Thursday 6 June 2013

Pickles has a point, even if he's missed it

The little spat between Cardiff and London last week over changes to building regulations in Wales highlighted yet again the loose way in which politicians use the words ‘red tape’.  Eric Pickles claimed that the new law on installing sprinkler systems, and the rules requiring higher carbon emissions standards for housing, are examples of ‘red tape’ which should be abolished; as ever, one man’s ‘red tape’ is another’s environmental protection or improved safety.  And it’s not as if the UK Government can really claim that they’re against regulation anyway – the recent Queen’s speech proposed extra regulation around employment and housing for immigrants as I recall.  It’s only some ‘red tape’ that they’re against.

Pickles’ rationale was based on the potential damage to the house-building industry in Wales, highlighted by some builders suggesting that they’d now prefer to build new homes in England where they don’t have to comply with such standards than in Wales where they do.  It’s the normal capitalist response to changes in the market conditions – existing capitalists must be protected from such changes, preferably by not making them.  (Although the economic purists would argue that change promotes innovation, and that the companies which manage to find the best and cheapest ways of complying will grow whilst the dinosaurs die.  It’s just that capitalist dinosaurs never die quietly.)

He does have a point, though, at a purely economic level.  There is surely no doubt that the changes made in Wales will increase the capital cost of building new homes, in the short term at least; and even in the long term, the capital cost of building a new house in Wales is likely to remain higher than the capital cost of building a new house in England.  With no increase in earnings on the Welsh side of the border, that will put a squeeze on housebuilders’ profits, which is why they are protesting so much (although it is precisely that squeeze which is supposed to drive innovation, isn’t it?).

Forgetting the housebuilders for a moment, the people likely to lose out here are those families in Wales who want to buy a new house.  Prices are already high compared to wages; a further increase in prices with no change to wages simply prices even more people out of the market.  There is a danger that the main beneficiaries will be another group of capitalists – those who operate the burgeoning market for private rented housing.  The Welsh government’s response is hopelessly inadequate – it’s as though they believe, or pretend, that there isn’t a problem at all.  Or at least, if there is, it isn’t their problem.  But there is a problem, and it’s a very real one.

However, the fact that there is a problem doesn’t mean that Pickles is right to call for the abandonment of changes which will, undoubtedly, improve safety and reduce environmental impact.  That’s simply throwing the baby out with the bath water.

The essence of the problem is this: improving the environmental performance, and the safety, of new housing will reduce the lifetime cost of home ownership, but at the cost of increasing the initial purchase price.  Long term revenue costs are reduced in exchange for an immediate increase in the capital cost.  But the financing structures for home purchase – the mortgage market – aren’t changing to reflect that.  Purchasers and mortgagors see only the increased capital cost; the reduced revenue costs aren’t taken into account in assessing affordability of mortgages.  So what we need isn’t to scrap the changes, but to look at how we can reflect that front-loading of cost in financial arrangements.  And that’s something which neither government seems to be willing to tackle.


G Horton-Jones said...

A pity to let this one go without a comment

For several years people have come to see home ownership in a rising property market as a source of increasing personal wealth and in many cases borrowing against and spending that wealth and in addition some have incorporated the gain into their concept of annual income as a kind of tax freebee
Builders still operate on a build two get one free basis and dont forget new builds are material vat free

Many properties are now being developed or redeveloped
with a South Fork mentality which has no respect for local need

For the record in South Pembrokeshire there are very few people who can afford to live in their own homes if you look relistically at the maths

Benefit recipients view housing as a benefit freebee
Given the current state of the housing market sales and rentals are dead in the water
Despite TV hype the rental market is bedevilled with tennants who want to have it all and pay for nothing. A County Court Judgement is an expensive joke at the landlords expense. but renting is also often the resort of those on the fringe of the benefits system who have good intentions but are unable to escape from it because of the state of the economy

Anonymous said...

Let them build more houses in England especially on flood plains, who do we need to build houses for in Wales, there are plenty for our needs especially if we stop and reverse the second and third homes which are not occupied for most of the year and yet our local councils offer them a discount on their tax to keep them empty! said...

Just been reading about general housing market and crisis in UK. Seems that in England there is now the lowest level of owner occupier properties since 1987. And the average cost to upgrade on the property ladder is anything from £60,000 to £100,000 (on top of selling old house if you actually have any equity). Wales had the lowest amount required to upgrade.