Select Committee on Transport, Local Government and the Regions Memoranda

Memorandum by Department for Transport, Local Government and the Regions (DTLR) (AFH 10)


  It is clear that there is a shortage in affordable housing in parts of England. This problem has been growing. It is not just restricted to London and the home counties. For example, the economic success of Cambridge has brought with it affordability problems, and the attractions of towns such as Bath and Cheltenham mean that house prices are beyond the means of an increasing proportion of the population. And it is not confined to the cities and urban areas. Indeed, the Rural White Paper, Our Countryside: the Future, recognised the shortage of affordable housing in many rural towns and villages.

  Many of the issues we are now confronting are a result of economic success. The Government's economic policies, creating the right conditions for low interest rates, and avoiding a return to "boom and bust", have ensured confidence in the housing market. A strong economy has also produced significant economic in-migration, which has put pressure on the housing market particularly in London and the South East.

  The Housing Policy Statement, The Way Forward for Housing (December 2000), made clear the importance the Government attaches to tackling a whole range of issues right across the affordability agenda. Our objective is to give everyone the opportunity of a decent home. This means access to affordable, quality housing for those that cannot arrange their own accommodation. The Government's interventions range from Housing Benefit through to ensuring that social landlords deliver a good service to tenants.

  The Way Forward for Housing sets out a comprehensive policy to introduce more quality and choice across all tenures, but especially for social housing. It outlines a number of key measures to help us achieve our aim of delivering new affordable housing where it is needed, and in forms which are more sustainable:

    —  almost doubling investment in affordable housing through the Housing Corporation in the three years to 2003-04;

    —  ensuring that funds from the Housing Corporation are distributed more in line with local and regional priorities so that investment matches local needs;

    —  applying the Construction Task Force's recommendations and other new construction techniques to ensure better design, higher quality, more efficient development and lower costs; and

    —  producing best practice guidance for local authorities to encourage more effective use of planning powers to provide affordable housing within new private developments.

  We have made good progress. But the Government is determined to respond to the growing concern over the shortage of affordable accommodation. Although we have substantially increased funding for the provision of additional affordable housing, there is more to be done. We are currently working on a range of measures, both short and long term, to ensure that more people have access to a decent home.

  Government cannot tackle the problem alone. The responsibility is shared with local government and regional bodies. Housebuilders and developers have a part to play too, as do social and private landlords. And finally those who live in shortage areas need to accept that housing their children, their teachers and their nurses means building more homes. To co-ordinate the contributions of the various partners, every region has published a Regional Housing Statement; these will be developed into Regional Housing Strategies over the coming months.


  The term "affordable housing" is used in different ways by different people. It sometimes refers to social housing, sometimes to subsidised housing, and sometimes includes unsubsidised housing at the lower end of the market. There is no standard definition.

  Clearly affordability relates both to the cost of a home and the means of the household wishing to live there. What is affordable will vary by area depending on the price of housing and income levels locally.

  For the purposes of securing affordable housing through the planning system, affordable housing encompasses low-cost market and subsidised housing, whether for rent or shared ownership. Local authorities are expected to define in their local plans what they consider to be affordable in the plan area, in terms of the relationship between local income levels and house prices, or rents for different types of households.

  Their definition should include both social housing, available to those on very low incomes, and intermediate housing, for those who would not be eligible for social housing, but nonetheless could not afford to buy or rent on the open market.


  The Government does not produce national estimates of the need for affordable housing, for the reasons given below. But it is clear that this is a general problem in much of the South of England, although concentrated in London and the South East. For example, the ratio of the average house price paid by first time buyers to key workers' average earnings is 4.47 in London and the South East, compared to 2.80 in the rest of England[12]. However there are hotspots in other parts of the country, and rural areas can be hard hit, especially where there is a high incidence of second homes.

  In determining housing requirements for their regions, and in order to meet the full range of housing needs, Regional Planning Bodies may need to estimate the future balance between general market housing and affordable housing. Given the wide variation in need between different parts of the country, the Government believes that local authorities are best placed to carry out local housing needs assessments. These assessments are better able to consider the diversity of needs and priorities at a local level and should be reflected in local authorities' housing strategies, investment plans and in the implementation of planning powers for affordable housing.

