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This Christmas many of us will be introduced to, or be re-acquainted with, the ups and downs of property construction, ownership, and speculation when we open up our Monopoly set. No better insight into the challenges, pitfalls, and potential profits of housing development has been created. In Monopoly-world, despite all those softer Community Chest incentives on offer, victory is bestowed on the most ruthless competitor. Ultimately it is money in the bank rather than your public spirit that is the key to success.

Where the real world and Monopoly-world diverge is that building new homes is not the top of everyone’s priority. Few would argue that there isn’t a housing shortage and, if you tried to, there is a mountain of evidence showing for years that demand has outstripped supply that you would find hard to surmount. So, if most of us agree that new housing is needed now as a matter of urgency, what is holding us back?

The answer to this conundrum is a mix of economic, social and political (as much with a small ‘p’ as a large one) reasons.
House building is an expensive business. Even before the first brick is laid it involves finding and then buying land; sometimes on complex sites establishing ownership of all parts of it can be quite complicated; some owners are more willing to sell than others, particularly taxing when trying to put together a developable site from many parts, as is not unusual in inner urban locations. Also, the laws of economy state that the greater the interest shown in a product (such as land) the greater the value that product is likely to rise.

Having secured the land the next steps involve many more costly processes to complete including preparing plans, carrying out all the legal requirements, quantifying all the unit costs and, usually, completing remedial works to the site pre-construction. At each and every step there is potential for delays, challenges, and frustration; with more expense involved.

One of the greatest problems facing developers was caused by the severe contraction of the building industry that took place when the financial crash occurred. This means that when things pick up again not only are there a shortage of some essential building materials (too few bricks being a case in point) but also building skills are at a premium, as there has been a sharp reduction in training and apprenticeships in the wake of austerity.

There are many and varied ways the costs involved with building new homes can grow and grow. But how can these costs be offset to ensure that it is profitable enough for anything to be built?

One way of doing this is to achieve economies of scale by building big and/or increasing density. The proposed new towns will achieve the building big standard but anything of major size usually creates a proportionate public outcry. High density development requires imagination and creativity to insure against producing a poor living environment similar to that which scarred a significant proportion of 60’s schemes. Just as it ever was, whatever the scale of development, it is the quality of the physical and social infrastructure that goes with it that is equally important.

Another way is to provide public subsidy to reduce developers’ loan commitments. If sufficient subsidy is provided, this works well to reduce the on-cost to the subsequent resident be that in sale cost of the home or its rental charge. Unfortunately public subsidy of housing development has shrunk dramatically as an austerity measure in recent years. The only public subsidy hike that has taken place is in further incentivising the right to buy that produces no net gain of housing.

The choice for many private developers, especially as significant public subsidy is no longer on the table, is to build, wherever possible, for the higher end of the market. Here the return on investment is maximised under the simple premise that the more you sell the higher your profits. Properties on Mayfair have a greater return than those on Old Kent Road.

The problem with this for the rest of us is that the supply of new affordable sale and rented properties are not likely to be produced at the rate required to meet the housing needs of this country. In the next few years, if the chronic housing shortage is to be overcome, a far higher level of housing investment is required.

We need more houses, we need them to meet the needs of our growing population, and we need them now. Unlike Monopoly there are no ‘get out of jail for free’ cards.

Paul Thompson, Policy Advisor

Follow Paul on Twitter: @PaulT_BaH