to-rent, and self or custom-build could help get more homes built quicker.

Put simply, the report finds that throwing up large estates of identikit new-builds is not the solution to the housing shortage.

The review looked at the build out rates – the time from planning approval to completion of the last home – on 15 large sites in areas of high demand and revealed a median figure of 15.5 years

The review looked at the build out rates – the time from planning approval to completion of the last home – on 15 large sites in areas of high demand and revealed a median figure of 15.5 years

Is planning the real problem?  

While housebuilding bosses are keen to highlight to investors the impact of wider economic factors, Barratt CEO David Thomas is the most recent to warn Britain’s ‘ineffective planning system’ is holding back development.

Planning reform has been on the radar of housing market critics for some time, and successive Governments have promised changes to simplify and streamline the planning process.

Yet, outside of the housebuilding industry some argue that the solution doesn’t lie with targets and squeezing in more homes onto bland estates. 

Instead, they say that better and bigger homes, with larger gardens and improved communal space, alongside much needed local infrastructure are needed to win local communities over to housebuuilding near them.

The Royal Town Planning Institute in 2019 called for ‘significantly increased resourcing to deliver better development management, strong and informed planning policy, genuine community participation, pro-active local authority-led development and a wider range of built environment professionals in the public sector’.

 UK planning policy has held back the economy for nearly three quarters of a century

Centre for Cities chief executive Andrew Carter agreed planning law, which has been ‘fundamentally untouched since 1947’, is in desperate need of reform.

He said: ‘UK planning policy has held back the economy for nearly three quarters of a century, stifling growth and exacerbating a housing crisis that has blighted the country for decades.

‘Big problems require big solutions and if the Government is to clear its backlog of unbuilt homes, it must first deliver planning reform. Failure to do this will only continue to limit England’s housebuilding potential and prevent millions from getting on the property ladder.’

The Government is awake to this line of argument, but has faced opposition within its own ranks.

It had proposed to change the planning system and set binding housebuilding targets for local councils, but was forced to soften its approach to include ‘new flexibilities to reflect local circumstances’.

The opposition Labour party has laid out its own agenda for planning reform, which also includes proposals to hand more power to local authorities, with a pledge of building 1.5 million more affordable first homes over a five-year period.

This is Money has laid out the key housing market priorities of Britain’s main political parties here.

Centre for Cities argues that the current discretionary planning system should be replaced with a new ‘rules-based, flexible zoning system’, thereby ‘increasing the certainty of the planning process and the supply of land for development’.

It adds: ‘The principle of shifting away from uncertain, case-by-case decision-making to a system where development is lawful so long as it follows the rules should guide all new planning reform proposals.’

This post first appeared on Dailymail.co.uk

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