A hole in the property plot

In the 1989 hallucinatory emo-drama Field of Dreams, Kevin Costner’s character hears the ethereal utterance, “If you build it, he will come.” He promptly turns his corn field into a baseball diamond.

Britain’s politicians, presumably unencumbered by deliriants, have experienced a similar enlightenment in their quest to solve the country’s housing shortage: build houses – and riches will come.

The country is currently adding 100,000 homes a year to the stock – a little under half of the 220,000 to 250,000 the government says are needed to meet its estimates for household formation. To hustle things along, the state has sworn to relinquish the red tape it uses to garrotte planning permission applicants and relax the onerous burden it places on builders to provide housing for the poor.

The thesis is simple: if builders really want to build, the housing crisis and, by turn, the economy, will be fixed. Unfortunately, it is also hopelessly flawed. It is the lack of mortgage lending, and not a reluctance to build, that is to blame for the slowdown in housebuilding.

Giving housebuilders shiny new spades to entice them into action is a bit like incentivising shopkeepers to fill their stock cupboards as a remedy to the woes of the nation’s high streets. Builders are gagging to return to the heady semi-detached exuberence of the past decade. They have plenty of land. In England alone there are 330,000 homes that have been granted planning permission and are not yet built. They have the workers and the finance. They even have some designs that look fractionally more exciting than those they have been producing for the past 50 years. What they don’t have is buyers. Or, more precisely, buyers who can borrow enough to fulfil their ambition.

Mortgage lending in the UK has fallen by 75 per cent since peaking in 2005. The 508,000 home-buying loans issued last year were the lowest number since 1974, according to the Council of Mortgage Lenders. Overall mortgage lending volumes, which include loans for remortgaging, have flatlined at about £140bn annually since the start of the financial crisis.

Banks can be forgiven their unenthusiasm.

Having battled tooth and nail for the right to lubricate the Britannic property owning penchant, the country’s lenders were left holding a lot of dysfunctional debt when house prices cooled off in 2009. In the years since, banks have fallen stupendously out of love with the idea of backing anything that even looks like a house. The easy days of self-certification have been replaced by the financial equivalent of shakedown day at Guantanamo Bay.

The other problem for builders is that their biggest customer group, first-time buyers, is the exact same one banks are least inclined to deal with. “Occupation: Student” just doesn’t cut the mustard the way it used to. A five-year contract of employment, ideally inked in the chief executive’s blood, and a gravity-defying credit score are minimum requirements for those wanting a bunk-up on to the property ladder.

The government has recognised the importance of getting buyers in at the bottom to keep things moving further up the chain. The introduction of financial armband schemes such as NewBuy, where the guarantor muscle of the public purse is used to coax banks into providing first-time buyers with 95 per cent loan-to-value mortgages, is certainly a step in the right direction. Nothing in coalition politics is ever straightforward, however. The decision by ministers to draw to a close a tax holiday for aspiring homeowners purchasing a property valued at under £250,000 is as perplexing as NewBuy is prudent.

Getting behind developers is a quick and easy way to appear proactive. It sounds suitably butch and plays well with the media, too. Plunging a tokenistic shovel into the ground or firing up a bulldozer is always going to score highly in our imagery-besotted news culture. But the government needs to focus much more of its energy on the tedious work of fixing the mortgage market. Politicians need look only as far as Spain to see the perils of prizing development over affordability.

Mortgage-lending guarantees are a good start, although it is crucial that they are not just a temporary measure but rather a scaffolding that will remain until the market is healthy enough to stand alone. The state could also pressurise banks to apportion a greater share of their lending to home-buyers, just as they did with small businesses under the Project Merlin agreement.

In the meantime, politicians would do well to apply some economic logic to their Hollywood approach to housing: it doesn’t matter how much of it you build. If he cannot buy it, he won’t come.

Ed Hammond is the FT’s property correspondent

More columns at www.ft.com/perspective


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