Select Committee on Transport, Local Government and the Regions Memoranda

Memorandum by Chartered Institute of Housing (AFH 04)

  The Chartered Institute of Housing (CIH) welcomes the Select Committee Inquiry into Affordable Housing. Our submission to the Inquiry aims to present matters relating to affordable housing as they affect a variety of different parts of the country.

  There is growing public awareness and alarm about the impact of the acute shortage of affordable homes in London and the South East, and "hot-spots" in other towns, cities and rural areas. Government recognises the need for special arrangements for key workers, such as teachers, nurses and police officers, to enable them to purchase housing, and the Affordable Housing Unit has been set up to look for ways of boosting provision in the short and medium term. Meanwhile, homeless people and families in bed and breakfast hotels are under even more pressure. The crisis situation in these areas is in danger of undermining economic growth and attempts to improve the quality of public services.

  There are different issues relating to affordable housing in places where housing markets are weak. The recent Inquiry into Empty Homes picked up on many of these issues, although it did not look specifically at affordable housing. Any Inquiry into Affordable Housing needs to embrace the issues in both high and low demand areas, to draw out an understanding of the links between them and to make recommendations that take into account the effect on all areas. The overall aims must be to create successful neighbourhoods everywhere, rather than concentrating separately on "meeting demand" in high demand areas and "solving" problems in low demand areas.


  There is a great deal of ambiguity in the way the term "affordable" is used in relation to housing, and this leads to problems when trying to achieve particular outcomes. Currently it is used in the following ways:

    —  it is used in a general way to describe housing of any type that is judged to be affordable to a particular household or group by analysis of housing costs, income levels and other factors;

    —  it is frequently used by housing practitioners to specify housing provided either by a council or housing association either to rent at below market levels or for shared ownership;

    —  in planning guidance the term usually embraces "low cost" or "discounted" housing for sale on the open market as well as housing provided with the involvement of a housing association to rent or for shared ownership (although PPG3 states that local authorities are able to define it as they believe is most appropriate).

  When talking in general terms, it may not be necessary to have a precise definition, but where there is a need to achieve specific outcomes then it is important that definitions are precise and appropriate to achieving the outcome.

  There is a problem with the third use of the term above. This definition is often used by councils when drawing up policies for providing affordable housing through the planning system. Housing that is relatively cheap, either because it is small or lower quality, can be described as "low cost" even though it is sold at market prices. "Discounted" housing often describes housing that is initially sold at lower than market price (usually 10 to 20 per cent lower), but that on second and subsequent sales fetches market prices. This type of housing is, therefore, no longer affordable to people who cannot compete in the market. Developers' preference is to provide either low-cost market or discounted housing as their on-site planning contribution, but this means it is not available to meet needs in the long term.

  Local authorities are now being required to undertake sophisticated analyses of their local housing markets. They are being encouraged to use this information as the basis for their housing strategies which also need to support the local and regional economic agendas, neighbourhood renewal agendas and the local plan. The strategic objectives for each of these should be derived from the Community Plan.

  In most instances it is no longer appropriate simply to identify the need for "affordable" housing as separate from market housing. This crude approach does not appreciate the complexities of modern housing markets, nor serve modern requirements and aspirations. A much more effective way forward is to identify the amounts and locations of a wide range of house types, sizes, tenures and prices that are required to achieve the strategic objectives identified. In some areas, this type of information is already starting to feed through into housing strategy and, to a lesser extent, planning guidance. However, specific outcomes are difficult to achieve on the ground, because the mechanisms needed to translate the strategy for new housing into new houses are lacking.

  There are two possible ways of translating increasingly sophisticated assessments of housing requirements into real outcomes.

  One would be to adopt two definitions of affordable housing for planning purposes, and to enable local authorities to specify, through planning mechanisms, which of the two products should be built on particular sites. These would be:

    —  permanently affordable housing—this would include;

      —  homes for either rent or shared ownership at below market levels, provided by local authorities or registered social landlords and allocated on the basis of housing need; or

      —  homes for rent or sale at a discount compared to open market value and where there are arrangements in place to ensure that this discount will be available to subsequent occupants identified as being in housing need;

    —  intermediate-priced housing—this would include a variety of types of housing that are affordable to those on low to medium incomes (eg Young professionals, manual workers, key-workers etc), such as;

      —  modest, low-cost housing for sale on the open market;

—  housing for sale at a price discounted from the market price;

      —  housing for rent at affordable market rents eg. CASPAR blocks;

      —  shared ownership schemes aimed at key-workers, with protection arrangements in place (for example so that the share appreciates in line with incomes rather than house prices and that only people on salaries of less than £30,000 are eligible).

