The Barker Report

It’s been over two years since the government decided to initiate a review of the housing supply in this country, also known as the Barker Review.

Kate Barker is, to the uninitiated, a former member of the Bank of England’s Monetary Policy Committee and an influential economist. This Report “highlights the tensions that surface, when seeking to promote an adequate housing supply and a more responsive provision”.

Yet solving the housing crisis is a complex problem because there are so many different factors and forces at work that they all need to be addressed to some degree in order for any impact to be felt. We can already read into the line above that the government recognises that the provision of housing is unresponsive to market demands, but what else can be gleaned from the Report as to the nature of this problem and their attempts to solve it? The first part of my analysis dips into some of the details of the report and attempts to gain an understanding of some of the more interesting revelations contained within its pages from the point of view of a land investor.

It is acknowledged that the preference for land use in this country, as opposed to others in Europe, is towards land preservation. As a country with both a limited useable land area and a heritage of preserving and living with the countryside, we don’t have the same motivations and constraints as our European partners when it comes to building, so it’s only natural that this should translate into planning policy and action. Yet the idea that a much greater number of houses are required to satisfy the current demand is clearly acknowledged from the start. Indeed, an increased supply of housing would be beneficial to the country not just in terms of increasing the number of people able to afford homes, but also benefit the economic growth of the country through increased regional mobility of the workforce, and by improving economic competitiveness of UK businesses, since a more abundant supply of housing would lead to lower costs. Added to this, there are the additional benefits of greater economic stability - less of the “boom and bust” cyclic trends that have been seen in the housing market for the past three decades and which doubtless played a substantial role in determining the performance of the UK economy as a whole.

The scenarios highlighted in the Report represent three possible directions the government could take when it comes to improving the housing market. The Report suggests that the changes that are implemented be monitored, and reviewed in terms of their progress within 3 years.

The first scenario involves building an extra 20,000 private sector homes each year on top of current targets; hardly a large increase in building. This would still apparently mean that 5,000 newly formed households would be priced out of the market each year. This is what the Government currently intends to do, not taking in account the findings of the review. The second scenario involves building an extra 70,000 houses on top of what is currently planned, which will result in no-one being priced out of the market in the next 5 years, and 5,000 more newly formed households being able to afford their own home within the next 10 years. The third and most dramatic scenario involves constructing an extra 120,000 homes per year on top of current targets, and would mean that an estimated extra 15,000 new households would be able to afford a house by 2021.

Even if the government takes a more risky road by significantly increasing the rate of house building by around 120,000 extra homes each year on top of normal house building activities (which seems unlikely given the substantial economic, political and social costs that would entail), the rate of house price rises will only be slowed by at most 1% during the short and medium term. This is because it would only be increasing the total stock of houses by less than one per cent. The net result of this is that the South East land bank of developable land would be eroded by about 2% over the next decade, not a massive amount. Since the change in levels of housing stock has a relatively small effect both on housing prices and the amount of land available to build on, it stands to reason that the demand for and price of land is likely to remain on a par with recent increases, seeing neither a significant drop

At a local level, those familiar with investment in land will probably be familiar with the local interest, and more to the point, the local hostility, that accompanies any kind of significant investment in land in areas with existing housing that are in close proximity to the greenbelt. After all, such an investment could well signal the eventual construction of houses, with all the disadvantages that entails for them. The Report recognises that one of the reasons that local authorities are reluctant to release local land for development due to political pressures, with those already in housing in the local area having a much stronger say in what happens that those without houses. This could be addressed, with the aim of making house building in local authority areas more responsive to market demands.

The Report looks at the systems used in other European countries, most of which have a planning system that differs from ours, such as in having legally binding local plans under which developers automatically gain planning permission provided that their plans comply with the local plan. Although such systems have their drawbacks, allowing developers to more rapidly obtain planning permission could help the responsiveness of the industry to the market, and subsequently reduce the intensively political nature of the local planning process.

The clear intention of the government not only to bring house prices under control but also to stabilise the market in general terms means that land investment is probably going to become a little more linear in terms of the returns investors can expect year on year.

The changes won’t happen overnight, but it will hopefully mean that land investment will become a slightly more predictable and less troublesome prospect over the next few years.