  For these reasons the Government does not produce its own assessments of the need for affordable housing.

  The plans for the provision of additional affordable housing should be made on the basis of robust local assessments of needs. DTLR published guidance in 2000 to assist local authorities in carrying out local housing needs assessments (Local Housing Needs Assessment: A Guide to Good Practice). This was produced by Heriot-Watt University and recommends a common framework for basic calculations. It provides advice on the potential contribution of a wide variety of research techniques and data sources and discusses the strengths and weaknesses of survey-based approaches.

  The scale of the problem, the limited number of potential sites in some areas, and the fact that the problem can cross local authority boundaries make it essential for local authorities to work with regional housing authorities to identify the most sensible solutions to problems in their sub-regions. The growing sub-regional co-operation and the way this ties-in with the Regional Housing Statements are essential to strengthening the links between plans for the provision of additional affordable housing and regional planning.

  A good example of cross-local authority and cross-regional working is the LAWN[13] initiative. Initially developed by 12 West and North London boroughs to find ways of promoting inter-regional mobility, it has been expanded to cover all London boroughs and any interested authorities in the South East where there are "housing hotspots". A LAWN project team has been set up to liaise with key partners, to establish a property information database, and to promote good practice. In addition, they will examine the potential to expand the scheme for elderly tenants, and are looking at the potential of offering private sector tenancies, as well as social housing, as a choice for home-seekers. A number of London Boroughs have started to re-house people through the scheme and, by March 2002, over 120 households had been housed. The initiative is being run on a transitional basis until March 2003, pending the introduction of a new national scheme.


  Much of the Committee's interest focuses on the need for more affordable housing. But we need to ensure that our existing stock of social housing is properly looked after and that it offers decent housing conditions to tenants.

  When this Government first came into office in 1997, we inherited an estimated £19 billion backlog of repairs and maintenance work in council housing. This reflected significant under-investment over a number of years. Investment in the existing council housing stock in 1997-98 was only around half that of 10 years earlier in real terms.

  We have set a target to bring all social housing up to set standards of decency by 2010, and to reduce the number of social tenants living in non-decent homes by one third between April 2001 and March 2004, with most of the reduction taking place in deprived areas.

  This target has been backed-up by significant increases in investment. For example, in 1997-98, planned central government support for local authority housing capital investment was £750 million. We have increased this year on year to £1.9 billion in 2000-01, and to £2.6 billion in 2002-03 (excluding funding through the Private Finance Initiative and through local authorities' own contributions).

  We have also reformed the financial framework for local authorities. We have introduced the Major Repairs Allowance to give local authorities certainty that funds will be available over the medium term to maintain their housing assets in sound condition.

  The Housing Corporation also fund from within their Approved Development Programme allocation major repair work to Registered Social Landlord stock. For 2001-02 the Housing Corporation spent £39.7 million on works to Registered Social Landlord stock. For 2002-03, the Corporation has made allocations of around £50 million for such works.

  We are also determined to improve the quality of service that social tenants receive from their landlords. Under our policies, tenants are participating more in the management of their housing through, for example, Tenant Participation Compacts. Under the Best Value regime, social landlords are required to set targets for continuous improvement. Best Value is showing real results; when inspectors flag-up concerns, social landlords recognise they have to change their ways.


  We are acutely aware that, in many housing hotspots, in London and the South East especially, high demand for housing means many people face difficulties in securing good quality housing at an affordable price. A supply of good quality affordable housing is essential in maintaining balanced and successful communities. Delivering new affordable housing where it is needed, in more sustainable forms, is one of our key priorities.

  To make progress in tackling this issue, we are increasing resources for housing generally, and for affordable housing specifically. By 2003-04, central government support for capital investment in housing will have risen to more than £4 billion compared with planned spending of £1.5 billion in 1997-98. Investment through the Housing Corporation will rise to over £1.2 billion by 2003-04, almost double 2000-01 levels.

