Memorandum by Chartered Institute of Housing
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
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 housingthis
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
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;
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
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
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
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
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;
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
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
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);
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 communitiessuccess 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.