Newsnight: Housing shortage the biggest social justice crisis of our times

PaulF81

Carry on, and it won't be money that will be offered. It will get forced through. They are offering the carrot. Next comes the stick.

GeorgeHowell

The political equation has to be weighed up -- nimby votes lost to UKIP, versus would-be first time buyer votes lost to, or maintained by, Labour. Tricky one, which is probably why there is a lot of vacillating going on.

PaulF81

Then there is the moral equation. A politician may wish to point out that later generations may be unwilling to pay the boomers lucrative package whilst they are forced to live in a shoe box with no room for family expansion and living with local authority miscreants.

kabayiri

You need more houses down South to satisfy the demand. It's as simple as that.

Either build significantly more houses and soonish, or put up with high prices. Personally, I don't care which route is adopted.

ash28

Graham_Devon wrote: »

It's not a case of moving to the extreme. No one has suggested selling at cost.

However, if we take a £187,000 house (If I recall, this was the average of one of the builders selling prices), at 10-14% profit, that leaves up to 26k worth of "play" before they hit cost price.

Now, I don't want this to be made out I;'m suggesting or even wanting them to sell at cost, which it appears to be being twisted into.

I simply disagree that the house builders simply cannot lower prices.

They can. And they would, to save the business had the government not have stepped in. I can't see shareholders being too happy if the companies just said "oh, well we can't make 20k profit per build, therefore, instead of making 8k profit and realigning our business, we'll just shut it down".

Theres plenty of things that could be done, if the NEED was there. Currently, the need for the business is not there. They can build low volumes and sell at high profit levels. Any FTB concerns over affordability have been solved b ythe government, and the amount of FTB's they need, can now pay the price they want, at taxpayer exposure. They ADMIT this themselves.

http://drpetermatthews.blogspot.co.uk/2012/09/housing-and-planning-week-later-but-has.html


Housebuilding and the financials and risk surrounding it are quite complex, here is an extract from a blog which explains it far better than I ever could.

Let’s take a look at the way policy has been formulated and its impact on the planning system. Economists have long been the favoured advisors to Government on all things housebuilding and land supply. And, whilst I am not saying their contributions have not been useful, I am saying that it has focused the minds of policy makers, their advisors and housing ministers on seeing the planning system as a blockage, slowing down the development process, being highly inefficient and impinging on Mr Rational Economic Housebuilder from delivering the amount of new homes needed. It has focused their minds on quantifiable outcomes and not behavioural processes. Using this logic, if the planning system allocated more land for development, then we would see an increase in the number of new homes built. Wrong. This leads me onto my second point – our need to understand the processes by which speculative housebuilders operate and in particular the nature of risk.

Speculative housebuilding is a highly risky and innately volatile enterprise. Financially, housebuilders’ success is dependent on the performance of land, finance and housing markets. Falls in house prices and land prices or rises in interest rates can significantly erode profit margins and land values. In a rising market, the opposite is true. But we are not in a rising market. Success is also dependent on housebuilders gaining planning permission and selling the houses they build at the price necessary to secure a viable return on investment. Let’s take a hypothetical ‘fag packet’ scenario to illustrate this. In an unstable housing market, Developer A agrees to pay Landowner B £860,000 for a site with the potential for 59 houses. That land value is dependent on the houses being sold for an average value of £156,000 and is a net figure minus all the costs associated with development including profit, S106, remediation, build costs, transactions costs and so on. If house prices decrease by 5%, the land value drops to £555,000 as all the other costs remain constant. See a 10% drop and the land value goes down to £250,000. That’s not too bad if you haven’t already handed over the cash to the landowner as you can rejig your deal to account for that depreciation. Now imagine you’ve already done the deal and paid the landowner £860,000 but the market dives and the sales value of the houses you are trying (and I emphasise that) to sell falls by 10%. What happens to that loss of £610,000? It comes off the bottom line. But the developer has not just borrowed £860,000 to pay the landowner for the land, he’s borrowed upwards of £6,500,000 to fund the entire development process and this needs to be paid back to the funder by way of selling the newly built houses to generate that return. And that needs to be done sooner rather than later because the funder is charging interest on that £6,500,000, around £200,000 to be precise over the 2 years it will take to build and sell all the houses. And that calculation is based on a relatively low interest rate of 5.96%. Now, you can imagine the number of possible risks in any speculative residential development scenario in an unstable economic and policy environment – house prices go down, interest rates increase, mortgage access becomes limited reducing your target market, planning policy changes, homes take longer to sell etc. All this risk has to be factored into the development process before a spade hits the ground, before planning permission is granted, before the land has any value, before the deal is done. Add to that the fact that the development process can take yonks – anywhere from 18 months to 10 years. So, understanding how developers negate and manage risk is the key to understanding how and why they operate the way they do. More importantly, it presents the opportunity for policy makers to deliver solutions that work with the grain of the industry. It also helps us better appreciate why housebuilders don’t just roll up their sleeves and build more homes as David Cameron so wishes.

