Who benefits from the housing crisis?

A review of Bob Colenutt's Property Lobby: The Hidden Reality behind the Housing Crisis

We all know that millions of UK citizens suffer the consequences of our housing being amongst the most unaffordable in the developed world. This has been an accelerating trend for the past forty years, so there must be powerful forces at play.

The popular view is that homeowners and small private landlords are the main beneficiaries. However as Bob Colenutt demonstrates, this is a cover story for where the big money is being made. He identifies the unholy trinity of volume housebuilders, land owners and financiers as the culprits.

I defy anyone to read this book and not get very angry. The Centre for London reported in September 2019 that only 2% of the people surveyed expected developers to be honest, and only 7% thought that their local authority would negotiate the best deal for them. 

The figures are staggering; volume housing builders expect to make a profit of between 20% and 100% on large developments. To put this into context, Thomas Piketty in his book Capital identifies the average annual rate of return on capital to be 3-4%. There is some risk for house builders; they do occasionally go bust, but by then the profits have already been taken-out by the owners, shareholders and senior staff, leaving the bank, their clients and subcontractors to pick up the bill. The big house builders are getting bigger, swallowing their smaller rivals.  This not only gives them more control over the profits they take, it makes it easier for them to ride out an economic downturn. 

The volume house builders take their profit after the landowners have already taken theirs. The cost of buying the land constitutes 50%-70% of the sale price.  Shockingly, 1% of the population owns 50% of England. The combined profit from the increase in land values consequent on property development in 2016/17 was £18bn in Britain, more than the combined profits of Amazon, Coca Cola and McDonalds. 

Housing shortage and high property prices is the property lobby’s business model. Developers deliberately reduce the supply of housing that most people can afford and consequently force up prices. They do this by building expensive homes aimed at investors; land-banking, leaving sites undeveloped for years and drip-feeding the supply of new housing; and by resisting government intervention to provide affordable housing. This is the cause of the housing crisis, rather than the reasons claimed by the property lobby. Namely that the shortage is a side effect of economic well-being, the consequence of living in a relatively small island, a too lenient approach to immigration or inefficient council planning departments.

Colenutt describes the access that the property lobby has to government ministers and civil servants, the Treasury in particular. Unsurprisingly the property lobby is a significant funder of the Conservative Party. Advice from lobbying bodies such as the Royal Institute of Chartered Surveyors, House Builders Federation and the Country Land and Business Association is presented as technical, whereas in reality it is acutely biased.

Colenutt goes on to describe how the property lobby has gone on to dominate the British economy. As the property market is inherently unstable, we are at the mercy of a boom followed by bust economic cycle, most dramatically exemplified by the 2008 crash. 

It is illogical to believe that private developers could address the housing shortage. Their job is to generate profit for shareholders. This is why we now face a shortage of 4m homes (leaving to one side the argument that existing homes could be more equitably occupied). Only governments deliver the estimated 90,000 new affordable homes needed each year. 

Tackling the housing crisis needs very different thinking. We need to remember the post-war years when the government, through local councils, regularly built over 100,000 council houses a year. Also, when the government used its planning powers to acquire land to build new towns. When the land is designated for housing and industry and transport links are provided, its value is increased. The government can then sell some of this land to build more homes and provide community facilities.

Colenutt’s book is full of policy proposals, which it is impossible to do justice to in a short blog. Such as a tax on unused land, or even use-it-or-lose-it legislation to stop land remaining unused whilst it increases in value. Also legislation to curb anti-competitive practices in the construction industry.  

When Colenutt did a Q&A for the Labour Housing Group there was an interesting exchange. A member asked how we get Labour MPs interested in planning and housing.  Colenutt accepted this is a challenge within the Labour Party, whereas housing and planning are number one on the agenda for Conservative MPs because they understand that it is the profitability of the property lobby that drives capitalism in the UK. 

Andy Bates is JMB Manager at Leathermarket JMB, a resident-run housing association

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