Coalition Plans Housebuilding Stimulus

Ministers are preparing to unveil a new package of measures to stimulate the flagging house-building sector next month, in an attempt to help drag Britain out of recession.

Construction work
Construction work

The plan has been drawn up by Oliver Letwin, the prime minister’s head of policy, along with Grant Shapps, housing minister, and Danny Alexander, chief secretary to the Treasury.

It comes amid an unprecedented drive to stimulate housebuilding. Downing Street and the Treasury have instructed officials to come up with initiatives which could boost building by using the government’s balance sheet, rather than by putting money upfront.

The draft plan will be announced by either David Cameron, the prime minister, or his deputy Nick Clegg. It features a complex scheme under which the government would relax rules requiring private housebuilders to incorporate social housing in big projects.

Local authorities typically force builders to ensure that 20 to 45 percent of their homes qualify as “affordable” properties.

The government would also underwrite bonds issued by housing associations – a move which would reduce their borrowing costs and allow them to step into the gap left by private housebuilders.

Under the Letwin plan, housing associations and private housebuilders would have to “sit around the table” and agree to work together on large sites.

Housing associations were able to borrow cheaply from banks before 2008, but have since seen a squeeze on their finances with many facing expensive refinancings. They are instead turning to the bond market, where they have raised over 3 billion pounds already this year.

Ministers believe that a state guarantee on such bonds would make them even cheaper, allowing housing associations to build affordable housing on private developers’ sites.

Meanwhile the government has rejected some ideas such as bringing back mortgage interest relief (MIRAS), which have have been put forward in discussions with the construction industry.

Others, such as the introduction of land auctions are proceeding through Whitehall. An increase in support for shared equity schemes such as “FirstBuy” and “NewBuy” has also been discussed.

However, communities secretary Eric Pickles is resisting Treasury calls for another shake-up of the planning system after last year’s furore.

Since 2010, the coalition has introduced several plans to boost housebuilding, such as putting forward more public land for development. Ministers have also announced deeper discounts on right-to-buy programs. They want to stimulate a sell-off of council housing in order to raise funds for new homes.

But some housebuilders fear that construction will not return to its previous boom until the economy is in better shape.