Housing and the Credit Crunch - Communities and Local Government Committee Contents

Memorandum by the Northern Housing Consortium (CRED 13)

  1.  We welcome this timely inquiry by the Communities and Local Government Committee exploring the impact of the credit crunch on housing markets across the country and are pleased to submit a response. We look forward to working with Government and other partner agencies to identify new ways of working to ensure that the housing market is able to survive the economic downturn; our members are working on many innovative solutions and we feel confident that within the right policy framework progress can be made.

  2.  The main elements of our response are listed below and more detail is provided on these in the body of our submission:

    —  The measures announced by Government are welcome and provide a useful foundation on which to build.

    —  The economic picture is still evolving and we need to be flexible in our policy response to ensure that our approaches are "fit for purpose".

    —  A one size fits all approach is neither useful nor likely to be successful—regional markets do differ and we need flexibility within our intervention approaches to ensure that we are responding effectively.

    —  There is a need to review the phasing of our approach to the overall government targets to ensure our delivery activity is adding value at this moment in the cycle.

    —  We welcome the commitment ongoing support for regeneration.

    —  With the move to the Homes and Communities Agency we urge for a review of current targets and investment plans over the next two years to test their "deliverabilty".

    —  We need to take a long term and responsible view on the promotion of tenure options.

    —  We need to consider housing markets in a more holistic sense and not simply focus on new build targets.

  3.  The Consortium were pleased that the Government has recognised the need to act to ensure a range of policy tools and interventions were in place to both support vulnerable households and to maintain momentum within the wider housing market. However, the proposals and initiatives launched by the government are only part of the answer and should be seen as a temporary intervention that will help those at the bottom of the housing market in the short term. We still face the challenge of improving liquidity and credit access and rebuilding consumer confidence over the long term.

  4.  Taking the specific announcements in turn, our commentary is as follows:


  5.  We welcomed this announcement as it moved the threshold from £125,000 to £175,000. Average house prices across the three Northern regions range between £147,000 and £166,000, therefore, on the surface, the raising of the threshold should help make house purchasing more affordable. It should be noted, however, that this averaging of house prices does mask much higher prices within the regions. Furthermore, the threshold level does not take into account income levels and a key barrier to home ownership—accessing mortgages.

£300 million shared equity scheme

  6.  The government clearly sees the merit in attempting to boost access to home ownership to those first time buyers who have not been able to get onto the housing ladder and to support the construction industry by maintaining a supply of potential buyers. However, the second quarter of 2008 saw over 56,000 first time buyer mortgages offered—and whilst this is a declining trend (down from nearly 100,000 for the previous year), the £300 million shared equity package will only help 10,000 new first time buyers over the next two years—so comparatively small scale. Furthermore, there is a wider principle around the merit of promoting home ownership to potentially marginal owners given the current economic climate. If we accept the rationale that home ownership is the tenure of choice—and it should be informed choice—then a more attractive route is the development of rent to buy schemes. However, there are a variety of approaches being taken by providers in offering rent to buy schemes and some offer more attractive terms for the renter/purchaser. A good practice "Understanding Rent to Buy" leaflet for potential customers would be of benefit and allow customers to ensure they are armed with the right questions to solicit the information they require to make informed choices.


  7.  The Government's intervention to put in place support structures that can be accessed by vulnerable households is to be applauded. We know that the repossession action can have an immensely damaging impact on family life but also can negatively impact on wider housing market transactions. The NHC has been working with our Members to understand the scale of the problems facing them and is working with several projects to pilot mortgage rescue schemes. Whilst the finances announced are welcomed, they cannot be the only solution—the figures alone suggest that as the Council of Mortgage Lenders are projecting 45,000 repossessions during 2008, 12,000 mortgage possession actions were issued in the three Northern regions in the second quarter of 2008 alone (clearly not all of these will result in repossession but it does provide an indication of the scale of the challenge we face), and the mortgage rescue proposals will directly support only 6,000 households. We will need to work creatively with our Members to put in place wider support proposals.

  A more general point around repossession is the increasing trend we see of private sector tenants losing their home despite being up to date with rent payments (and not in any breach of their tenancy) due to the landlord defaulting on mortgages. We are working with our members to understand the (potential) scale of this incidence.


  8.  We welcome the principle of this proposal as it will ensure that, at a time of great stress within the social housing system—and with the delivery of affordable housing impacted upon by the general downturn amongst private developers—new social housing supply is being maintained.

  However, we do feel that there is potential to revisit the mechanisms of this approach and facilitate a more market responsive instrument.

A regionalised operating framework rather than the national clearing house approach would allow strategic decisions to be taken regarding the place, price and standards formula—and that HCA at a regional level should have flexibility to set these standards. Clearly the allocation of funding at a regional level needs to be addressed.


  9.  We welcome the welcome the Government's intention to work with RDA's to support critical regeneration schemes. The embedded market renewal and regeneration activity taking place across the North is crucial to rebalancing our housing markets and economic aspirations and the current credit crunch can jeopardise the success and impact of these schemes. We look forward to working with government, the RDAs and the HCA to explore the range of possible interventions.


  10.  The government's intention in supporting the housing market and ensuring that social housing delivery does not dry up is admirable. However it is still a difficult climate in which providers are seeking to operate. Whilst we have seen developers keen to offload unsaleable properties, we have not seen a similar level of land coming to the market place.

  The Consortium has been commissioned by the Housing Corporation to undertake a research project exploring means of facilitating land assembly across the North to deliver affordable homes. Residential land valuations across the North have risen by over 400% in the past decade meaning public sector delivery bodies frequently find themselves out manoeuvred in open market competition. Whilst some of this valuation spike is fuelled by "hope" value, there is a long way to fall for residential land values to become more affordable for the public sector. We need to open up new methods of accessing private sector land, make public sector land subject to more strategic valuation assessment and disposal strategies and find ways by which risk can be shared amongst the delivery sector. Our research recommendations address these issues including the use of land options, reform of the Surplus Public Sector Land Registry, early use of equity investment stakes by the Homes and Communities Agency to purchase land.

  Whilst the stretching delivery targets remain in place, we do feel it is important that we consider the phasing of these targets and have a short and medium term investment and delivery plan—at a regional level. Whilst on paper there may not been much headroom for manoeuvre by HCA in the first two years of operation given the volume of committed programme, we urge this to be subject to timely review to allow new initiatives to be considered and funded.


  11.  The government is to be applauded for taking action to support the housing market but we do feel that there is potential to make this support more flexible and fit for purpose at a regional level—otherwise we run the risk of prioritising absolutely delivery over strategic place-shaping—a decision that may present significant risk in the longer term. The political focus on home ownership as the primary tenure of choice needs to be reviewed as clearly we face marginal homeowners experiencing the devastating consequences of repossession (and the wider social impact). It will be interesting in the coming months and years to assess if there is a shift in this focus—and whether this is led by Government policy, financial institutions reverting to more sustainable mortgage lending levels, or whether consumer confidence in the home ownership promise has been shattered.

  Government policy, even in this period of economic pressure should address all aspects of the housing market—including regeneration, and existing stock and not just focus on new delivery.

November 2008

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