Select Committee on Transport, Local Government and the Regions Memoranda


Memorandum by The House Builders Federation (AFH 46)

INTRODUCTION

  The House Builders Federation is the trade association that represents private sector house builders in England and Wales. Our members account for 80 per cent of new homes built each year.

  Affordable housing is one of the most critical issues faced by the house building industry. Whilst the planning system is restricting new homes output to a record low the industry is facing ever-greater demands for affordable housing contributions from local authorities.

  Particularly in London and the South East, the extent of demand for affordable housing made by some local authorities represents a serious block on the ability of house builders to operate viably. This serves nobody's purposes. If sites are made non-viable for the house builder, it is harder for Government to provide a decent home for all, for local authorities to meet their housing targets, and for housing associations to meet the community's need for affordable housing.

THE DEFINITION OF "AFFORDABLE"

  Affordable housing is not tenure specific. Therefore any definition of affordable housing should cover the full-range of options available to households unable to access housing at full-market rates. Current government guidance (paragraph 9 of Circular 6/98) clearly states that local authorities should define affordable housing as both low-cost and subsidised housing. Unfortunately, local authorities are increasingly excluding low cost market housing from their definition of affordable.

  Recent research undertaken by the IPPR (Choice and Affordability in Housing 2001) clearly indicates that for home ownership remains an important goal for most people. Contrary to popular myth, home ownership in the UK (69 per cent) is not especially high. Rates are higher in Ireland (80 per cent), Italy (78 per cent), Spain (78 per cent), Greece (75 per cent), Luxembourg (72 per cent), Australia (71 per cent) and New Zealand (70 per cent), and a little lower in the United States (67 per cent), Portugal (66 per cent) and Belgium (65 per cent).

  Therefore the policy challenge must be to support those who aspire to home-ownership. Low-cost market housing provided by developers without the need for public subsidy is crucial to meeting these aspirations.

THE SCALE AND LOCATION OF THE DEMAND FOR AFFORDABLE HOUSING

  New housing supply is currently so constrained that there is a growing gap between the formation of new households and the supply of new dwellings. Demand pressures, primarily in Southern England, have translated into rising land and house prices and have led to a crisis of affordability. Too many households on low to middle incomes are being denied housing choice.

  Whether the planning system is the correct mechanism for meeting the nation's need for affordable housing is debatable. However, there currently exists a clear requirement in circular 6/98 that any policies for affordable housing must be based on a rigorous and realistic assessment of need. Housing Needs Surveys (HNSs) must be comprehensive, up-to-date and robust, and for policies to be based upon them, must demonstrate a clear current need for affordable housing. To ensure that local authorities meet these requirements Government has published Local Housing Needs Assessment: A guide to Good Practice, July 2000.

  Unfortunately, there are a large number of local authorities that are clearly failing to meet the Government's requirements and there is little consistency in the methodology by which HNSs are undertaken.

  HBF is very concerned that local authorities are using HNSs to inflate the requirements on developers to supply affordable housing whilst simultaneously seeking to limit overall housing numbers specified in development plans. This is well illustrated by HBF research in London. Extrapolating the findings of 10 HNSs shows that there is a need for 73,335 additional affordable units per annum. This is far in excess of even the Mayor's Housing Commission assessment of a requirement for 43,000 per annum total housing need, of which 28,000 should be affordable.

  Having identified a very high level of need the local authorities then convert this directly into a very large affordable housing requirement, and assert that this need can only be met by the provision of subsidised rented accommodation. However, there should be no automatic link between the outcome of the HNS and the quantum of affordable housing sought. Other factors such as lack of financial resources; limited land supply and the concern to ensure mixed and balanced communities will mean that a high percentage is not justified in policy. By failing to include low-cost market housing local authorities are failing to plan for the full-range of affordable housing needs.

  The current system for commissioning HNSs is favouring a number of well-known consultants who are telling local authorities exactly what they want to hear. HNSs are becoming self-serving political statements that are leading to skewed planning judgements and are threatening the viability of sites.

