In the search for new resources to build affordable homes, we may turn to homebuilders’ excess profits, or as they define it, their “excess capital.” This could be used much more productively to create much more affordable housing – and in turn alleviate levels of homelessness, housing shortages and entrenched poverty.

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Let’s imagine that the government requires housing companies of a certain size to sign a builder’s partnership agreement. That contract states that their profits are subject to a “public return” beyond a certain level to support the development of new affordable housing. This is the state of the crisis in our housing market. Given that housebuilders could benefit from excess demand, be supported by reforms to the planning system and receive a boost from reinvestment in building affordable homes, the proposal for a public return seems a reasonable request.

The contract stipulates that the equivalent of 15 percent of all pre-tax profits will be paid into a fund for new affordable housing. Had this measure been implemented between 2010 and 2022, it would have raised £6.3 billion, enough to develop more than 100,000 additional affordable homes. There are no real losers here, as most of the major shareholders do not provide the housing companies with new capital for new housing construction and therefore development capacity is not affected. Shareholders would still receive a dividend yield well above what they received before the financial crisis. SME housing companies exempt from these contractual requirements would gain a competitive advantage and housing associations would be given a clear signal to prepare for new developments.

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It should be seen as our aspiration to earn a share of excess profits. Schemes like Help to Buy – which we as taxpayers have taken over – have played a major role in helping housebuilders make their profits over the last decade. Deriving public benefit from this is a legitimate claim.

If we need to remind ourselves again how important this is, let’s think of the home buyer who purchased a home from a major home builder in 2022. He paid an average of £22,000 on top of the purchase price of his new home just so shareholders could benefit from inflation-busting returns. It’s time to give some of that value back to the hundreds of thousands of people who really need it.

Tom Archer is a senior research fellow at the Center for Regional Economic and Social
Research (CRESR) at Sheffield Hallam University. Ian Cole is Emeritus Professor of Housing Studies at CRESR, Sheffield Hallam University. You can read her report, “The Invisible Hand that Keeps on Taking,” here

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