Balls spounts balls

Balls is estimating that the sale will raise £3bn and proposes to spend £2.5bn to build 100,000 affordable homes,

Err, he\’s suggesting that an \”affordable home\” costs £25,000 to build.

Which is bollocks quite frankly, total Balls.

Construction cost, leaving aside entirely the cost of the underlying land or the value of the planning permission is in the £110-£125,000 range for a simple 3 bedder house. Costs do decline for stack a prole worker flats, this is true.

Oh, and the land value for such a 3 bedder, with planning permission, is around £100,000 and up. For any region of the country where there is actually someone looking for a house that is.

What\’s really very annoying indeed is that, well, if there is some miracle new technology which allows a house to be built for £25k then we don\’t actually need a tax subsidy at all. Don\’t need any revenue to be spent, not one single penny. Just zone the land, issue the planning permission and offer it to a pension fund or two. They would be delighted to (heck, selling the idea to them would be the easiest sale ever, I\’d take on the job, for a commission, like a shot) run with it. Hire a builder, whack up the units and rent them out. You\’d get hundreds and hundreds of thousands built under such a scheme.

So what is it that Balls is actually saying for even he doesn\’t normally lie like this.

37 thoughts on “Balls spounts balls”

  1. With a £25k subsidy, plus free land from a developer under a s106 agreement, a not-for-profit housing association can build an “affordable home”.

    The rest is funded by mortgage, paid for by the rent (even at the lower, officially “affordable” level).

  2. £25k per unit is pretty much the going level of subsidy these days. A few years ago we could get £50k, but that’s almost impossible now.

    But the problem is that with that level of subsidy, we need free land to build on, so injecting more subsidy wouldn’t mean more building. Unless there’s another part of the policy (spare NHS land?).

  3. I think they look at it in terms of net cost (ie deducting the welfare payments for the newly employed construction workers and overall stimulus to the economy from having those people working and spending). If they think about it at all. Obviously it is all back of a fag packet stuff based on unchallenged and controversial but convenient assumptions.

  4. How about flogging the effing 4G licences first.

    Counting Chickens?

    Anyway, off he goes spending money which he hasn’t got AGAIN.

    He has serious form this guy.

  5. Couldn’t Balls just forcibly take the land off people who have more than they ‘need’, and give it to poorer people?

    The principle seems to be pretty well established with money.

  6. What is the breakdown of that 100000-125000 per new house Tim?. Surely that can’t be the cost of materials alone?. If it is labour cost then what about a build-your-own-home scheme. Training will be provided and those who are going to live on a new estate build their own home evenings and weekends with a little specialist help. It would be a lot of work but first-time buyers/owners are those mugs who are in the grip of “loves young dream” and are daft enough to sweat as needed in return for an affordable house. The main obstacle would be bureaucratic meddlers, working both on their own behalf and the behalf of the politicians mates in the construction industry and unions.

  7. He is going to borrow £2.5B to subsidise the building of 100k homes.

    We are up to our neck in debt. Any such revenue should be put to debt reduction. Any such spending is therefore with borrowed money.

  8. It’s perhaps worth mentioning that when Gordon Brown raised £22.5bn in the 3G auction, he did indeed use it to pay off debt. He had his moments.

  9. PaulB, yes, the two (or was it three) years when he followed Tory economic policy, because Blair promised to do so in order to win the election.

  10. To be fair to Mr Balls, I don’t think he’s suggesting that an “affordable home” costs £25,000 to build. Rather, as the FT puts it, “housing associations have reassured Mr Balls that this amount of equity, alongside bank loans, would easily allow them to build 100,000 new homes” which, as Richard points out, is “pretty much the going level of subsidy these days”, and is broadly in line with current claims by such institutions as the Homes and Communities Agency.

    So I don’t think he can be accused of lying. That having been said, these are still back of the fag packet figures and his statement strikes me as politics, not policy.

  11. “…those who are going to live on a new estate build their own home evenings and weekends with a little specialist help.”

    I’d truly love to know which parts of building a house are non-specialist. Even the trivial things like mixing up a batch of mortar or render have to be done correctly. Sand/cement/water ratios. Additives. After abandoning the UK I spent a fun period wandering around France digging Brit’s out the shit they’d gotten into ‘doing-up’ their dream houses. I could write a book about the experience, although whether it would be comedy or tragedy…..
    Yes, in theory, you could have a ‘kit out of a box’ type house like a gigantic version of Ikea bookshelves. It’s been done. But even an Ikea bookcase costs multiples of the ‘trade’* price of the laminate & fixings its comprised of. And modularity, on any significant scale, just takes you back to requiring cranes & other handling equipment & specialist assembly teams.

    In any case, aren’t we ignoring opportunity cost here? A software designer spending his weekends digging foundations isn’t exactly the best return on human resources, is it?