  We are also concerned about the ability of key workers to buy their own homes in areas where high house prices are undermining staff recruitment and retention. £250 million worth of funding has been provided through the Starter Home Initiative to help 10,000 nurses, teachers, police and other key workers buy their own homes in areas of high demand.

  Future funding for affordable housing is being considered as part of the Spending Review. One of the issues we face is that the cost of providing affordable housing where it is most needed is rising, as land prices go up. We are examining ways to secure more affordable housing for less, but we are particularly keen to see the private sector offering decent housing, whether to rent or buy, at the lower end of the market.

  In addition, we need to take a much more ambitious and flexible approach to securing affordable housing through expanding development opportunity and using more innovative approaches, including:

    —  more housing in higher density, mixed use schemes and through better use of space. For example, DTLR/Government Office for London research has shown potential to create 2,000 new affordable homes a year in London by building above existing single-storey high street locations, such as supermarkets;

    —  a more vigorous approach to land assembly, infrastructure and preparation both for major sites, for example in the Thames Gateway, and for small infill sites as proposed by the South East Economic Development Agency in its Brownfield Land Assembly Trust proposals;

    —  using modular construction to develop high density quick build schemes for key workers, such as the Peabody Trust development at Murray Grove, Hackney; and

    —  using public sector land to secure affordable housing with lower subsidy or through rental guarantees.


  Government policy on securing affordable housing through the planning system is set out in Planning Policy Guidance note 3, Housing, and in Circular 6/98, Planning and Affordable Housing. The policy states that a community's need for affordable housing is a material consideration that may be taken into account in preparing development plans and deciding planning applications. Planning agreements are specified as one means by which affordable housing can be secured through the planning system. Such agreements usually require developers to provide a proportion of affordable units on larger residential developments.

  Under the current policy, local authorities have secured permissions for approximately 30,000 affordable homes over the last two years. But it is evident some local authorities could do better. Some are failing to use current policy in a meaningful way to secure affordable housing. Development plan policies can be out-of-date and not show the necessary ambition, and where policies are in place their effectiveness can be undermined by delays in development control.

  Improving the delivery of affordable housing through the planning system is a major concern of the new tariff-based approach to planning obligations set out in the Government's consultation document Reforming planning obligations: delivering a fundamental change, published in December last year. The consultation document explains the Government's proposals to replace the present system of negotiated planning obligations with a tariff set by local authorities and for planning obligations to be used in a positive way to help achieve its planning objectives including the provision of affordable housing.

  In particular, the Government believes planning obligations should be used to deliver affordable housing in a wider range of circumstances than allowed for under current policy. It considers that local authorities should be able to seek a contribution towards affordable housing, either in cash or in kind, from a wide range of development proposals, including commercial schemes.

  The Government considers that the planning system has an important part to play in meeting a community's need for affordable housing. But, even with the improvements set out in the consultation document, this should be seen as contributing to the supply of affordable housing provided through Government subsidy to local authorities and the Housing Corporation and not the full answer. A comprehensive approach is needed, using a package of measures.


  As with all Government spending, decisions about the balance of resources between competing priorities must be made. The provision of social housing meets substantially different objectives to the provision of low-cost home ownership schemes. Social housing is designed to offer decent housing to those who are in housing need and have difficulty in finding accommodation in the private sector. Low cost home ownership schemes are designed to help those on low incomes meet their aspirations of home ownership. The balance between the two will vary at local level.

  We are committed to both of these objectives. In addition to providing social housing, in 2001-02, the Housing Corporation provided £85.7 million on low cost home ownership schemes, including Homebuy, which produced 3,481 completions. For 2002-03, the Housing Corporation has allocated £113 million to low cost home ownership schemes.

  The Government is currently discussing the allocation of funding for new affordable housing for rent and for low cost home ownership with the Housing Corporation in the context of SR2002. We commissioned research to look at the operation and effectiveness of the existing low cost home ownership programme. The study reported at the beginning of May and the findings, which will help inform the future direction of the programme, are now being considered.

