ALEX BRUMMER: Housing wants rate of interest cuts

Stubbornly high interest rates are the biggest obstacle to a housing recovery. The Bank of England has the opportunity to change this at next Thursday’s session.

If it were to follow the European Central Bank and lower rates from 5.25 per cent, it would give a fillip not just to residential development but the whole economy.

When people buy or move house it boosts construction spending and consumption, from white goods to bedding.

Stagnation in housing is among the factors leading to consolidation among housebuilders. 

Building a dream: When people buy or move house it boosts construction spending and consumption, from white goods to bedding

The great financial crisis saw many regional building firms disappear, handing market powers to bigger listed players. 

Some abused the privilege. Persimmon, the biggest offender – paying its former chief executive Jeff Fairburn £75million – built some houses found to be unsafe and was among a group of builders abusing leasehold freedoms.

Another wave of consolidation is going on as tight credit and uncomfortably high mortgage rates take their toll.

The May Halifax price index showed a 0.1 per cent drop in prices. They have now been flat or falling for three months in a row. An increase in prices and demand at the turn of the year, when there was a dip in market rates, has dissipated.

When borrowing costs do eventually fall – potentially to 3 per cent next year – there will be fewer house builders to pick up the slack and inject competition.

All of this when Labour, strongly favoured to win at the General Election on July 4, is counting on planning reforms and housing as drivers of growth.

Overnight it was revealed that one of the weaker players, Crest Nicholson, had rejected a £650million bid from Newcastle-based rival Bellway.

The latest offer followed the fifth profit warning in a row from Crest with the board standing firm against a deal. Bellway’s effort to bulk up follows Barratt’s winning £2.5billion absorption of Redrow earlier this year. 

Legal & General’s new boss Antonio Simoes has hoisted a for sale sign over top ten residential builder Cala Homes.

Britain has an urgent need for more housing and the Labour manifesto promises to build 1.5million homes in the next Parliament. 

Some 300,000 houses a year may not seem an outrageous goal even though it falls short of the higher numbers achieved in the post-war years. The manifesto accuses the Tories of triggering a housing crisis.

Yet in spite of elevated interest rates and shrinking investment among housebuilders, some 212,000 homes were built in 2023.

Labour believes that it can force feed construction by appointing more planning officers and utilising brownfield sites.

More planning officers might help. It is a lack of intelligent, long-term thinking and capacity which is the real problem.

The goal is to emulate the ‘proud ambition’ of the 1945 Labour government. Clement Atlee and successive Tory governments were assisted by the bomb sites in and around Britain’s biggest cities. 

Pledge: The Tories’ equity-to-buy scheme is aimed at assisting first-time buyers to put down a deposit

Brownfield areas are more expensive to build upon because of clean-up costs, so getting projects off the ground is slow.

Creating combined local authorities might help. Indeed, some of the best strategic decisions have been in areas such as the West Midlands, where a determined and market savvy Tory mayor, Andy Street, brought about dynamism. 

His reward was to be tossed from office. Bold ambition in the UK has a terrible record of being defeated by Nimbyism. 

There also are capacity problems. Building skills are in short supply and there are long delays in putting new infrastructure such as sewage systems in place. 

Big investment programmes by water utilities and the national roll-out of fibre-to-the-door broadband constrain construction resources.

It is painful that young people find it hard to climb the housing ladder.

The Tories’ equity-to-buy scheme, aimed at assisting first-time buyers to put down a deposit, should help. Labour is promising something similar with an undefined mortgage guarantee. 

Even with a super-majority, Labour’s planning reforms will struggle. In the immediate term, lower interest rates could do wonders for unblocking residential housing and encouraging more building. Over to you, Andrew Bailey and the Bank of England.