Memorandum by B Line Housing Information
(AFH 06)
The following comments are based on wide practical
experience, and much reflection, on affordable housing, what it
means, the need for it, and how best to provide it, from as many
practical and theoretical perspectives as I can find. I"ve
carried out many housing market studies, needs assessments and
housing affordability projects with and for many local authority,
housing association and representative organisation clients since
1994. I will use the given framework of questions as a basis for
comments.
THE DEFINITION
OF "AFFORDABLE"
I think that trying to get a "definition"
is asking the wrong question. There are too many different variables
and levels to be able to "define" the term in any useful
way. Nevertheless there are ways forward on this based on understanding
what is meant more clearly and making some logical distinctions.
Realisation of the scope of the affordability
issue has gradually widened over the 90s so that it now also refers
to the inter-relationships between the overall housing market
and wider macro-economic factors such as transport, employment
and social policies in general. Any simple definition will inevitably
miss much of this.
I have found it useful to conceptualise an underlying
distinction in what is meant by "affordable", in terms
of:
(1) gaining access to housing—affordability
as "crossing thresholds". This covers factors like having
enough savings for a deposit, or sufficient stable income to be
able to borrow a mortgage (with consequent issues about borrowing
ratios of three times, four times or whatever of income).
It is commonly the measure used in trying to
estimate the need for affordable housing for local authority housing
strategies, normally by using a residual measure of those who
cannot "cross the thresholds" being left needing affordable
housing. It's kind of like the "capital" element of
affordability.
In looking at the need for affordable housing
in the UK this is the factor that is initially important, and
being affected by shortages and spiralling house prices—even
if interest rates and mortgage payments are low, more people still
cannot access housing. Various mechanisms may be possible to address
this—one of which is greater supply of the right sort to
bring the market back into better kilter.
(2) Ongoing ability to afford payments—This
tries to take account of ability to meet the costs over a sustained
period. It's more like a "revenue" calculation. It is
clearly affected by the threshold measure, but often not in a
simple direct way—it is for example mediated by interest
rates and volatility.
Work in 1999 by Cambridge Department of Land
Economy[7]
for the CIH, LGA and NHF concluded that while it is not possible
to define this aspect of affordability, it could nevertheless
be measured. They proposed three convincing measures:
— rent/income ratio is essentially
a historical measure—it gives a comparison of what average
proportion of income households (perhaps also different household
types) pay on rent at different times. But it is of limited use
in predicting or influencing behaviour. This is the only measure
used in the rent restructuring proposals;
— off Housing Benefit—is
a dependency measure , or perhaps for households themselves an
indication of freedom from means testing, bureaucracy and delay—especially
pertinent given current problems with the administration of HB.
It is also perhaps partly also an incentive measure, in that at
the margins some may stay on benefits if they have to claim HB
anyway, for fear of changes, etc; and
— net amount above IS/JSA level—a
residual income measure—know in some quarters as the "getting
out of bed rate". It is thus effectively an incentive measure,
influenced by how rents may affect whether people will take entry
level or low wage jobs. The position has improved considerably
for working families by WFTC and Childrens Tax Credit. It has
still been an issue for singles, but this has now been addressed
in the April 2002 Budget Tax Credit measures, due to come in 2003.
If the access thresholds can be lowered somehow,
then history suggests that the ongoing housing costs will be met
somehow by most households, although general economic circumstances—like
soaring interest rates—could cause much pain and some casualties—especially
at the lower end of the incomes scale.
THE SCALE
AND LOCATION
OF THE
DEMAND FOR
AFFORDABLE HOUSING
Estimating the extent of housing need numerically
is fraught with many problems of reliability of data, confusion
of aspiration and need, modelling of complexity, localised small
area effects, and many others—so much so that I have doubts
that it is really possible—at least to the extent that it
can give the definite answers called for in local authority briefs
of "how many two beds do we need in this ward?". A little
knowledge may be a dangerous thing, but I suppose we have to try
or we will never improve. I often fear that "robust"
means crude and simplistic.
But I do think the DTLR could still do better
with assistance in assessing need and understanding housing markets.
