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Should the government build new homes?

Blog post by Andrew Teacher

Today’s statement by Danny Alexander on plans for the Government to directly commission new homes is significant: until now, ministers have relied solely on the private sector. The problem with this, is that when you do this, you have to accept that you cannot deliver policy without profit. Yet all we’ve constantly seen is the establishment bemoaning the huge gains made by listed housebuilders and speculators who in many cases have doubled their money since the financial crisis.

To do this would require a fair amount of up-front investment but history shows us just how much house prices go up over time. This means that, as with investments in road, rail and other infrastructure, housing is a good long term investment.

Housebuilding is cyclical business requiring large holdings of cash – which is why developers need to sell swathes of homes abroad to fund the different phases of big schemes. It goes without saying however, that building cheaper homes in a rising market, particularly in London, is tough and delivers lower profits.

Where the Government can step in is to use the huge swathes of public land currently lying unused. A recent report by Daniel Watney showed more than 1m homes could be built on brownfield land. Ministers can unlock this land and avoid the costly delays often associated with planning.

Ultimately, no politician will stand up and say, “Our policy is to reduce house prices”. It would be political suicide. Yet we have to accept that ownership isn’t the only answer. Many predict that private renting will form a quarter of the UK housing market by 2019 with ownership falling below 60 percent. Sure, we need more homes, but if we’re serious about reducing debt then we also need to look at housing as a service too, and understand that in cities, where a mobile workforce and lifestyle are increasing important, a fervent rental market may also be a solution.

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