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Property Developer Patriotism

The irony of Keir Starmer's plan for a 'patriotic economy' is that it relies on corporate developers to enrich shareholders, many of which don't pay their taxes in Britain.

(Photo by Ian Forsyth/Getty Images)

Keir Starmer is a big fan of meaningless slogans. In his latest bid to prove that the Labour Party will actually do something when it inevitably comes to power at the next election, Starmer has announced plans to build a ‘patriotic economy’.

The focus of this latest slogan is home ownership. Starmer has said he will reform planning laws to facilitate the construction of 1.5 million homes. The idea is clearly meant to evoke images of the post-war Labour government that dramatically expanded the stock of social housing.

Attlee’s post-war Labour government managed to build more than a million homes between 1945 and 1951, of which more than 800,000 were council houses. And this unprecedented achievement was completed alongside the construction of the NHS, expanding other public services and nationalising larges parts of industry.

The post-war Labour government did not, of course, achieve this feat through ‘facilitating’ housebuilding by the private sector. These homes were built by the state, and many of them remained public assets that generated revenues for the public sector over the long term — at least until most of our social housing stock was privatised by Thatcher.

It is true that the private housebuilding sector has expanded dramatically since Attlee’s time. Starmer made this policy announcement when visiting a new housing development in the West Midlands. But this is part of the very problem that Starmer claims he is seeking to address.

Private developers are highly financialised corporations whose sole aim is to maximize profits for shareholders. Whereas before the 1980s, the market was characterised by a large number of small builders, the market became far more concentrated.

The largest ten private developers built 28 percent of all new national supply in 1980, and this figure had risen to 47 percent by 2015. Meanwhile, smaller housebuilders’ share of new homes was just 10 percent 2020, down from 38 percent in 1988.

When a market becomes more concentrated, firms gain market power, which means they are often able to restrict output in order to raise prices. This seems to have happened in the UK property market: output has tended to fall proportionately to the market becoming more concentrated.

Many developers have been accused of ‘land banking’ — buying up large swathes of land, acquiring planning permission but failing to build any new housing. Between 2013 and 2023, the land holdings of FTSE350 developers have increased by 67 percent without a commensurate increase in house building.

Large developers can raise large sums of money in financial markets and use it to buy up land in the hope of realising massive capital gains once planning permission has been granted. And these developers are also better able to manage — and sometimes manipulate — the planning system due to their significant economic and political power.

Once planning permission has been granted, the value of the land increases dramatically. But developers don’t set about building new homes immediately as doing so would flood the market with new housing, lowering prices.

Instead, they sit on the land and slowly drip new housing into the market when it is profitable to do so. In the meantime, they can use their newly valuable asset as collateral to raise even more money and buy even more land.

Such practices aren’t illegal, but the Competition and Markets Authority has been concerned enough about the potentially anti-competitive implications of landbanking to launch an investigation.

What is not in question is the scale of the profits that have been generated from these practices. By 2017, housebuilders were generating 100 percent more profit than before the financial crisis, whereas actual housebuilding had increased only 2 percent on 2006 levels.

These profits have not, of course, been reinvested in new housebuilding. Instead, they have been distributed to wealthy shareholders. In 2008, housebuilders distributed £464 million in dividends, a slight increase on the year before. By 2017, UK housebuilders were distributing £1.8 billion in dividends.

Starmer has claimed that he will tighten the rules to prevent housebuilders from ‘wriggling out’ of their responsibilities to build new homes. But unless he actually forces private developers to build homes on the land they have acquired, new regulation is unlikely to make much of a difference.

And given the massive power of lobbyists within Starmer’s Labour, it is highly likely that any future Starmer government will bend to the interests of the developers, rather than penalising them.

The only way Starmer could possibly hope to deliver on his pledge to build a ‘patriotic economy’ would be to do what Attlee did: actually build new housing.

But Starmer can’t do this either because of the absurd limitations he and his shadow Chancellor Rachel Reeves have imposed on public spending and investment.

Ultimately, our failure to build adequate housing costs the public sector more over the long term. Higher prices in the private rented sector cost the government huge sums in housing benefits, and problems like homelessness and mental and physical ill-health that results from inadequate housing place higher demands on public services and prevent people from finding work.

And the more people are forced to spend on rent and mortgage repayments, the more money is siphoned off into the pockets of landlords, developers and banks that distribute profits to their investors — many of which are based outside of the UK.

This is the fundamental irony of Starmer’s ‘patriotic economy’ rhetoric: in relying on private developers to increase housebuilding, he’ll be enriching shareholders — many of which aren’t even UK taxpayers — at the expense of ordinary people.