Opinion

Giving housing a new lease of life

14 August 2017 | By Chris Blythe

A closer focus on the issues of leasehold homes and the rights of vulnerable workers brings wider benefits, says Chris Blythe.

Chris Blythe

It was welcome news that the government intends to crack down on leaseholds and, in particular, the sale of new leasehold homes. The challenge will of course be in trying to unpick the more recent transactions.

Taylor Wimpey has made a provision of £130m to cover rectifying the leasehold problem. It’s a nice headline but will likely prove a hollow gesture in practice, notably where the freeholds have moved out of the control of the initial builder/developer.

Sorting out leaseholds will go some way to tackling the broken housing market. Something else that might also help could be to try to actually make it a market.

Developers tend to have local monopolies and in truth there is not much competition; shopping around is not a viable option. If you want to live in place A and don’t like builder X’s products you are stuck. If you want something different you might need to go to another part of the region, well away from where you might want to live or work.

I wonder whether it is not time for the Competition and Markets Authority (CMA) to carry out an in-depth investigation into the housing market, focusing on the levels of competition, the profits being made and whether the homebuyer is getting a fair deal.

“When house sales and profits were low, customers were happier with their homes – reflecting that when house buyers had a choice, builders had to try harder.”

If the current non-market is delivering net profit margins of 30% or more, you have to be asking questions as to how this is being achieved and whether it represents a good deal and for whom.

When you put this alongside the declining levels of homebuyer satisfaction, it does look as though quality is being sacrificed for profit. If you look back to the darker days of the recession, when house sales and profits were low, customers were generally happier with the quality of their homes – reflecting that when housebuyers had a choice, builders had to try harder.

It leads to the conclusion that when there is a more competitive market, builders’ behaviour is different from when there is not. So whichever way you look at it, a referral to the CMA is probably well overdue. The only factor holding it back is the political will to do so.

On the brighter side, the transformation of the Gangmasters Licensing Authority into the Gangmasters and Labour Abuse Authority means the construction industry now falls within its broader remit around the exploitation of vulnerable and exploited workers. The GLAA can investigate human rights abuses across the whole of British industry and commerce.

As ever, legitimate companies have nothing to fear, although by the very nature of the supply chain even legitimate companies might be unwitting accomplices to trafficking and exploitation. 

Chris Blythe is chief executive of the CIOB

Comments

The fundamental point Chris Blyth misses in declaring that Housebuilders operate local monopolies is that new build transactions represent only a fraction of total housing market sales, typically as little as 10% in total. Quite how one company operates a successful monopoly in this circumstance is questionable to say the least. In the upshot, new build sales values are dictated by established second hand housing values, albeit there may be a small element of new build premium.

As for net profits of 30%; I am not aware of any Housebuilder making net profits at this level, some at the upper end are making gross profits of this order, but that is a totally different measure that includes a significant proportion of operating and finance costs.

Can I suggest Chris Blyth makes himself more aware of the facts of the situation before he expresses his opinions if he wishes to maintain a position of an informed industry commentator.

R Denness, 14 August 2017

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