[Reprinted from "Otter Life" summery 2025]
The UK is currently facing a severe housing crisis characterized by a shortage of affordable homes, leading to increased homelessness, overcrowding, and rising costs for both renters and buyers. This crisis is driven by a long-term failure to build enough houses to meet demand, coupled with rising living costs. In addition, net migration to the UK was estimated to be 431,000 in the year ending December 2024, (a significant decrease from the previous year) which must fuel an already tight housing market.
Over recent years the planning system and planners have been blamed for the lack of housing that people desperately need. But is this true? Whilst it is a fact that there are currently substantial delays of six months or more in decisions being made on major planning applications, one has to look carefully at the complex issues to understand the whole problem.
Due to years of financial cut backs in local government, planning departments are now seriously under resources. Not only do they lack staff, they also have problems retaining staff. In a debate in the House of Lords on 25 June, Lord Young said that 62% of councils had difficulty recruiting planning officers; 45% had difficulty retaining planning officers, and two thirds of councils relied upon agency staff. The government plans to address this by funding more planners, (purported to be about one per local authority), so that is unlikely to remedy the current situation. However, the government has pledged £24 million to attack the planning backlog and get the right skills in place, as well as streamlining and reforming the system with the Planning and Infrastructure Bill.
But what about the companies that are responsible for building these homes? There used to be many civil engineering companies, but after recent acquisitions there are now only six volume housebuilders who build about half of all private-sector homes in the UK. They have also had a very strong influence over the government’s past housing policies. They are Barratt Redrow; Bellway; Berkeley; Persimmon; Taylor Wimpey and the Vistry Group (Bovis, Linden and Countryside). Obviously, these companies are in business to make a profit, so build at their own pace to ensure that supply lags behind demand (see below), and prices remain on an upward trajectory.
This government’s target is to build 1.5 million new homes during its term in office, and is aware that house building is a major economic driver. But will these be the affordable homes that we need?
Research undertaken by the Architects Journal found that over 1 million homes that have received planning permission since 2015 remain unbuilt, accounting for approximately one third of all approvals. This backlog suggests that if all homes with planning permission had been built, the government’s annual target of 300,000 new homes could have been met for 8 of the last 10 years. No doubt housebuilders will have many reasons for not building these homes, but clearly having to make a profit for their shareholders is a very important factor.
An award winning report in 2023 entitled “Why have the volume housebuilders been so profitable” was published by the UK Collaborative Centre for Housing Evidence. It found
- Unusually high profits have been made by the volume housebuilders in England since 2014.
- This does not, however, reflect an increase in the quantity of delivery, and housing affordability in England continues to worsen.
- The state’s own policies have enabled this, because the state saw itself as needing to be a passive player in the production of housing, reliant on the structural power of the largest housebuilders to deliver.
- To expand housing supply in a way that meets social and environmental needs, the state should take a larger and more active role in the housebuilding and land market.
In this report the authors discuss their findings that since 2014 the largest housebuilders by volume (Taylor Wimpey, Barratt and Persimmon – the ‘big three’) have consistently attained “supernormal” levels of profitability, with gross profit margins reaching 32% and never falling below 17%.
Key questions that the authors go on to ask include:
- how and why have the big three been so profitable?
- what does this profitability say about the nature of the housebuilding industry, the development land market and the relationship between volume housebuilders and the state?
- what can the state do differently to enable more affordable and sustainable housing to be delivered?
In answering these, the report explains how the state played a vital role, through two interventions which benefitted larger housebuilders over smaller ones:
- Mortgage market support schemes which (likely) inflated their sales prices and allowed them to wind-down their own shared equity schemes.
- Renegotiation of section 106 agreements and the subsequent liberalisation of the planning system.
The authors argue that to increase housing supply in a way that better meets social and environmental needs, the state should recognise its own structural and market power and take a bigger and more proactive role in the housebuilding and land market. While acknowledging barriers as well as opportunities, they go on to discuss different ways that the state could do this, such as:
- more direct delivery by the state of non-market housing e.g. via housing associations or local authorities;
- a more active and expansive role for the state in planning and acquiring large-scale sites and then servicing them for SME and custom builders;
- a more coherent approach to capturing land value uplift, so that more of it can be used to support the delivery of affordable housing and infrastructure.
The housing crisis could also be addressed by tackling the many empty homes. The data shows that more than one million properties across England in 2022 were unoccupied (4.01 per cent of all dwellings), an increase of nearly 60,000 homes since 2018. This includes second homes, holiday lets and airbnbs. Empty homes are a hugely wasted resource when there are over 1 million people on council housing waiting lists and in temporary accommodation.
As mentioned earlier, this is a very complex issue, which has deteriorated over recent decades. There are many reasons for this crisis apart from our restrictive planning system, such as loss of social housing, house prices and rents rising much faster than wages, increased housing costs and many other financial and economic factors.
There has always been a lack of holistic planning that has held back community support for new houses. Surely it in not beyond our capabilities to train people to fulfil the shortages of skilled and unskilled construction workers, to provide much needed water treatment plants and other essential infrastructure in advance of house building.
Let us hope that solutions can be found that will solve this chronic crisis, and make the housebuilders construct the homes that already have permission. Also that a mechanism can be found to quickly bring back into use all the properties that are currently empty, so that our natural environment and beautiful countryside are not lost forever to housing development.
Reference
Foye, C. & Shepherd, E. (2023) Why have the volume housebuilders been so profitable? The power of volume housebuilders and what this tells us about housing supply, the land market and the state. UK Collaborative Centre for Housebuilding Evidence.