Memorandum by The House Builders Federation
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.
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 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.
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. This
has been recognised by the Deputy Prime Minister John Prescott
who in his statement to the House of Commons on 18 July stated
that the shortage of housing in London and the South East is causing
record housing costs that are impacting directly on living standards.
In the response the Government is seeking to
both increase the number of homes available and increase the number
of homes that are affordable. It is a 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 pa total housing need,
of which 28,000 should be affordable.
Having identified a very high level of need
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.
Where affordable housing is provided alongside
market housing there should be seamless integration. This is often
frustrated by the rigid adherence of Housing Associations to particular
design specifications that are at variance with those of the private
developers this seamless integration is extremely difficult to
The quality of affordable housing must be considered
in the wider context of the build environment. In announcing a
step change in new housing output the Deputy Prime Minister outlined
his commitment to ensuring design quality. There are a number
of positive steps that need to be taken by Government.
Ensure local authorities comment
on objective design issues rather than detailed issues of style
Prevent local authorities from introducing
or retaining restrictive planning policies on issues such as amenity
space standards and overlooking distances, which have no bearing
on the quality of developments and indeed often detract from good
Introduce Transport Development Areas
to allow housebuilders to develop at higher densities around significant
Revise highway regulations and guidance
to ensure that house builders can develop schemes that create
liveable and attractive neighbourhoods and which comply with the
principles set out in the Government's own planning guidelines"Better
Places to Live" and "Places, Streets and Movement"
The design of road junctions to favour
the needs of pedestrians.
Allowing greater use of shared surfaces
and creation of 20mph zones.
Greater flexibility over road widths,
need for signal junctions, scale of roundabouts etc.
Review building regulations to ensure
that the regulations are based on empirical models of risk assessment
so that housebuilders can develop higher density schemes without
Introduce training packages for local
councillors on planning committees so that they fully understand
the requirements of national planning guidance and their obligation
to pursue policies and make decisions in accordance with that
guidance, particularly in respect of density, mixing uses and
Provide a mandate to the Planning
Inspectorate or Audit Commission to undertake audits of local
authorities' implementation of national planning policies on the
provision of housing. Where significant and continual under-performance
is recorded, sanctions should be available and applied.
New housing completions are currently at the
lowest level since 1924 (excluding the war years). This low rate
is largely explained by the collapse in public sector output.
At present local authority completions have 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
There is little doubt that the existing supply
of housing is inadequate and therefore additional public subsidy
for affordable housing is welcome. Also welcome is the Deputy
Prime Minister's commitment to deliver a step-change in house
building through changes to the planning system, backed by additional
The Government is planning to provide greater
detail by the end of this year on how additional funding can be
most effectively utilised in the delivery of decent affordable
housing. HBF is certain that this should involve a greater role
for the private sector. At present the withholding by local authorities
of social housing grant (SHBG) from private sector developments
is having a negative impact on the supply of affordable housing
and is threatening the viability of sites.
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.
However, it is important to consider that many
local authorities seek to achieve target levels of affordable
housing under section 106 agreements without adequate consideration
of the SHG that may be required or indeed available.
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 cost market housing.
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 2-bed houses and £106 per week
for the 3-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'.
"On permanence I conclude that this is not
a realistic objective for affordable housing even where a RSL
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.
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.
A fundamental matter of concern is that no satisfactory
mechanism for deciding affordable housing needs at the regional
level has been established. Another 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 England Regional Assembly,
are planning for lower housing numbers than even the inadequate
totals derived from the 1996-based household projections.
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
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 Council for Mortgage Lenders (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
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
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
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
There is growing evidence that some urban housing
markets are experiencing weak demand and market failure expressed
in terms of substantial voids in social housing stock, falling
house values and some unsaleable private sector properties. This
is resulting in increasing abandonment of properties and high
housing management/maintenance costs and falling asset values.
Therefore the establishment of a long-term programme of action
under the rubric of the Housing Market Renewal Area (HMRA) is
welcomed. Also welcome is Government funding for 'pathfinders'
kick-start the process of preparing the strategic plan.
It is important to understand that the lack
of a housing market is just one by-product of a dysfunctional
economy. The regeneration of the worst affected areas of our major
cities therefore requires a focus on the economy, the creation
of jobs, and the removal of the blights that affect these areas,
with crime, bad environment and poor education being the top priorities.
A purely housing-led urban renaissance is not possible.
In many instances if housing is to meet changing
demands and modern requirements then large-scale demolition will
be required and suitable new policy mechanisms will need to be
established. Land assembly, assisted by compulsory purchase, will
be an essential element in most major housing regeneration programmes.
It should be noted that the UK has an incredibly low level of
demolitions. In the five years 1996-972000-01 demolitions
in England averaged 14,1000 per year (DTLR, 2001). If this rate
is to be maintained, it will be 1500 years before today's newly
built homes reach their turn for demolition.
It is vital that private sector house builders,
with detailed knowledge of local housing markets, are engaged
in housing market renewal programme at the very start. Key to
involving private developers will be the scale of regeneration
opportunities that are offered. Development sites should be large
enough to ensure critical mass to develop a new identity for the
Speeding up the process of handling planning
applications including settling Section 106 agreements will be
essential. There must be flexibility on the interpretation of
PPG3, particularly with regard to parking standards
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.