The real culprit behind the current shortage is that local authorities have sold off a large chunk of former council houses as a result of a right-to-buy campaign started by Mrs Thatcher, and at the same time, new construction of council houses has dropped from a peak of over 400,000 a year in the late 1960s to zero. The government is also making things difficult for itself by making loud noises on the subject of immigration. During the recession, over 300,000 skilled workers left the construction industry, and contractors are finding it tough to recruit new bricklayers, electricians and carpenters.
The latest in a long line of initiatives is a plan to build 200,000 starter homes by 2020. It's a start, although that number needs to be built every year to match demand. The new homes will be on offer to first-time buyers under the age of 40, and they attract a 20 per cent discount to current market values. Section 106 planning constraints have also been loosened up. Previously, a builder was cajoled into including an element of affordable housing in any development for rent. Under new proposals, builders can now build affordable housing for sale to owner occupiers. It sounds good, but the maximum sale price has been capped at £250,000 outside London and £450,000 inside. These are the sort of prices that builders will aim for in order to protect margins. It's still hard to see which part of £450,000 is the affordable bit. For housebuilders, there could also be a sting in the tail because although margins on affordable homes are smaller, there are cash flow advantages because payments are received up front, which helps to sustain a higher return on capital. This will vanish if the builder has to wait for the property to be sold before getting paid. What remains unclear is where does the money come from to fund the 20 per cent discount? There have been suggestions that public sector-owned land could be sold to builders at a discounted rate. Or more likely, the government might remove Section 106 affordable housing contributions and Community Infrastructure Levy charges.