Wednesday, 3 September 2014

Land bankers say the funniest things...

From today's FT:

Redrow has marked its 40th anniversary by reporting record sales and earnings on the back of pent-up demand released by the government’s Help to Buy scheme...

[Company founder] Mr Morgan said the key to expanding production was increasing the number of sites the company is building on, which was dependent on a still difficult planning system.

"The planning process is not in a sufficiently good state to deliver implementable planning permissions, so that needs further work, although there has been some good progress made,” he said... That doesn’t mean riding a coach and horses through greenbelt policy, it just means having a sensible look at boundaries that were drawn up 60 years ago and are hopelessly out of date," he said.

Also from today's FT:

The number of new homes being built in the UK hit a post-credit crunch high in the past three months, for which the government partly credits Help to Buy.

Chancellor George Osborne said the scheme was "working exactly as we intended". "Help to Buy is also driving a big increase in housebuilding in Britain, boosting the construction industry and increasing housing supply," the chancellor said.

Stewart Baseley, of the Home Builders Federation, said: "This increase in demand is allowing builders to significantly increase the number of new homes being built – homes that the country desperately needs." Housebuilders were recruiting "thousands" of apprentices and other staff, he said.

We know perfectly well that the so-called "homebuilders" a) don't actually build houses, their sub-contractors do and b) they have enough land with planning to keep them going for the next five or ten years, but they deliberately restrict output to the profit maximising level. Current output of about 160,000 new homes per year is very close to the long run average for private building since the 1950s.

We also know that increasing the number of homes has barely any up- or downward effect on house prices (especially if the number of new homes per year only increases the housing stock by about 0.5% - 1%), but the two articles also offer another explanation for supply inflexibility. It's because the supply of bricks and available subcontractors is relatively inflexible in the short term, so if the "home builders" try to increase output too fast - from whatever level - that pushes up their input costs and the pesky brick manufacturers and sub-contractors end up collecting some of the rent.

But if the land bankers are going to lie and obfuscate, could they at least get their story straight? Either supply is restricted by planning (which is at least plausible if you weren't aware of the amount of land they are hoarding) or it is restricted by credit availability (which is more or less implausible). if planning laws were as restrictive as they make out, then Help To Buy would not have had any effect, would it?