Laurence Fredricks, is Senior Researcher at Onward.
Britain could be on the verge of a Burnham building problem. It would be easy to believe Andy Burnham, the potential PM-in-waiting as many now see him, could be a positive for pro-development circles. After all, Manchester’s skyline has transformed under his mayoralty, driven in part by a relatively competitive, pro-growth and developer friendly planning regime, especially compared to London. But his recent comments on housing policy are concerning if not borderline catastrophic should they translate into policy, and this should worry anyone serious about the delivery of the homes that Britain needs.
“Since the 1980s, housing has increasingly been treated as a commodity to be bought and sold,” Burnham said. “If you see housing purely like that, you end up with a housing crisis – and that’s exactly where we are.”
Let’s be absolutely clear: housing is a commodity.
Housing is a private good. Housing is a store of wealth. And housing is an investment vehicle. This is a good thing!
These are the foundations of a functioning housing market which is integral to a functioning economy. It lends itself to economic activity as individuals can borrow against the value of their house, and use the store of wealth to support themselves in hard times and old age rather than relying on the state, amongst many other benefits. And yes, housing can be all of these things and still be a home. The two are not in conflict.
Let’s also be clear about the second half of the quote: the commodification of homes is not what leads to a housing crisis. Too few homes leads to a housing crisis.
Perhaps the rebuttal is that commodification is a product of too few homes pushing up house prices, which incentivises buying and selling. But surely this would incentivise developers to deliver more homes to buy and sell: this would happen if we allowed the markets to respond to market signals, and the shortage of homes would be resolved. But we do not, and this is where the housing crisis really stems from.
England has one of the lowest housing supply elasticities in the developed world: when house prices go up, signaling that people want more homes, almost nothing gets built in response. In a healthy market, rising prices attract more developers, supply increases, and price growth stabilises. In England, the planning system acts as a brake on that process. Developers cannot get the permissions they need to respond, and when they can, they are hit with an increasingly thick pile of costly obligations – add in sharply rising build costs driven by materials inflation and labour shortages, and schemes that looked profitable quickly become unviable.
The evidence is clear. Berkeley Homes has halted land acquisition in London. Only 52 per cent of homes granted planning consent in England since 2012/13 have actually been built. The problem is predominantly viability, the point at which the costs of building make development unworkable as a business proposition.
To suggest otherwise is a clear misunderstanding of how markets work. And this comes back to one of the core problems we currently face in Britain. Development is too often treated as a public service, something that can be ordered into action by politicians, burdened with social obligations, and still deliver with little regard for the costs. Development is a business. Business runs on profit, to survive, crucially, but also to grow and deliver more homes. This is true at every scale, from SME housebuilders to the major developers. Without a profit incentive, homes do not get built.
Burnham’s “housing first” platform centres on social housing as an alternative to the housing market: “We really haven’t had that approach in this country since the post-war years.” But post-war Britain was not a world without markets or private development. The difference was that homes could still be built at scale. What changed later was the emergence of an increasingly restrictive planning system that chokes supply. That, far more than the commodification of housing, is what created today’s crisis.
The direction of travel being set by the PM-in-waiting should be a grave concern. Instead of recognising the planning system and the mounting burdens placed on developers as the real barriers to housebuilding, Britain risks drifting toward a state led housing model where the delivery of housing comes at any cost – with the taxpayer ultimately footing the bill.
The answer is not to berate the commodification of housing, or treat housing as a public service to be commanded into existence. It is to fix the planning system, restore viability, and give the market the conditions it needs to deliver.