  Another approach would be to allow local authorities to specify what housing types and tenures should be built on particular sites. This would be difficult to achieve under the present system. However, the proposal in the Planning Green Paper to introduce Local Action Plans that may be site-specific provides the potential for local authorities to specify house types etc. in these plans.


  The location of existing affordable housing largely reflects patterns of historic housing need that do not match today's patterns. This is why we are now faced with extremes in the demand for affordable housing in different parts of the country. Whilst it is the case that demand is very high in London and the South East, and lower in the North-West, for example, this macro-view can be unhelpful because it masks important characteristics of housing markets that appear to be becoming increasingly differentiated in many parts of the country.

  Sheffield is a good example of differentiated housing markets. The South and West of the city are dominated by high levels of owner-occupation with house prices well above what many people can afford. Houses in these parts are frequently sold at prices above the asking price. Private rented housing in the area is mostly either upmarket or aimed at students and there is a limited supply of social rented housing. In contrast, in the North and East, much housing is readily affordable. There is a ready supply of low cost homes for sale and for rent at prices that are affordable to people even on very modest incomes. This causes a different set of problems. People on very low incomes are attracted into owner-occupation, albeit often poor condition properties, but are not always be able to afford to maintain or improve their homes.

  Northamptonshire is also demonstrating interesting housing market characteristics by virtue of its location near to London and the South East. People working and living in or near London will often look to buy properties a little further out, determined by commuting distances and times, because they can get more for their money there. This causes prices to rise in these areas and consequently, people living and working there will often consider buying a property further still from London, where prices for an equivalent property might be £20-£30,000 less, or they can buy a better house for the same money. Estate agents are well aware of this phenomenon that causes a gradual increase in house prices and which they refer to as the "ripple effect". The overall consequences of this are that local people cannot necessarily afford to buy locally and the type of new housing built tends to be for higher earning households looking for "more for their money".

  Daventry is a prime example of a town affected by the ripple effect. Average house prices have almost doubled over the last seven years resulting in a need for affordable housing of over 40 per cent of all new housing built. This figure relates to the proportion of households that cannot afford housing to meet their needs on the open market (judged to be equivalent to a flat for a single person or couple and a terrace house for a family).

  In 2001, 47 per cent of all new housing built in Daventry had four bedrooms. This housing sells for above the average new house price which is around £150,000 and is aimed at people looking to spread out from London. Developers have clearly seen a market here, evidenced by advertisements for developments in Northamptonshire in central London, but the overall effect is to increase the demand for affordable housing still further.


  In England as a whole the output of rented dwellings from the Housing Corporation"s development programme has been halved over the last four years, with 22,354 new homes provided in 2000-01, of which 18,316 were rented dwellings, and using £829 million private finance (ref. Housing Corporation Annual Review 2000-01). In London increased costs caused the numbers of newly built RSL dwellings to fall to some 2,850 in 1999-2000, compared to just over 5,000 four years earlier. Moreover, it is estimated that the impact of rent influencing, higher grant rate and increased building costs will cause the output from the Housing Corporation to continue at similar low levels for the foreseeable future. Even with the addition of RSL homes funded by local authorities (8,419 for 2000-01), national output is only running at 26,735, far below what is needed.

  The backdrop to the low level of social sector provision is a reducing supply of new private sector homes as well, despite high demand. Levels of new building have fallen to their lowest point since the war. This suggests that house price inflation will continue at well above the level of wage inflation because of the fundamental imbalance between supply and demand, whatever happens to the UK economy over the next few years. This also points to a widening affordability gap.

  The most recent household projections, undertaken by respected economist Alan Holmans and set out in a joint CIH/LGA/NHF submission to the Comprehensive Spending Review 2002, concluded that from 1996 to 2016 there is an annual requirement for some 83,000 new affordable dwellings to meet the housing needs of households unable to secure unassisted accommodation in the private sector. Of that he concludes that some 50,000 dwellings are required each year in the southern regions of England alone.

  The graph below shows that the total real terms investment in affordable housing decreased significantly between 1993-94 and 2000-01 and that increases since then have been modest by comparison.

  The gap between actual output of affordable housing and real needs is likely to be of the order of 40,000 units per year, even taking into account the higher levels of the Corporation's ADP from 2003-04. Holmans et al has shown that additional funding of about £1.4 billion per year is required to close this gap, but with building costs rising at 7.5 per cent a year, £1.7 billion is now more accurate.