    *Before anyone quotes the ‘you couldn’t buy the materials…’ line. Not everyone uses B&Q.

  12. Richard: would that be the Tory economic policy which increased public net debt for £87bn in 1979 to £348bn in 1997?

    Freddy: are you sure about that? Why should mobile phone charges bear any particular relation to sunk licence costs?

  13. @Mr Ecks:

    What is the breakdown of that 100000-125000 per new house Tim?.

    I don’t want to speak for Tim, but he is in the right ballpark for the rebuild costs of a house in the South East.

    Labour costs might be cheaper elsewhere (North East or Scotland), but not significantly so.

  14. Bloke in Spain: There are useless and delusional people in every sphere of life. The ones you met in Spain were perhaps egotists who thought it would be a doddle. However, lots of untrained people have learned and have built their own homes. It may not be easy but it is possible, more possible than trying to get an unrepayable/unobtainable loan.

    As for Brown and his 22 billion mobile phone rip-off, the companies should have told him to shove his auction up his arse and launched a ring of satellites to cover the whole world. If Brown then wanted to tell the British people that they could not join the world in using mobile phones because the companies would not pay his extortion that would have been his business.

  15. PaulB

    “Why should mobile phone charges bear any particular relation to sunk licence costs?”

    For the same reason that mortgage payments bear particular relation to sunk house-buying costs.

  16. “.. lots of untrained people have learned and have built their own homes.” Very true. That’s how I started. But what cost do you assign to the learning process? Like a lot of these things, it’s only ‘economical’ if the labour costs are regarded as zero or close to.

  17. The thought gang: that is actually not a very good reason, for you see house buying costs are not sunk at the moment a loan is negotiated, agreed and signed.

    The telecoms business has actually thought us several times that sunk costs are not always recovered (look at loads of cableco’s that are now successful but had to go through several rounds of write-offs before getting there).

    A rational player (and let me tell you that telecoms operators are very sofisticated when it comes to pricing) will always (regardless of sunk costs) try to maximise its direct and variable contributions (revenues minus direct costs such as handset subsidies and interconnection outpayments)

  18. Regardless of the form of financing used to build these houses (more probably apartments with 1 bicycle parking space), the mooted 100,000 is something like 1,500,000 too few if the new population projections are to be believed. Otherwise there are going to be an awful lot of people living in sheds at the bottom of gardens, as in Southall.

    As to this affordable housing mantra, it implies there are a lot of idiot builders out there who are building houses no one can afford. Surely they’d all be bankrupt if that were the case?

  19. Hmmm…. ISTM that there is a fairly simple scheme which would work. Sell property bonds to investors. Build homes to let, let homes to those on waiting list, allowing them to buy fractions as they go, thus repaying the debt.

    We get tax revenue and employment now, we get more homes, we get an investment return greater than the cost of borrowing, and we get a way to pay back the loan in future.

    What’s the problem?

  20. 25k for a house? Bit low, but it should be do-able. Part of the problem in this country is that we make house-building much more expensive than it should be.

    I’ve seen a man build a house from scratch in about 3 months. At 25k a year salary, that leaves about 20k for materials, which ought to about cover the cost, give or take. No, that’s not a plush new executive home, but it will include all modern conveniences like electricity, central heating, plumbing, and so-on. (The chap I saw do it almost entirely did so with reclaimed/free materials, so the total cost of his house was his labour, land, licensing, and about £1000 cash, but that’s not repeatable on any significant scale.)

    I’d expect that at that level there are some sensible things you could do which would add to the cost and save you money in the long-run – more insulation, and so-on – but we’re not talking about massive increases.

  21. Nick (#21), nice idea, but the numbers don’t stack up if you’re paying full price for the land and the rent has to be low enough to be covered by housing benefit (at least it doesn’t in the south).

    If you can get the land free (or at non planningpermission prices) then something like that can be done.

    Once again the problem is the government, in this case planning restrictions.

  22. Hi Richard, 🙂

    Mind if I discuss that with you further? First of all, would there be any CGT receipts from the land sold to the scheme? ie on the increase in value following planning permission?

    Secondly there would be the tax receipts from those employed. Thirdly, the rent theoretically only has to cover the cost of borrowing (currently <2% pa), but housing benefit would provide a return of nearer 5%.

    It may not benefit the very poorest, but one reason the waiting lists are so long is that a) people would rather rent from a housing association or similar, than a private landlord, and b) they cannot save or obtain a deposit. But they may not be dependent on housing benefit and it would still increase overall supply. Is there really nothing to be said for it?

    Kind regards


  23. “people would rather rent from a housing association or similar, than a private landlord”

    On the contrary, the opposite is overwhelmingly true, all other things being equal. Housing assocs and council housing have much lower rents, but they make notoriously bad landlords. Being a bad private landlord is so costly that they get squeezed out of the market in a very short time.