  Although the majority of funds for new affordable housing come through the Housing Corporation, local authorities also fund a significant amount of new affordable housing, mainly through Registered Social Landlords. They are currently spending around £400 million a year on this.

  The following products are available to assist the intermediate market to buy:

    —  Homebuy, which includes a 25 per cent interest-free equity loan;

    —  reduced purchase price, provided through a developer's subsidy;

    —  deposit lent by employer or built up by a two year holiday from a pension scheme; and

    —  equity share (Model by Freud Lemos, financial consultants), where the individual pays a set rent, together with an amount to represent the share of equity being "purchased". In reality, no sale transaction occurs, but the Registered Social Landlord becomes liable to repay the market value of the equity stake as and when demanded.

  We are giving consideration to additional options for cheaper routes into home ownership. Various proposals have been put forward, including:

    —  the Welsh Homebuy which allows 50 per cent equity loan;

    —  affordable Home Equity, 50 per cent mortgage, 25 per cent interest-bearing loan, 25 per cent interest-free equity loan; and

    —  interest-free equity loan from employer to top up conventional Homebuy.


  This Government does not set regional housebuilding targets. Annual rates of housing provision to be kept under regular review are established through regional planning guidance and the spatial strategy it sets out. In developing the strategy, regional planning bodies may need to estimate the future balance between market and affordable housing in order to address the full range of needs in their regions. In deriving such estimates, regional and sub-regional trends and factors which are likely to influence local housing need should be identified and assessed. The aim of regional planning guidance should be to provide advice and information on those factors which local authorities should take into account in preparing their plans, informed by local housing need assessments.

  PPG3 explains that the estimates for affordable housing set out in regional planning guidance should be regarded as indicative and should take into account links with regional housing statements. These estimates provide a regional context for local authorities in drawing up their housing strategies and support the development of more strategic approaches to tackling housing need.

  The Government's consultation document on reforming planning obligations highlighted that the need for affordable housing will often cross local authority administrative boundaries. In such circumstances, Government would expect co-operation between local authorities in tackling shortages of affordable housing. The consultation therefore proposed that regional planning bodies should identify affordable housing needs and priorities across their regions, or parts of regions. In such circumstances the affordable housing policies set out in local development plans (or Frameworks) would be expected to be consistent with appropriate regional policy.


  We are on course to meet our target to reduce the number of households living in social housing that does not meet set standards of decency by one-third between 2001 and 2004. The first round of local authority business plans produced last year indicated that, on current plans, around 100 local authorities were at risk of not meeting the 2010 target. Government Offices have been working with these authorities, developing action plans that set out what authorities need to do to get back on track. In many cases, authorities need a better understanding of the scale of the non-decent housing in their areas before they can produce a business plan to tackle this. Others need to review the options available to them, and take forward the one which secures delivery. Where this involves transfer or the creation of Arm's Length Management Organisations, the Community Housing Task Force can help them through the process.

  The Government has also set a target to provide at least 100,000 new or improved homes for low cost renting or ownership between April 2001 and March 2004. We are on course to meet this target—in 2001-02, we provided around 30,000 affordable units of social housing for sale or rent towards this target.


  The Government believes that good planning can help to create and sustain mixed and inclusive communities which offer a choice of housing and lifestyle. It expects local authorities to plan to meet the housing requirements of the whole community, including those in need of affordable housing. Local authorities should assess and plan for the full range of needs across all tenures in their area, bearing in mind affordable housing can include low cost market as well as social housing. They should encourage the development of mixed and balanced communities and ensure that new housing developments help to secure a better social mix by avoiding the creation of large areas of housing of similar characteristics. The Government does not accept that different types of housing and tenures make bad neighbours. It has therefore set out in PPG3 the presumption that where affordable housing is to be provided through the development of a housing site it should be provided as part of the proposed development.

  Better Places to Live, the companion guide to PPG3 for designing new residential environments, provides practical examples of how mixed neighbourhoods of people with different ages and economic status and with different lifestyles can provide a number of important community benefits. It underlines that the creation of successful places is about much more than visually attractive design.