THE QUALITY OF AFFORDABLE HOUSING

  HBF members build new housing to an extremely high standard set down in the building regulations. House builders building in partnership with Registered Social Landlords are required to build to Housing Corporation Scheme Development Standards. However, the creation of mixed communities depends on the seamless integration of private housing and affordable housing. This can sometimes be frustrated by the rigid adherence to SDSs or the particular requirements of Registered Social Landlords (RSLs).

THE ADEQUACY OF THE EXISTING SUPPLY AND THE AMOUNT OF RESOURCES AVAILABLE AND WHETHER TARGETS ON DECENT AND AFFORDABLE HOUSING WILL BE MET BY CENTRAL AND LOCAL GOVERNMENT

  To meet the Government's objectives of giving everyone the opportunity of a decent home there must be sufficient homes to house existing households, to meet household growth and to replace dwellings that are demolished.

  Actual housing completions in England fell to 130,019 in 2001 and averaged 139,600 per year in the five years 1997-2001 (DETR). If maintained this would meet only 60-65 per cent of the likely need over the next 20 years, an annual shortfall of between 76,000 and 85,000 homes per year and a cumulative shortfall in excess of 1.5 million dwellings by 2021. These figures are backed by the Joseph Rowntree Foundation who argue in their report Land for Housing that Britain is heading for a property shortage of more than a million homes by 2022 unless the current rate of house building is dramatically increased.

  The low rate of new house building is largely explained by the collapse in public sector output. At present local authority completions are fallen to almost zero and completions by RSLs are down to around 20,000 per year. Planning restrictions mean that the private sector is unable to meet the shortfall.


  There is therefore little doubt that the existing supply of housing is inadequate. It is the role of Government to explore ways of supporting additional social housing supply. As the JRF highlight the Government has shown itself ready to fund the estimated backlog in social housing repairs but only to increase the funding available for new social housing to perhaps 50 per cent of what is required. The forthcoming Comprehensive Spending Review offers the opportunity to close the gap.

THE EXTENT TO WHICH PLANNING GAIN CAN FUND THE LEVEL OF AFFORDABLE HOUSING REQUIRED

  Successive Governments have placed strong reliance on providing affordable housing through the planning system. Planning gain can make a contribution in the form of setting aside a proportion of the residential development to meet affordable housing requirements. However, planning gain does nothing to address the underlying imbalance between total supply and total need, which is what causes the problems of affordability in the first place.

  Increasing the supply of "affordable housing", whether in the social sector or through private provision at below-market prices or rents, will be ineffective if the overall supply of housing is not increased. Affordable housing policies, on their own, do nothing to address the underlying imbalance between total supply and total need. Indeed, they distract attention away from the real problem.

  At the national or a regional level it is not possible to assess the extent to which planning gain can fund the level of affordable housing required. Affordability varies hugely between and within individual local authorities and as such assessment must be undertaken on a site-specific basis with due regard to a properly conducted HNS.

WHETHER CURRENT POLICIES AND PRACTICES ARE LEADING TO THE CREATION OF MIXED COMMUNITIES

  As mentioned previously current affordable housing policies and practices that lead simply to a division between full market housing for private purchase and social housing for rent will not facilitate mixed communities. It is therefore essential that policies provide for the full range of affordable housing needs, including low coast market housing.

HOW RESOURCES SHOULD BE BALANCED BETWEEN SOCIAL HOUSING AND OPTIONS FOR OWNER OCCUPATION FOR THOSE WHO CANNOT AFFORD TO BUY (INCLUDING SHARED OWNERSHIP) AND WHETHER ANY ADDITIONAL MECHANISMS ARE REQUIRED TO BRING FORWARD SHARED OWNERSHIP-TYPE SCHEMES

  As argued previously the question of how resources are balanced between different forms of affordable housing can only be determined at local authority level. However, there is increasing evidence that local authorities only consider social housing for rent and are therefore failing to take advantage of innovative solutions provided by the private sector, such as that approved recently by an Inspector in St Albans (APP/B1930/A/01/1073344).