  24. There’s no way you can build a house in the SE (or probably anywhere in UK) for £25K. Tim’s £100K+ is much more on the ball. I’ve just finished a small extension, and the budget (cut to the bone) was £25K for shell. Friends have built a very basic blockwork 3bd semi in SE for £100K shell only.

    Not going to happen.

    Also, as pointed out earlier, Balls is counting his chickens re the 4G auction. Read the chapter in Tim Harford’s ‘Undercover Economist’ on spectrum auctions. They can be done right and wrong.

    Kudos* to Brown for paying down.

    * A word I never thought to apply to the ghastly git.

  25. Luke (#28), £25k per unit subsidy is about right – but only with the existing supply of free land under s106 (developers effectively have to give part of the plot away to get planning permission).

    What you can’t do with a £25k subsidy is buy the land.

    So unless you have a way of getting an additional supply of free land, with planning consent, you can’t build 100,000 additional ‘affordable’ homes at £25k each. All you can do is build the ones that were going to be built anyway.

  26. Nick (#24), I wouldn’t rely on getting any capital gains tax on the sale of the land.

    If it’s built on someone’s garden, it’s CGT exempt (main residence exemption).

    If it’s business premises or farmland there’s a roll-over, so no CGT, providing the money is put back into the business in the right way.

    If it’s owned by an offshore investor, they aren’t liable to CGT.

    So you’re looking at a limited pool of potentially taxable sales.

  27. Well yeah but he’d probably use the central government to strong arm council’s into allowing planning permission. So the fact that planning permission is expensive is kinda irrelevant to this specific discussion. If he’s saying private developers with no central government assistance should be able to do that then obviously he’s dumb. But he’s not is he?

  28. Stuck record>


    I agree, it tends to cost a lot – but there’s no real need. What was your materials cost on that? And the actual labour time?

    I didn’t say building a house in this country is cheap, but that it ought to be a lot cheaper than it is.

  29. An interesting discussion on many levels.

    I live on a crummy 60s council estate in Derbyshire, in a 1960s 3 bed end terrace that cost me 90k earlier this year. It’s valued for insurance with a rebuild cost of £125k.

    I’m pretty handy at practical stuff (my living room is currently full of breeze blocks as I’m re-doing the fireplace in a big way), and I’m pretty sure I could build a house to the spec of this one for less than 50k no problem at-all.

    The wages question doesn’t bother me – although I do a fairly skilled job, I don’t earn a huge lot. In addition, work only comands my attention between 6am and 2pm most of the time – I could be on a grand an hour, but if only 8 hours is demanded of me a day by work, the I can either spend the rest of the day watching jeremy kile (or whatever plebs like me are meant to do) or I could save myself a fortune on paying the builder…

    If I did take unpaid time from work, it’s very tax efficient – I don’t have to be taxed on my wages, to pay wages to a builder who then has to pay tax on his wages…

    So why you may ask did I buy a house rather than build one?
    Partly building regs. Pages and pages of mostly pointless tat to save me from myself – plus endless trouble getting stuff signed off – e.g. my current house needs rewiring urgently (it’s still on 1960s stuff. throughout) I haven’t currently got enough cash to spare to just pay a sparky to do it, and while I’m perfectly capable of wiring the place up I really can’t face doing battle with the building regs folk afterwards to get it signed off.
    Then there is the challenge of getting land with planning at an affordable price. It would cost at least double the deposit I had, and I can’t see the bank being willing to lend for building land, despite being willing to lend far more for buying a house… such is life.

    So in short, crony capitalism as practiced in this country stitches us all up so only developers can cream cash off building shoddy expensive houses while jumping through all the legal hoops…

  30. @BIS:
    “A software designer spending his weekends digging foundations isn’t exactly the best return on human resources, is it?”

    Busman’s holiday – if you’ve watched enough episodes of Property Ladder, you might have been struck by how many aspirant property developers worked in IT.

  31. I don’t know what software designers get paid but I would have thought it would be enough to get a mortgage or have a much better chance to get one than the young and dumb couple looking for a place to start their (these days probably short-lived) marriage. Such couples have, God help them, the motivation to build and work on their own place. As for opportunity costs, well if one or both have a good job/business then of course it would make more sense for them to get the cash for a deposit or part-payment on a house. I was talking about those who can’t get a mortgage.

  32. @theProle
    Shouldn’t you be using your practical skills to make your house fall down, thus netting you £45k profit plus whatever you can sell the rubble and the plot for?

  33. Leo @ 31 ” Well yeah but he’d probably use the central government to strong arm council’s into allowing planning permission. ”

    FFS, learn how to use apostrophes, or agree that you will never, ever have a Daily Mail style rant about educational standards.

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