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The Government Should Break Up The Monopolies That Dominate Our Housing Industry

03/02/2017 16:52
Matt Cardy via Getty Images

A few weeks ago, Communities Secretary Sajid Javid gave a powerful speech to the house building industry. He said the market needs to start working for everyone, not just the privileged few.

In those words, the answer to his own challenge may lie in his previous cabinet post at the Business department, because 'the few' absolutely describes the current state of the house building, housing association and housing finance industries.

Successive independent expert reports for government, including the recent Elphicke-House Report, have highlighted significant competition challenges in spite of strong consumer demand for housing. Put simply, a few big companies dominate the private house building market and a few big housing associations, mortgage providers and construction companies dominate their sectors.

In financial services, the top ten mortgage lenders account for more than 80 per cent of all mortgage lending. Last year, two-thirds of all new mortgages were lent by just six financial institutions.

Discussions around new institutional investors are perceived to be around underwriting the needs and wants of half a dozen global behemoths. Many other fund and asset managers who are keen to invest in housing feel that they barely receive any attention. Yet many of these other funds and assets managers are by no means small. They successfully manage billions of pounds of infrastructure related funding and many have strong track records of using parallel skills spanning two decades or more. Despite this, many investment funds have found that securing market participation in housing markets in the UK is extremely difficult.

In the housing association sector, the picture is similar. Nationally, 20 per cent of housing associations account for 95 per cent of all registered housing stock.

The top housing associations - the G15 - dominate the London property scene. They build one in four of all new homes in the capital (more than half in some London Boroughs) and house 10 per cent of London's population. That's 10 per cent of all homes - not just the rental market.

The top 10 per cent of housing associations will also pocket four-fifths of the £2 billion or so profits made from developing homes for market sale.

It is well known that the number of smaller house builders has fallen. However, smaller house building as an industry has been in structural decline for three decades. In the 1980s, it was responsible for around two-thirds of homes being built. Latest research suggests that small builders now produce just 12 per cent of the homes being built each year.

This structural decline in market share has recently occurred in mid-market banks and building societies. Market concentration in the housing association market has accelerated over the last decade, providing a similar result.

It is not a co-incidence that a few big players are at the top of every related industry in housing and housing finance. This is the inevitable result of decades of law, regulation and government policy which favours the big, the large and the status quo.

It is a pervasive problem at the heart of British business culture. Britain has institutionalised an anti-competitive business world, and that needs to change.

It makes Britain less resilient to global market changes as each of these sectors is characterised by businesses that are too big to fail without causing significant harm to British people.

If government policy is designed to be for everyone, then policy for business needs to be for everyone, not just for the few. That means putting competition at the heart of government's objectives.

Competition does not just mean the ability of Business A to bid for the same work or the same pot of money as Business B. It means recognising that government policy does not impact equally on different housing markets around the country.

A government policy that works for London and Manchester may not work for Newcastle or Hastings or in rural Cornwall.

It means understanding and recognising how different tax and regulatory regimes, including planning and local taxes, impact on different business types. Financial cross-subsidy models work in high value locations for mainstream developers and housing associations, but different financing and investment solutions may be required in different locations or on smaller or specialist sites.

That's why a lack of full market competitiveness within the housing industries is so important. Without a Housing Business Review, the big will simply get bigger and the rest will be left scratching around at the edges.

The smaller builder and the small community housing association, the retiree investor and the young person wanting to get their own home at a decent price cannot and will not thrive again until the housing and finance industries are part of ordinary everyday community and investment life.

Reversing institutional anti-competitiveness will not be easy. It needs to be done without killing the golden geese who are developing, building and financing homes at present. However, solving it can unlock a structural step-change in housing and housing finance that will put the UK in the competitive position it needs to be for long-term success.

Post-Brexit, we can address institutionalised anti-competitiveness, as EU restrictions and practices that constrain domestic competition will be lifted, such as procurement and state aid.

If we don't, then the current big business dominance will be supplemented by big states, such as China and Russia, who have factories and experience of delivering volume factory-supported construction.

An 'end-to-end' Housing Business Review would scrutinise what can be done to reduce complexity, increase flexibility and encourage broader participation in housing and housing finance. In particular, it would address the relative impact of government policy on different participant groups and in different housing markets across the country.

The upcoming Housing White Paper provides a real opportunity to make some of these changes so as to ensure that each and every part of the country has the opportunity to develop and secure investment in the homes that are needed.

Natalie Elphicke is chief executive of The Housing & Finance Institute and a former government housing adviser

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