Government's new housing plan and its flaws

From BBC breakfast this morning I hear of the new government bribery incentive scheme for local government in regard to building new houses. The former plan was setting targets, this was a perfectly reasonable course of action to take - if you were a five-year old. Seriously -

"We aren't building enough houses"
"So let's make them build more"
"Okay"

This new plan is better, but not by much. I can see the chain of logic that a market-fixated group might concoct -

Builders make money from houses
Therefore they want to build as many houses as possible
But we don't have enough houses
Therefore something must be stopping the builders from building
The only thing that can stop builders is local government.
Therefore local government is preventing the builders from building.
Let's stop that from happening.

This ties in well with the changes in planning that allow a community to allow normally 'protected' land to be built on. Get the local government out of the loop and even incentivise them to build. So onto the flaws.

If a builder can build one house and make a £100,000 profit or build two houses and make $45,000 profit each; they'll build one house.

Builders don't like building near other houses if possible. It allows a direct comparison with them which sets their price.

Builders will only build houses if they think they can get money for them, therefore they'll build only in areas of high demand.

Building houses costs money which is often only recouped at the point of sale. If the banks don't lend money out, houses can't be built.

In terms of efficiency builders want as many houses on a plot as possible - logically this would lead to blocks of flats built. However there's still an unfair stigma attached to flat-living in this country which means houses sell for more. Likewise in rural areas, the community will oppose flats as ruining the skyline.

Do either of these changes alter any of the above? Well it certainly provides an incentive for the local government to push the community to allow building on green belt areas which is what the builders want, but that's about it.

What is needed is a good look at the building industry. Other than health and safety there's been little change in how a house is built. So why don't we see more kit homes? Well for two reasons as far as I can see. Firstly as with flats there's still a slight stigma attached to them due to the spurt in the late 40's to house those left homeless due to the war. They were quick and cheap and that's how they're still thought of. Ironically the second reason is due to the first and the extreme push away from the cheapness with pre-fab houses on the grand scale. Even the DirectGov page regarding them is couched in terms of a single person building one. So why don't builders use them - why don't we see estates built using them any more?

So here's my recommendation to the government - don't incentivise the local government, offer costs back to the builders for using pre-fabs. The up-front costs are cheaper so less need for loans from the bank, the assembly is quicker and therefore cheaper, which means more can be built and the builders make more money. I think the builders would want to go down this route, but they won't because they don't think they'll sell. If the government pushes this coupled with the local community action it might help start to clear up the housing shortage.