Like me, the FT’s Lex Column is sceptical of the government’s ability to substantially increase the supply of new homes. They point to a range of factors:-
1 Housebuilders are earning high margins. Currently the average return on capital for a UK housebuilder is approximately double that of the US. For instance, Lex points out that Barratt has increased housing completions by 28 per cent since 2012, revenues by 60 per cent, and earnings four times. Er, that’s a 200% earnings increase. So – they’re happy with the status quo.
2 There is a well-recognised but largely unexplained (cost of funding, lack of economies of scale?) fall in supply from SMEs whose contribution to new housing supply has fallen from c40% to c20%.
3 Lack of industry capacity due to shortages of labour
4 High costs of market entry
So there’s quite a lot of vested interest in keeping housing supply low from the main suppliers themselves and also from existing home owners. You can see a change in tone in media reports of house price rises but it’ll be a turning point when the Daily Mail celebrates falls in house prices.
A planning consultant that I know well rarely finds a less than hostile response from residents to proposals for residential development. If affordable housing is proposed, then hostility tends to go to another level. In turn, local politicians generally have very little to gain from being seen to support new housing development.