The Housing Market - time to start charging builders who fail to build quickly enough?

The Housing Market has long been a staple of Economics A Level examiners and a topic that teachers and students should always keep a wary eye upon. The shortage of housing at a time of rising population and real incomes leads to a disproportionate rise in the price of houses and can lead to a bubble which has a significant impact on the entire economy.

A media release from the Local Government Authority today brings a slightly different angle on our analysis. Planning permission is often seen as the bottle-neck of housing development - both because it is a slow process and because applications will often be met by opposition from those who don't want developments in their 'own back yard'. The LGA research suggests that planning permissions are not the bottle-neck and have statistics to illustrate the rise in permissions. The issue in their analysis is that developers are taking too long to complete the building of the homes. Their research suggests that this is because the developers do not have enough skilled workers to speedily create the new homes. Perhaps developers are purchasing the land after permission has been granted even thought they know they can't actually build yet as they will get a better price for that land then if they left the purchase for a few years?

One suggestion from the LGA is that Local Governments are granted powers to charge developers who do not build quickly enough - a piece of regulation that economics students can really go to town on! Their other suggestion is that the Government needs to improve training and promote apprenticeships within the construction industry. Perhaps as well, we need to promote the use of greater foreign skilled labour in the industry (anyone remember 'Auf Weidersehen, Pet'?).

The chart below is taken from the LGA's stats, showing that the number of permitted developments is growing, as is the number of actual houses being built. However, we're also seeing an increase in the number of permitted developments that are not being completed in a timely fashion.