Memorandum by Centre for Residential Development,
Nottingham Trent University & Three Dragons (HOU 07)
The Centre for Residential Development at The
Nottingham Trent University and Three Dragons have separately
and together, over the last two years, undertaken research on
aspects of affordable housing for a number of organisations including
the DTLR, GLA, English Partnerships and Communities Scotland.
Most recently we have carried out an evaluation of the provision
of affordable housing through the planning system for DTLR, prepared
an assessment of the financial implications of the affordable
housing policy contained in the London Spatial Development Strategy
for the GLA and undertaken a review of the low cost home ownership
initiatives for ODPM.
We comment on:
How spending of new resources should
be balanced between social housing and options for owner occupation
and the mechanisms to be used for their distribution: and
The role of planning obligations.
2. THE BALANCE
Our comments here are based on research undertaken
for ODPM into the low cost home ownership initiatives and for
other agencies looking at the housing needs of key workers.
Our research for ODPM ("Evaluation of the
low cost home ownership programme" ODPM 2002Heriot Watt University
and Three Dragons) confirms that low cost home ownership (LCHO)
has a potentially significant role in helping to meet the needs
of middle income households in higher priced areas. A stark example
of this is provided by the London Home Ownership Group which reported
131,000 enquiries for LCHO in 2000 and 41,000 formal applications
for housing. Our own ODPM research based on analysis of national
and local data on house prices and incomes suggests that potential
demand for low cost home ownership is of the order of just over
30,000 units pa compared with just under 80,000 units pa for social
renta ratio of 2:5.
POTENTIAL DEMAND ESTIMATES FOR LCHO AND SOCIAL
|Region||Conventional Shared ownership
|East of England||4,380
|Yorks and Humber||0
|North West(inc Merseyside)||0
|Source: Evaluation of the Low Cost Home Ownership Programme, Table 4.12.
Notes: Based on actual costs for 2000.
All estimates overlap (numbers in different columns cannot
be added as they comprise substantially the same households)
Demand for low cost home ownership is largely determined
by the relationship between house prices and incomes. The house
price divide between London and parts of the South East and the
rest of the country has worsened in recent years. At the same
time funding for low cost home ownership has been cut backfunding
for LCHO in the three years to 2000-01 was less than half total
funding in the three years to 1996-97. Just under 2,500 units
were provided in 2000-01. It is therefore not surprising that
in London and the South East in particular but also in the South
West, East of England and parts of the West Midlands, potential
demand for LCHO substantially exceeds supply.
PROVISION OF LOW COST HOME OWNERSHIP UNITS 1998-99 TO
|Source: Evaluation of the Low Cost Home Ownership Programme, Table 4.10.
We recognise that not all middle income households wish to
become home owners. Nor is home ownership necessarily the most
appropriate tenure for mobile younger households. We believe that
there is a potential market for keyworker housing to rent and
that this product has a role inn broadening consumer choice and
meeting housing need. We believe that there is more that should
be done to help develop this affordable housing product and that
public funding should be available for intermediate housing for
rent as well as for low cost home ownership.
Purpose built intermediate tenure housing can play an important
part in estate regeneration and in creating mixed tenure new communities.
It also increases overall housing supply. Conventional shared
ownership is very good at this. Initiatives such as the current
version of Homebuy which focus on purchase in the second hand
market, although popular with consumers because they offer a choice
of location, do not make a comparable contribution to meeting
wider social objectives, nor does Homebuy as currently structured
add to the total amount of housing. Homebuy should be modified
to enable housing associations to offer a newbuild product and
consideration should be given to enabling RSLs to vary the share
purchased so as to produce consumer costs which are more directly
comparable with shared ownership.
Shared ownership resales and staircasing generate an additional
source of income (Recycled Capital Grant) which can be used to
provide additional social housing. Around £150 million pa
is currently generated through this mechanism. Housing associations
should seek to ensure that shared ownership resales are targeted
to those in priority need and should also be required to publicly
account for their use of Recycled Capital Grant. There is a case
for allowing local authorities some say in the disposal of Recycled
Capital Grant generated in their area.
Housing needs assessments: The majority (80 per cent) of
local authorities have now carried out a recent housing needs
assessment (HNA) However 20 per cent reported that they did not
believe that their survey had provided sufficient information
about demand for intermediate tenure accommodation. Local authorities
should ensure that the methodology for their survey will capture
information about need across the range of tenures. HNAs only
provide a snapshot of potential demand for affordable housing.
Local authorities should be reminded of the key indicators (eg
relationship between house prices and local incomes, number of
empty and difficult to let properties) which can help them monitor
and update information on how needs for affordable housing are
3. THE ROLE
Our experience is that local authorities are increasingly
looking to developer-led housing schemes to deliver affordable
housing. Our research into the low cost home ownership initiative
suggests that around one-third of all new affordable housing is
now provided on developer-led schemes.
