Redfern reviewed

 “Wanting to help boost ownership is in Labour’s DNA.” says John Healey in his introduction to the Redfern Review.Commissioned by John himself, rather than the Labour Party, the report is a bit of a curate’s egg, with some excellent proposals but a number of key omissions. The report is nominally independent, although Peter Redfern, the CEO of Taylor Wimpey, is a senior figure in an industry that has, in the view of many, played a major part in the housing crisis. More on this below.

Redfern says EnglishHome Ownership fell from 71 percent in 2003 to 63.5 percent in 2014/15, and the decline has been steepest among Generation Rent. The report sets out a number of policy options for reversing this decline. It accepts that some government-subsidised home ownership products can be inflationary and calls for a savings culture among young people. Planning reform and a political consensus on long-term housing supply are among the solutions put forward.

The report finds that the biggest factor in the decline in home ownership has been tougher rules on how much first time buyers can borrow for a mortgage, followed by above-inflation increases in prices. The primary drivers of house price inflation have been rising incomes, falling interest rates and a lack of mortgage finance.

But it’s worth looking at the absolute shift in numbers between tenures to unpick this. According to the Government’s own data, in 2002 there were 21.35 million homes in England of which 14.85 million were owner occupied (69 percent).  By 2015 this had increased by over 2 million to 23.54 million homes of which 14.71 million were owner occupied (62.5 percent). So the absolute number of owner occupied homes stayed about the same but the percentage share fell significantly. Of course, if the share of one sector goes down then another must go up, and over this period the Private Rented Sector in England more than doubled in size from 2.19 million to 4.75 million homes – a staggering increase and the result of millions of individual decisions by home owners and buy to let investors. In effect, first time buyers were priced out of the market, for both new and existing homes, by small landlords in the main. And although Redfern says that  “dealing with home ownership in isolation from the wider housing market is unlikely to be fruitful ” the report does not appear to recognise this fundamental shift of stock from one sector to another. In which case, many of Redfern’s policy solutions will be pointless unless first time buyers are enabled to compete more successfully against private landlords in the future.

Redfern makes the wider point that, “Additional supply will reduce prices only if maintained over the long-term”, which is certainly true. New supply of around 140,000 a year represents less than 1 percent of the total stock, so it transactions within the existing stock that mostly determines prices.  But this is not Year Zero. Supply has been about half of what it sholud have been for forty years so the massive backlog clearly is a major cause of high prices and low affordability.

The report goes on to make the odd point that new supply won’t necessarily increase ownership because it will reduce rents, “which in turn has a negative impact on home ownership. Consequently it is unsurprising to discover that supply has an ambiguous impact on home ownership rates.” I don’t follow that logic. If 86% of people want to own then lower rents will enable them to save for a deposit and to afford a mortgage. Most people in the PRS don’t want to be there. They ether want to own or to be in social housing, and factors such as insecurity, poor service and disrepair are likely to be bigger drivers than rent levels.

So if home ownership is to increase, it is the vast reservoir of unhappy tenants in the PRS who will feed its growth. Paradoxically, one way to do this is by investing in genuine social housing (see the SHOUT manifesto). By building 100,000 social rented units a year ( a million over ten years) it would have a significant deflationary impact upon the PRS. Landlords would cut rents, or sell up, prices would fall and the opportunities for home ownership would increase significantly. To coin a current phrase, draining the swamp of the PRS would help to boost home ownership more than any other single measure. Is thist oo simple or am I missing something?

But the problem that dare not speak its name in the Redfern review is the housebuilding industry itself. Without major reform Redfern’s plans for a long-term boost in supply will come to naught. A recent report from the University Sheffield points out that volume housebuilders have been increasing their profits but not their volumes, and diverting a bigger proportion of their surpluses to shareholders rather than re-investment. The report shows that the top ten housebuilders increased their share of output from 9 percent in 1960 to 47 percent now. In 1980 we had over 10,000 small and medium (SME) housebuilders and they built 57 per cent of all housing. By  2014 this had dropped to 2,800 firms building just 27 per cent of output. Over the past three years the revenues of the top nine firms grew by 76 percent and profits by 200 percent, whilst profits for the five biggest firms rose from £372 million in 2010 to over £2 billion by 2015 – a 480 percent increase. Almost half of this was trousered by shareholders rather than re-invested.

So the housebuilding industry has become a semi-cartel – a fact that is not even touched upon in Redfern’s supposedly independent report.

The Redfern report joins a long list of recent reports which seek to analyse various aspects of the housing crisis and to offer up solutions. The time and money spent on these could probably have biuilt a fair few houses. I don’t think Redfern adds a great deal wo tht e debate, and its omissions are many.