  This novel mechanism for delivering affordable housing is relatively simple. The developer agrees to provide a percentage of affordable housing as part of the wider scheme in the normal way. The developer sells the agreed proportion of units to a Housing Association at a discount, in the St Albans case at a 40 per cent discount. Benefiting from this discount the Housing Association can rent to the occupier at a rate approximately 40-50 per cent below market rents, in the St Albans scheme this was £85 per week for the two-bed houses and £106 per week for the three-bed houses. The Housing Association can use this rental stream to service its loan from the private sector lender, and after 20 years is obliged to repay the lender in full. The benefits to the Housing Association are clear. Not only are they able to offer housing at substantially reduced rental levels they will also benefit from any increase in market value of the housing over the 20 year period. Provided house price inflation has exceeded 1.36 per cent per annum the RSL will accumulate substantial equity. It should be noted that over the last 20 years house price inflation rate has averaged 4.5 per cent per annum.

  The key benefit of the St Albans scheme is that it provides key worker accommodation through a Registered Social Landlord without the need for public subsidy. This is achieved by making such housing attractive by allowing the private lender an exit route for their investment after 20 years. Previously the planning system had stood in the way of a finite period through its insistence on affordable housing "in perpetuity". The Inspector addressed this by pointing out that under the Housing Act 1996 every tenant has the right to purchase when a RSL is funded through SHG. Effectively the Inspector recognised that perpetuity is unattainable and for all intents and purposes 20 years amounts to "in perpetuity". She said:

    "On permanence I conclude that this is not a realistic objective for affordable housing even where a RSL is involved."

  The other previous stumbling block, now cleared by this decision, is that local authorities may not now focus planning policies for affordable housing exclusively on people needing social rented housing. As argued previously there is a need for all sorts of affordable housing from social rented to key worker. The Inspector said:

    "I consider that the Council is mistaken in its assertion that C6/98 in general, and the cascade approach in particular, provides support for its more prescriptive approach, to provide primarily for needs which it regards as a priority."

  There is little doubt that the inspector's decision challenges the cosy cartel of local authorities and RSLs' Joint Commissioning arrangements and as such has not received uniform support in the RSL and local authority community. However it is vitally important that a funding mechanism that provides affordable housing for a key section of the community through an RSL and without any public subsidy is fully explored.

WHETHER TARGETS IN REGIONAL PLANNING GUIDANCE ARE APPROPRIATE

  Regional Planning Guidance sets the long-term strategic planning framework for an entire region. PPG11 Para 5.11 states that in preparing the housing strategy RPG may wish to estimate the future balance between general market and affordable housing. However, it further states that estimates of affordable housing should not be presented as targets or quotas for local planning authorities to achieve.

  Our concern is that targets for affordable housing in RPG, however expressed, are meaningless without any link to means of paying for the affordable housing. Too many local authorities are using regional targets to bypass the requirement that local assessment is the basis for any policy seeking affordable housing.

  Affordable housing targets seem even more inappropriate when one considers that the recent round of RPG revisions have proposed housing numbers far below what is actually required. Housing under-supply will continue in high-growth areas well into the future because future housing needs were assessed using the 1996-based household projections which seriously under-estimated household growth in southern England. Regional planning bodies in the South, especially the South East Regional Assembly, are planning for lower housing numbers than even the inadequate totals derived from the 1996-based household projections.

WHETHER MORE GREENFIELD DEVELOPMENT IS NEEDED TO MEET HOUSING NEED

  There is little doubt that additional greenfield development is required to meet overall housing need. Indeed the Government has a target of 60 per cent brownfield and 40 per cent greenfield housing. In certain locations large-scale urban extensions will be the most sustainable mechanism for meeting housing need and these will occur largely on greenfield land. There are also locations within England where new settlements will be appropriate. Whether on brownfield or greenfield site HBF members are committed to delivering sustainable and commercially realistic solutions to meet Britain's housing needs.

THE COST TO INDIVIDUALS, BUSINESSES AND THE ECONOMY RESULTING FROM ANY SHORTFALL IN THE PROVISION OF DECENT, AFFORDABLE HOUSING

  There is clear evidence of serious, long-term housing under-supply in England, especially in the southern regions. Housing shortages will have increasingly damaging social and economic consequences.

  At the very simplest level, housing shortages and deteriorating affordability lead to overcrowding, sharing, occupation of poor standard housing, increasing numbers of families in temporary accommodation and, eventually, rising homelessness.