grizzly1911

ash28 wrote: »

http://drpetermatthews.blogspot.co.uk/2012/09/housing-and-planning-week-later-but-has.html


Housebuilding and the financials and risk surrounding it are quite complex, here is an extract from a blog which explains it far better than I ever could.

Thanks ash a most insightful post.

I know that lenders closely monitor developers to ensure they do build out and are not left with numerous starts going nowhere.

daveyjp

Land is the raw material of housebuilding. No manufacturer of any product buys raw materials in huge quantities and banks them as the raw material needs to be paid for.

the_flying_pig

ash28 wrote: »

http://drpetermatthews.blogspot.co.uk/2012/09/housing-and-planning-week-later-but-has.html


Housebuilding and the financials and risk surrounding it are quite complex, here is an extract from a blog which explains it far better than I ever could.

the point about land values being more volatile than house values is reasonably obvious - it's, mathematically, the same principle as the amount of equity in a house being more volatile than the market value of the house.

but, yeah, it all sounds very complicated and horrible. a market failure maybe? something that justifies the state stepping in?

Graham_Devon

It appears Boles has ruffled some of his colleagues feathers.

It's stated that those on the benches see more planning equalling higher supply and lower prices, much of which they dislike. They also appear to believe such an outcome would have them losing votes.

His enthusiasm and passion may be liked by the public, but it certainly doesn't appear to be liked by his colleagues. He may well be reigned in....though probably replaced.

Also a blog on it here:
http://www.google.com/news/url?sr=1&sa=t&ct2=uk%2F0_0_s_2_0_t&usg=AFQjCNGbz-MGCi6qXFO2IoKOcvBKTMtYRw&did=3a412655749275bd&cid=52778056932007&ei=sT3vUJDQKYa-8gOI3gE&rt=STORY&vm=STANDARD&url=http%3A%2F%2Fblogs.telegraph.co.uk%2Fnews%2Fjameskirkup%2F100197598%2Fnick-boless-supply-side-planning-reforms-will-lead-to-falling-house-prices-is-that-politically-wise%2F

The Spectator states there will be "significant opposition" from MPs to any of Boles plans...and also opposition from communities and local government.

It's unlikely he'd ever be able to get this through.

In the same way as Labour clashed with its natural voters who wanted it to take a harder line on welfare and immigration, the Tories will always clash with this chunk of their supporters when they try to spread privilege by building more homes.

Says it all.

http://blogs.spectator.co.uk/isabel-hardman/2013/01/nick-boles-is-ballsy-but-his-planning-push-faces-some-big-blockages/

Interesting that the comments section on the spectator starts laying into the "speccy young-uns" for having the audacity to suggest these are good proposals!

HAMISH_MCTAVISH

ash28 wrote: »

Housebuilding and the financials and risk surrounding it are quite complex, here is an extract from a blog which explains it far better than I ever could.

Excellent post.

I don't expect Graham will post a detailed rebuttal.:(