  The Housing Policy Statement, Quality and Choice: A Decent Home For All, supports the aim of the creation of mixed communities. Mixed communities were also a theme in the Urban White Paper. We do not expect housing schemes funded with Social Housing Grant to reinforce existing high concentrations of social rented housing.

  Additionally, where Social Housing Grant schemes are outside such concentrations, we expect more opportunities for mixes of tenure and income to be considered. We have asked the Housing Corporation to monitor this.

  The Housing Corporation, in setting its national investment strategy for 2002-03, recognised the importance of mixed communities. It is continuing in the assessment of bids to consider whether schemes with more than 25 homes have sufficiently considered mixed tenure. It is also promoting this policy within local developed strategies that cover small schemes of less than 25 homes.

  Housing policies, such as support for low-cost home ownership schemes also support the development of mixed communities. The Right to Buy in particular enables tenants who wish to become owner-occupiers to remain in the community which they otherwise might leave. And the Starter Home Initiative helps key workers on modest incomes to buy a home in high price areas.


  The Government's planning policies for housing make clear its determination to meet the country's future housing needs in the most sustainable way possible. The Government expects priority to be given to re-using previously-developed sites in urban areas, bringing empty homes back into use and converting existing buildings, in preference to the development of greenfield sites. It also expects to see higher densities achieved through good design and layout in new development. The Government's intention is to make the best use of urban brownfield sites before turning to greenfield sites, but it does not rule out greenfield development.

  The Government intends that everyone should have the opportunity of a decent home. One of the roles of the planning system is to ensure that new homes are provided in the right place and at the right time, whether through new development or the conversion of existing buildings. This is also important to maintain the momentum of economic growth. Economic growth should not be frustrated by a lack of homes for those wishing to take up new employment opportunities. To promote sustainable development, the need for economic growth has to be considered alongside social and environmental factors.

  The Government's policy, set out in PPG3, is that local planning authorities should provide sufficient housing land to meet the housing requirements of the whole community but give priority to re-using previously-developed land within urban areas, bringing empty homes back into use and converting existing buildings, in preference to the development of greenfield sites. The Government has set a national target that, by 2008, 60 per cent of additional housing should be provided on previously-developed land and through conversions of existing buildings. Regional planning bodies and development plan authorities are expected to adopt their own land recycling targets which contribute to attaining the national and, as appropriate, regional target. Where greenfield releases are anticipated they should be sequentially tested against brownfield opportunities and set within a planning for housing strategy that fully reflects PPG3 and integrates properly with wider regeneration and housing strategies.

  It is an essential feature of the "plan, monitor and manage" approach that housing requirements, and the ways in which they are to be met, should be kept under regular review. The planned level of housing provision, and its distribution, should be based on a clear set of policy objectives, linked to measurable indicators of change. These indicators should be monitored and reported in the Regional Planning Body's (RPB's) annual monitoring report. Such monitoring should be the basis on which the RPB periodically reviews and rolls forward its housing strategy. Reviews should occur at least every five years, and sooner if the strategy is not having the intended effects (for example if there are signs of either under or over-provision of housing land).


  Questions of cost need to be approached with care. We recognise that a shortage of affordable housing will impact on businesses and the economy. It can affect investment decisions by companies and impact on labour mobility. However, the economy in London and the South East, where the shortage of affordable housing is most acute, continues to flourish. Indeed, as noted earlier, the problems are the product of economic success.

  The Government's primary concern is the housing need of individuals. We are, for example, aware of the personal cost to families in unsatisfactory temporary accommodation. This is why we have introduced a £35 million programme to ensure that, by 2004, no family with children has to stay in bed and breakfast accommodation, other than in an emergency. And we are bringing all social housing up to a decent standard.

  As indicated above, the Government is taking action to address concerns about staff recruitment and retention, through the Starter Home Initiative and other low cost home ownership schemes.

12   Earnings figures taken from the New Earnings Survey, which classifies people by where they work. The ratio compares workplace-based earnings with residential house prices. Back

13   "London Authorities West and North", although the scheme now encompasses other authorities in London and the South East. Back

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