Discussion with individual authorities indicates that officers
are uncertain about how to approach site by site negotiation of
affordable housing schemes. Needs based targets are of little
value for assessing the economics of development of individual
sites. These vary with house prices, development costs and other
planning obligations sought from the site. Councils may not really
know if they are expecting too much or are being timid in what
they ask for.
There is a need for a much better understanding of the economics
of residential development. Our work for the GLA involved the
production of a model that provides information on a borough by
borough basis on the economics of affordable housing provision.
We believe that wider use of this type of approach would give
local authorities greater confidence in negotiations and would
both speed up the negotiation process and reduce the number of
sites where development fails to proceed because local authority
expectations are too high.
The use of S106 agreements to provide affordable housing
raises major issues about the use of Social Housing Grant (SHG).
SHG for an individual scheme is intended to reflect build costs
and land prices in the area.thus public subsidy for the
same social rented unit is typically twice as high in Inner London
as it is in Outer London. This reflects substantially higher land
values in Inner London and means that public subsidy is greatest
in areas of high house and land prices. Yet it is in high value
areas, that the private sector residual value (even after the
provision of affordable housing) is also greatest. Public funds
are effectively being used to support high land values. Better
value for money (and more affordable housing) could be achieved
if Housing Corporation guidance was amended to suggest that on
S106 sites SHG would normally cover development costs but not
Funding for affordable housing from commercial uses:
Provision of affordable housing benefits the wider community
and not just those people living in the properties. This is particularly
obvious where keyworker housing is required to meet the needs
of local employers such as the Education Authority or the Health
Service, but all types of affordable housing contribute to the
retention of mixed and balanced communities. There is therefore
a case for eliminating discrimination between different sorts
of development and requiring all types of development to contribute
to financing affordable housing. Due regard would need to be paid
to financial viability in negotiation on a site by site basis.
There is ample evidence that in both rural districts and
urban areas sites which come forward for housing development are
often below the current thresholds for affordable housing set
out in Circular 6/98. It is not unusual to find authorities where
the typical site is below five units. The use of thresholds artificially
constrains the supply of affordable housing and imposes an unfair
burden on developers of larger sites. We therefore believe that
the threshold below which residential development sites are not
required to make a contribution to affordable housing provision
should be abolished.
We do not accept, as some commentators have argued, that
this proposal will have a negative impact on the supply of land.
In our view the economics of development of small sites are not
sufficiently different from those of major sites for an affordable
housing requirement to deter development. It is more the form
and mix of housing that is provided on the site that determines
economic viability than the size of the site itself. We would
expect local authorities to refer mainly to local market conditions
and to the planned housing mix when considering an affordable
housing element before being necessarily concerned with site size.
Where the development economics stack up for a small site, yet
it is not suitable for affordable housing on sustainability or
other grounds, then we would expect the local authority nevertheless
to request a commuted sum. Not to do this would mean in aggregate,
large potential sums of money for off-site affordable housing
provision would be foregone.
Improved financial understanding on the part of local authorities
will strengthen their hand in negotiation for affordable housing
on site. It will also enable them to identify more readily the
comparatively small number of cases where off-site provision makes
better financial sense. Experience over time coupled with informed
financial negotiation with residential developers can be expected
to lead to establishment of a "local going rate" which
could be used in negotiation with commercial developers should
an affordable housing target be extended to commercial schemes.
This means that financial contributions can be expected to
increase at the same time as total provision of affordable housing
through the planning system is likely to rise. Such financial
contributions should be properly accounted for and spent within
a reasonable period of time. We do not anticipate that local authorities
will have great difficulties in disposing of financial contributions.
There is a precedent in the use of Local Authority Social Housing
Grant (LA-SHG). Discussion with local authorities has demonstrated
that those authorities with access to LA-SHG have found it useful
both for supporting housing association newbuild programmes and
for providing specific assistance to projects such as Do-It-Yourself-Shared-Ownership
(DIYSO) which meet particular local needs but are not currently
supported by the Housing Corporation. Local authorities could
use financial contributions either to part fund affordable housing
on other S106 sites (through LA-SHG) or to assist in buying land
for affordable housing on the open market
5. SCALE OF
We repeat the point that we made in our earlier submission
that is pointless to increase the proportion of total housing
supply that is allocated to affordable housing if the overall
supply is insufficient to meet the need. The question of the right
level of overall housing production is a complex one that we do
not propose to address in detail here. It must however be of concern
to the Committee and inform its views on affordable housing supply.