The UK general election that followed the end of the First World War was in part fought on the key issue of “homes fit for heroes”. Liberal prime minister David Lloyd George’s manifesto pledge was driven in part by the recommendations of the 1918 Tudor Walters Report into housing conditions and, following the Liberal Party’s election win, the government in 1919 passed what was seen as a watershed act in terms of the approach to housing provision it set in motion.
A century ago this month, the Housing, Town Planning, &c Act 1919, known as the Addison Act after the minister of health, Christopher Addison, placed a duty on local authorities (empowered with government subsidies) to take up the gauntlet of providing 500,000 new homes within three years.
Typically housing had been built by private developers with an eye on turning a profit, but the Tudor Walters Report recommended that new homes were not to be cramped terraced houses packed into available space, but rather open and airy, low-density garden suburbs. The report mandated several designs and layouts of generous proportions, with gardens attached to all.
This push toward spaciousness culminated in 1961 with the Ministry of Housing’s “Design Bulletin 6 – Space in the Home”, which became known as the Parker Morris Standards (and mighty fine standards they were too, even though they failed to be mandated throughout the industry). The Addison Act approach was clearly perceived as a short-term measure to fill the supply gap, with the hope that public sector housing provision would stimulate the private sector to ensure long-term targets were met.
It seems astonishing that a century on from the Addison Act the number and quality of homes is still a key political issue. Ministers have announced that around 300,000 new homes should be completed each year, and yet the number built by the industry has remained stubbornly lower for much of the last 70-odd years. Even during the heyday of council house building between the 1950s and 1970s, the average output for the whole private sector peaked at around 200,000. While the numbers built by local authorities reached 300,000 for a few years during this period, from the 1980s onwards the contribution from councils fell effectively to nil following stringent government-imposed borrowing restrictions.
In the last decade the number of homes built by both public and private providers combined has averaged only a paltry 159,000 each year.
Who builds homes, in who’s interest?
Most new homes are built by about a dozen big housebuilding firms, such names as Persimmon, Bellway, Barratt and Taylor Wimpey. These companies employ a multitude of building sub-contractors. According to the Office for National Statistics, data for 2017 shows there were more than 40,500 firms employing 227,000 people involved in housebuilding, the vast majority of them small businesses.
The major housebuilders deliver the majority of new homes each year. They buy and retain large land banks which they feed into the overall supply as they feel it appropriate. As public limited companies, their shareholders demand returns on their investment, and a small number of financial investors have the ability as shareholders to exert significant control over the direction of these companies. In some cases more than 40% of the business is controlled by a handful of financial institutions, in other cases well in excess of 10% of shares are held by a single investor.
Chasing financial returns tends to lead to a short-term view of shareholdings, seeking immediate gain over longevity and loyalty. The nine key housebuilding firms had a combined turnover of £24 billion in 2018, with pre-tax profits in excess of £4 billion. Little wonder then that institutional investors see the promise of a big return on investment: it can be argued that such institutional investor power brings about real concentration in the supply of new homes. The profit maxim is paramount and is reflected in well established economic theory of supply and demand - holding back supply when demand is high, keeps prices high.
Housebuilding companies build new homes to their own specifications and in locations of their choosing. Most have very little direct labour, instead relying on the ecosystem of sub-contractors to deliver. But these sub-contracting practices inevitably mean that the imperative to build the highest quality homes is diluted and overall quality control is pretty hit and miss – as recent scandals have shown. With the marketplace for house builder sub-contracting services determined by price point, it becomes clear that lowest cost does not always mean best value.
A return to standards
Quality and standards have drifted over the last 40 years with house prices rocketing despite their diminishing size. The Parker Morris space standards of the 1960s are not difficult to achieve, nor would they slow down production. Several housebuilders have tried minimalist approaches to new homes, such as “tiny homes” for solo living, but many buyers quickly realised that these were not a long-term solution.
We can expect that we will require more flexibility from our homes in the future, as technology drives changes to how we interact and socialise. Reasonable living space such as under Parker Morris standards would be well placed to accommodate future changes.
Similarly, quality standards are required. Consumer protection law exists to ensure consumers are treated fairly when buying goods and services, and that businesses operate within the competition law. Yet despite a new home almost certainly being the largest purchase most people will ever make, new homes are not explicity protected by the scope of the Consumer Rights Act 2015. The home buyer has little means of redress when something goes wrong.
In order to ensure the rights of homebuyers are truly protected, the Competition and Markets Authority should examine the concentration of shareholdings within the industry with a view to limiting the direct influence of a small number of large institutional investors, and to expand the remit of the Consumer Rights Act to include new homes.