  Limited supply is exacerbated by the effect of Right to Buy (RTB), which continues to diminish the supply of local authority stock, and where, unlike the Right to Acquire for registered social landlords, the proceeds are not ring-fenced for replacement provision.

  In recent years, over 50,000 council homes per year have been sold through the RTB. In 2000-01 alone, over 15,000 were sold in London and the South East where the need is most acute and resale value of these properties is out of the reach of most low and middle income households. There is a need to reform the rules governing the RTB, particularly in areas where land for new housing is in short supply. Options for consideration include:

    —  a halt to sales in high demand areas;

    —  ring-fence the proceeds of sales for replacement provision;

    —  restrict resale of RTB properties in high demand areas to certain categories of households eg key workers or those on incomes below a certain level;

    —  remove the RTB for new tenancies; and

    —  revise the discount levels.


  Given that the level of new building is now so low the key factor deciding the quality of affordable housing is investment in the existing stock. The biggest challenge here is the £19 billion backlog of disrepair in council housing that the Government is tackling by a combination of extra public subsidy for stock that stays in public ownership and encouraging stock transfer for councils and tenants who vote to take that route. Work by CIH has shown that the 10-year decent homes target is critically dependent on stock transfer, and that if more urban councils do not opt for transfer, the government will be forced to find more public funds. This issue is particularly critical following the Birmingham ballot result. CIH wants the DTLR to make a strategic assessment of the likelihood of the target being achieved, which should be part of its case to the Treasury for more funds in the forthcoming Spending Review.

  CIH has worked with Graham Moody Associates to assess the resources needed to achieve the 10-year target, and could make this assessment available to the Committee.


  CIH believes that the planning system can be used more effectively to provide more affordable homes. The number of affordable homes provided through planning contributions was monitored for the first time in 1999-2000. Research by the Joseph Rowntree Foundation found that double and triple counting led to serious concerns over the validity of the Government's figures. It is thought that far fewer than the 13,800 affordable homes recorded were actually developed. The real figure is likely to be between 5,000 and 10,000. It should also be remembered that a proportion of these properties are not truly affordable, but are "low cost" homes ie. cheaper houses for sale at market prices, or homes for sale at a discounted rate, that fetch the full market price on second and subsequent sales.

  The expectation on the planning system as a mechanism for providing affordable housing is greatest where demand is highest, but land, and especially brown-field sites, is relatively scarce in these areas. In Sheffield, for example, very few sites become available in parts of the city where demand is high, and this problem is magnified to a bigger scale in London and the South East.

  Where new housing is developed in high demand locations the returns for developers are higher. Clearly this has to be balanced with high land costs which limit the affordable contribution that can be made, though the exact balance of these elements are different in each case. We suspect that where there is a high level of competition between developers, the limits have not yet been reached and there is yet more scope for testing the market. Local authorities usually try to negotiate a proportion of around 25 per cent affordable housing, but in some areas this could be increased.

  The Government stated its intention in a recent consultation paper, to boost the levels of affordable housing achieved through the introduction of a new tariff system for planning obligations. The important and more difficult thing, though, is to make sure that the affordable housing is located where it is needed. Also, the paper does not suggest any mechanisms to ensure this happens. CIH has put forward a number of recommendations in its response to the paper. These include:

    —  a specific requirement to address the provision of affordable housing in all Local Action Plans;

    —  a "fit for purpose" test for the Local Development Framework and Local Action Plans to ensure they are capable of delivering the right amount of housing in the right places to meet needs, including for affordable housing;

    —  revision of the definition of affordable housing for planning purposes;

    —  a presumption that affordable housing will be provided on-site as well as a presumption that a proportion of the cash generated from the tariff on other developments should be spent on affordable housing;

    —  an understanding at national level that income generated through the tariff is additional locally derived income, and that funding for main programmes is not reduced as a result;

    —  clear guidance on the kind of purposes that would be considered "legitimate purposes" for spending the tariff locally; and

    —  the ability to allocate smaller sites specifically for affordable housing where there is a demonstrated need (ie in high demand areas) as well as a mechanism for bringing forward such sites.


  The proportion of resources that should be put into social housing compared with low cost and shared ownership options will vary considerably between areas and needs to be determined locally through market analyses. We understand, from the findings of the Joseph Rowntree Foundation's Task Force on the Future of Low Cost Home Ownership, that there is substantial unmet need for these home ownership options. CIH broadly supports the recommendations made by the Task Force, to ensure that a range of low cost home ownership options become more widely available.

