Select Committee on Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions Memoranda

Memorandum by CBI (HOU 39)

1.  Whether funding in CSR will achieve the target of a decent home for everyone by 2010

  The Government's injection of £1.2 billion for the provision of more "affordable" homes is welcome and necessary, but it is addressing only one part of a wider problem caused by the mismatch between housing supply and demand. There are many people who earn enough to disqualify them from designated affordable housing, but who still have serious problems with the affordability of housing in general.

  This wider affordability of housing can only be fully addressed by increasing supply as a whole. If we do not tackle obstacles to development and significantly increase the total supply of housing, then we risk being locked into a vicious cycle of ever-increasing need for greater proportions of "affordable homes".

  Current house building rates are at an historical low—key causes are the virtual withdrawal of the public sector from housing provision and the restrictions on development which have made housing supply highly inelastic. The solution must be to make it easier and more attractive to build housing. Reform of the planning system, a greater role for the public sector in site assembly and remediation, higher density development, etc will all contribute.

  The generally restrictive approach by many local authorities to housing is a key factor. Many are simply opposed to further housing development and find different ways to deter development. Unless there is a significant culture change at the local level it will be extremely difficult to meet the increasing needs for housing.

  Leaving this aside, the level of public subsidy is key to delivering "affordable" housing. While funding for Registered Social Landlords (RSLs) has increased over the record low levels of the early 1990's, it is still at historically modest levels despite their success in harnessing private sector loans. The lack of subsidy is a key influence on the provision of affordable housing.

  The recent Three Dragons Nottingham Trent University (3DNTU) Research assumed substantial public subsidy would be available for every site—whereas some Local Plans now require the developer to fund the affordable element in part or in full. The 3DNTU research estimated that £500-600 million funding per annum is needed in London alone (about £150 million more than is currently available).

  As it is, much of the local authority housing budget may be used to finance the modernisation of the assets they already have, catching up on past backlogs, rather than actually creating new housing stock.

  It is not just levels of subsidy that influence the delivery of "affordable" housing but the actual procedures in place and the sometimes poor understanding of commercial realities by local authorities. Under planning Circular 6/98 p 17, the choice of RSL is the developers but often both local authorities and the Housing Corporation are insisting on "Joint Commissioning" which effectively imposes one or just a few RSLs on the developer, thus removing choice and competition. Giving more freedom to developers to form their own partnerships with RSLs would enable greater innovation and efficiency.

2.  Balance between social housing and options for owner occupation

  There is a concern that too high levels of social housing within a development may create perception problems for both buyers and mortgage lenders. If this affects prices of market housing in the rest of the development then this could undermine its ability to cross subsidise the social element of the development. Other forms of tenure such as shared ownership that facilitate owner-occupation may help partly offset such concerns.

  The ongoing management of mixed housing developments, particularly with high levels of social housing, can also be very complex. Where will the ongoing revenue stream come from to pay for maintenance costs, and how will effective management be ensured? These issues have knock-on effects for the market housing element of a development.

  We are concerned that in the Draft London Plan there is a presumption towards on-site contributions and a fairly rigid approach to the mix of housing. This can increase the difficulties and costs of development and actually be counter-productive in achieving the overarching objective of maximising supply. There must be a flexible approach to take account of the many different conditions. The focus should be on the overall attainment of mixed vibrant communities rather than a narrow focus on individual schemes and rigid proportions.

  Also, affordable housing strategies too often tend to focus on a narrow range of occupations—essentially public sector employees—but private sector workers are also significantly affected. This emphasises the need to tackle the overall affordability of housing, including market housing, not just to address the social housing end of the problem.

3.  The role of planning obligations in providing affordable housing

  We have very serious concerns about the increasing demands on development in terms of planning obligations. If development is made too complex and expensive through the imposition of unrealistic planning obligations, then less development will come forward—actually exacerbating supply deficiencies.

  Looked at separately, planning obligation requirements may seem reasonable, but in combination (for example demands for housing, transport, schools, or open space) they risk creating a lethal cocktail. Development has to remain profitable, or no developer will undertake it, and no investor will finance it. Affordable housing requirements are only part of what local authorities seek to achieve from developers and unless there is a more strategic approach there is a serious risk of undermining investment.

  The amount of affordable housing sought was 25 per cent a few years ago, but demands are now rising to 50 per cent or even higher. There comes a point where imposing ever more onerous conditions on housebuilders and other developers to support subsidised housing is likely to prevent sites coming on stream, thus actually reducing supply, and further exacerbating the already serious problems of affordability for the majority who do not qualify for social housing.

  With reference to London, the headline conclusions of the 3DNTU Research have been used to suggest that 35-50 per cent affordable housing is achievable. However, there were many caveats even within this research and further issues have also been highlighted in ODPM sponsored research.

  For example the effect of planning gain and remediation costs will reduce the amount of housing that can be achieved. And in practice land values are likely to remain higher in some locations, so simple thresholds cannot be applied inflexibly.

  Such flexibility is vital. There must be proper assessment of the economic impact of targets on a site by site basis to determine realistic capacity. The amounts of affordable housing/planning gain that developments can sustain vary greatly between nearby sites and even vary on the same site over time.

  We strongly oppose the extension of affordable housing requirements to commercial development which will act to reduce the quantity of development and undermine other key objectives. There is already a growing expectation being placed on commercial developers to contribute towards other things like transport.

  While we support the aim to make the best use of available space, the additional challenges of brownfield development cannot be ignored. Such sites are often low value and carry high costs, risks and liabilities such as decontamination, site assembly and realignment of utilities. Attracting developers to such areas to bring regeneration may be difficult enough in itself (and may require public support), without at the same time imposing additional demands through planning obligations.

4.  Ensuring good quality affordable housing

  Greater investment from the public sector in housing is an important part of this. Crucially there also needs to be a clear focus on how to fund ongoing revenue costs and how to ensure strong management of affordable housing.

  Higher quality needs innovation and flexibility which will mean local councils and RSLs working more closely and co-operatively with the private sector housebuilders to harness their expertise. It cannot be achieved through a rigid command and control approach.

  Better investment in the surrounding public environment can also contribute—for example ensuring good transport infrastructure to enable vibrant mixed communities to develop.

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