Theresa May’s housing strategy simply won’t work—here’s why

The one thing we know for sure about Theresa May's housing policy, the subject of her speech to the National Planning Conference yesterday, is that it won't work. Not at any level. For one thing it won't increase volume of homes built in England. For another it won't reduce house prices by a pound.

The reason isn't that the speech was merely a re-announcement of existing government policy as set out in last year's White Paper—which it was. It is more fundamental than that. To solve a problem you need to diagnose it properly—and May's approach is based on big myths about housing.

Firstly, there was the suggestion that developers are a problem because they are “land banking,” that is holding on to land until it is more profitable to build on it. May pledged to tackle this problem. But this is a classic example of the way in which the current government is Miliband-lite. It was Ed Miliband, when he was leader of the opposition, who brought to mainstream politics the paranoid anti-capitalism of the far left. Workers on boards. Price freezes for energy. Seizure of private property. All announced by Miliband, denounced by David Cameron and George Osborne and now adopted by May.

A moment's thought reveals that logically developers can't be land banking—otherwise they would go out of business. House building is a low margin business and no company has the capital to hold assets idle on its balance sheet for long periods of time. This is knee jerk anti-business rhetoric of the worst kind which arises from politics premised on the need, when faced with a difficult and complex problem, to find a villain to blame rather than a solution.

Secondly, the government continues to peddle the pernicious myth that it can build (or in reality create the conditions in which others will build) 300,000 houses a year. This is just not true.

House building, put simply, is driven by four factors—developable land, capital (from companies for development, from individuals for purchase), labour and materials. A pinch point in any one is a constraint in production. And unmentioned in May's speech was the major constraint she is imposing on the construction industry—Brexit and the end of freedom of movement. Take away European workers and you will struggle to maintain current levels of housebuilding but, as in so many other areas of government policy, the actual costs of leaving the European Union are ignored.

The 300,000 target is—to put it kindly—a unicorn. Governments claim that they can reach the target because governments have done so in the past. A realistic assessment of when that was possible is needed. For decades—irrespective of government or prevailing economic circumstances—house building in England has not been higher than 250,000 and actually rarely been higher than 200,000. Political parties normally claim that targets haven’t been met in the past because their opponents were uniquely incompetent while they—in contrast—are masterful managers. In the case of housing all the evidence is that there are some profoundly important structural issues.

The governments of the 1960s reached peak targets in building homes because they were dealing with two enormous challenges that are no thankfully longer with us—bomb damage and slum clearance. Between them those gap sites and housing unfit for human habitation created both a necessity and an opportunity. Today the gap sites are gone—which is good—and no one is willing to use compulsory purchase powers to drive necessary development.

But another question, in many ways the most important in politics is “Why?”—why set a government target for housebuilding numbers? Is it, as HL Mencken said, that “For every complex problem there is an answer that is clear, simple, and wrong”? Possibly.

So what to make of all this? Here's a final thought. With interest rates at their lowest for 5,000 years, money is cheap. If that loose money is driving house prices up then the solution needed is rationing access to borrowing or higher interest rates or both. It would be a courageous politician who admitted that—in the true sense of the word rather than the Yes, Minister one.

Far easier to create fake villains and set unachievable targets—which is why we got May’s speech, and why it will fail.