  CIH also supports the proposal of the London Commission to develop an "intermediate housing market" to meet the needs of people on moderate incomes who cannot afford market housing. The need for this extends beyond London into other areas of high demand. Changing the definition of affordable housing to embrace both permanent affordable housing and intermediate-priced housing (as proposed in this submission) could help to move towards achieving this intermediate housing market.


  CIH believes that it is appropriate to have regionally set targets for affordable housing, since housing markets often span a number of local authorities. Not all regions" Regional Planning Guidance contains targets, and there is a good deal of scope for improving and standardising the way these figures are generated.


  CIH is very concerned that the three year and 10-year decent homes targets may not be met overall, and will almost certainly fail to be met by a number of individual authorities. The three year target was very ambitious and probably unrealistic, given the timescale for carrying out major capital programmes and the pressure on building industry resources in several parts of the country. The 10-year programme is certainly realistic in implementation terms, the key issue being the combination of public and private funds required to achieve it. As pointed out above, this is only partly in central government hands, given that local councils and tenants have to vote for stock transfer. The evidence has been building up for some time, even before the Birmingham stock transfer ballot, that not enough urban councils find stock transfer attractive to enable the target to be met.

  CIH believes that the Government should:

    —  carry out and regularly update an assessment of the likelihood of councils achieving the targets, based on their business plans and known intentions about transfer, and publish this assessment;

    —  Consider ways to make stock transfer more attractive, to include:

      —  greater financial incentives to partial transfer;

      —  transfer models which put greater emphasis on the role of tenants (CIH is working with the Co-operative Union to develop such models);

      —  greater emphasis within transfer policy on overall community regeneration (as was the case with earlier urban transfers; again, CIH is researching this issue); and

    —  ensure that the "arms length management" option is available to a greater range of councils by increasing the resources available through this route, providing for prudential borrowing and keeping the performance threshold to obtain extra resources at a realistic level.


  When compared with the large council estates built in the 1950s and 60s, it would be true to say that Government policies have resulted in more mixing, especially on new housing developments. However, there remain many areas where high concentrations of poorer households live in close proximity, separated from other "better off" areas. Where the Right to Buy has resulted in greater variation in tenure on larger council estates, these households are usually on relatively low incomes.

  The extent to which new developments can be mixed together is also limited since developers required (through a planning obligation) to provide affordable housing on a site with housing for sale will typically ensure the affordable portion is physically separated from the market housing by a fence or wall, in an attempt to minimise the negative impact on house prices. Mixing through planning obligations is also limited in higher demand areas where fewer sites are available.

  The Institute for Public Policy Research Forum on the Future of Social Housing, considered that avoiding high levels of economically inactive people is the most important aim when creating more mixed communities—success should not be judged by the degree to which social networks between economic groups are fostered, desirable though this might be.

  The planning system has a significant role to play in creating mixed communities. The changes to the definition for affordable housing proposed in this submission would help to achieve mixing, particularly if local authorities were able to specify the housing types and tenures that should be built on particular sites.

  The recent Government proposal to introduce a tariff system for planning obligations could lead to less, rather than more, mixing because the income generated from the tariff is portable. It is essential that planning obligations continue to support mixing and this can only be achieved if on-site provision of affordable housing remains the norm.


  Large-scale greenfield development will become inevitable if more is not done to boost regional economies outside London. The current target for 60 per cent of all new housing to be developed on brownfield sites might be achievable on a national scale. However, meeting housing needs will be impossible in some areas, particularly the South East, without significantly exceeding this level. Increasing density of new development will help, but there are limits to what can be achieved if living environments are to remain comfortable and congenial.


  High housing costs, coupled with insufficient affordable housing has many direct and indirect negative consequences. One consequence is the increased homelessness and use of bed and breakfast accommodation that affects the health of individuals.

  The shortage of affordable accommodation has been amply highlighted in recent years and has led to the Starter Home Initiative in an attempt to retain key workers in high demand areas. In addition to this, increases in property prices put upward pressure both on public sector wage costs and on business costs, compromising the ability of businesses to compete in Europe.

  More of the country's future housing demand could be met outside the South East if employment and career aspirations could also be met in other parts of the country. This would ensure that regeneration and development of brownfield sites was sufficiently supported by measures to strengthen regional economies. It would also take some of the pressure off London and the South East, and other places affected by the "ripple effect", and minimise the impact on greenfields.

  Regional development agencies will not be able to achieve this by themselves. A national policy for improving regional economies is needed to counter-balance the unsustainable growth of the South East.

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