  While the total number of homeless households in England has risen only modestly in recent years, the number in temporary accommodation rose by almost 90 per cent between the low in the first quarter of 1997 (41,620) and the fourth quarter of 2001 (78,620).

Although housing affordability is currently somewhat better than the average for the last three decades, many middle and lower income households in the South face acute affordability problems, despite the lowest mortgage rates for half a century, because house prices are so high in relation to their incomes. Statistics from the CML show the first-time buyer share of mortgages fell to 43 per cent in 2001 after hovering in the range 46-48 per cent from 1996-99.

  Long-term housing under-supply has two important distributional consequences. Firstly, inadequate supply, and the resulting higher housing costs, has the biggest impact on households with low and middle incomes. These households are not eligible for state benefits and cannot gain access to social housing, yet they are likely to be out-bid for the limited supply of private housing by higher-income households. This group will include many first-time buyers and young households, "key workers" in the public sector (nurses and lower-paid health staff, teachers, police, firemen, etc.), as well as lower-paid employees in the private sector.

  Labour shortages in these occupational categories are already acute in buoyant areas like Cambridge, London and Reading. High housing costs appear to be one of the most important reasons for these shortages. Unless the housing supply issue is addressed, it will be very difficult for the Government to achieve its desired improvements in health, education and public transport.

  Secondly, housing shortages widen the wealth divide. Those who already own a home, especially a large home, will see the value of their scarce asset rapidly escalating, while those unable to afford a home, or first-time buyers struggling to get a foot on the home ownership ladder, will fall further and further behind. Government figures show there is already an extremely deep wealth divide in the UK. In 1999, the wealthiest 5 per cent of the adult population owned 43 per cent of marketable wealth, while 94 per cent of wealth was owned by the wealthiest 50 per cent (Inland Revenue, 1999).

  The solution to these problems is not to be found in raising key-worker incomes, or in direct housing subsidies, unless the supply of housing is also increased. Without a supply increase, higher incomes and subsidies merely increase the bidding power of those lucky few who have these increased resources, driving up house prices even further and excluding others who do not have access to these benefits.

  The disproportionate impact of housing shortages on first-time buyers, who are usually on lower incomes, is damaging for the housing market. Roughly one-third of buyers at any one time are first-time buyers, and they are an essential building block of housing market chains. If first-time buyers are kept out of the market, the whole market suffers.

  Restricted housing supply leads not just to higher house prices in the longer term, but it exacerbates short-term volatility in the housing market. Too often, the economies of the Midlands and North have been damaged by higher interest rates triggered, at least in part, by rapid house price inflation in the South.

  It has already been noted that high housing costs create labour shortages, drive up wages and damage the competitiveness of regions compared with other regions or countries. Steady integration of the EU economies, the accession of a number of new countries into the EU, and wider forces of globalisation mean many business location decisions are not limited to a specific region or country. Constraining economic growth and housing supply in the buoyant South is a high-risk strategy and runs counter to the Chancellor's efforts to raise the long-term sustainable growth rate of the UK economy.

  Housing costs influence commuting patterns as well as migration. If house prices are forced up relative to transport costs, households will trade off the costs and inconvenience of longer commuting journeys against the benefits of lower-cost housing in locations which are further from their employment. Increased car commuting increases congestion and pollution, while greater use of the railways aggravates already serious over-crowding on many commuter routes.

  It is sometimes argued that because new homes contribute only 0.7-0.8 per cent to the stock each year and represent only 10-12 per cent of the housing market, housing supply has very little impact on house prices and increasing supply in the South would be ineffective.

  In the short term, this may be true. But housing supply must be viewed from a long-term perspective. If housing supply is constrained for two or three decades, house prices will be higher than they would otherwise be. There can be no disputing the fact that long-term housing under-supply will force up house prices. It seems highly implausible that the English housing market operates according to some unique economic principle whereby the interaction of supply and demand does not strongly influence house prices.

CONCLUSION

  The current problems of accessing affordable housing are the result of a long-term under-investment in housing. But unlike health, education or public transport an increase in private house building would not require additional public expenditure. Indeed it would generate a substantial increase in public revenue alongside additional affordable housing through planning gain.


 
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