Not through the sort of "you should do this better"
guidance which we already have[8],
of sorts, but through provision of detailed data, models, mapping
and expertise for understanding which goes beyond local authority
boundaries.
There is, I think, a role for here regional
housing statements and/or strategies in formulating the housing
market areas within which local authorities need to get together
to study and assess needs. Too often now local authorities work
jointly with a neighbouring council because they are like them
(are similar to), or because they like them (get on with) . It
is not often I see satellite suburban authorities working with
the central city—mostly they are politically at loggerheads
at member level anyway.
There was an idea for a national model that
can be applied locally—the Cambridge DEA econometric studies
may have made some progress, [9]but
I can't understand it. The demographic social, and commercial
data provider CACI ( www.caci.co.uk ) expressed an interest to
me in trying to take data linking, modelling and mapping techniques
forward to build a national housing market model based on localised
factors from their enormous databases. But that has gone quiet
too.
Some kind of model or toolkit that local authorities—or
better still, agencies covering overall housing market area[10]—could
plug into and use would be much better than the various different
heroic attempts that happen now . Although I suppose the bigger
the system the greater the mistakes it could make!
Having said all this, my studies in areas across
the midlands and elsewhere keep coming up with needs for affordable
housing ( as the proportion of new supply that should be below
full market cost—which includes both rented and "intermediate"
low cost or similar)—of in excess of 40 per cent. This is
also done by using, at every stage of the estimate modelling,
each factor, range and assumption that will give the lowest housing
need.
So despite concerns about how to work it out
numerically and scientifically, I have little doubt that there
is a very substantial need for affordable housing in the south
of the UK in current market circumstances, and considerably more
than just a few years ago.
THE QUALITY
OF AFFORDABLE
HOUSING
Paradoxically, some housing for sale has become
perhaps too high quality, and thus even more expensive, as developers
aim to catch the market of the wealthier movers out from London
and the South East. They go for glossy fittings and finishes,
some of which are pretty insubstantial, rather than space, solidity
and substance.
For council and housing association housing,
however, poor quality always has been a recipe for hastening it
along to become unpopular and problematic.
THE ADEQUACY
OF THE
EXISTING SUPPLY
AND THE
AMOUNT OF
RESOURCES AVAILABLE
I think, as an intuitive impression (albeit
based on much observation and experience—ie no real firm
evidence), that housing markets are in some ways quite finely
balanced, depending mostly on the underlying demographics, which
may be based on the net household/ usable dwelling balance.
So when population falls, first patches will
become unpopular, then whole property types may go past their
sell-by dates, low demand will be identified, and wholesale decline
may follow. Conversely, when high demand starts to encroach first
prices will start to rise, first for more expensive property types,
then for smaller cheaper types, then local first time buyers will
be squeezed out of being able to afford, commuting distances for
the successful buyers back to work where they came from will increase,
followed by cashing in of equity gains and out migration to "nice
areas" (Cornwall, the Lake District, etc) giving way to other
inward pressures.
An interesting pattern I keep finding is what
Estate Agents call the "ripple effect". Basically, people
currently working and living nearer London and maybe looking to
set up home or move will look to buy a bit farther out from London—judging
the distance by what they can travel with reasonable comfort.
For example, lots of potential buyers in Brackley (South Northants)
are from Thame and Bicester, while many buyers in Daventry are
from Brackley and Banbury. They get the same house for maybe £20-£30,000
less, or can get one that much better. They then usually drive
back to work—or may catch a train a bit farther out. Road
improvements, like the A43 dualling, push prices up more, and
the roads will fill up rapidly with commuters going 30 miles or
so towards London for work. Affordable housing is now inextricably
tied up with regional, transport and employment patterns and policies.
Developers have clearly seen and gone for this
market, evidenced by advertisements for developments in the south
Midlands, Dorset, Warwickshire, etc, in central London. It also
helps to explain the profusion of larger and four bedroom properties,
as these give buyers from closer in to London that bit much more
for their money. The problem is that it, and all the individual
rational household decisions about what to buy and where to live,
further distorts the market.
It also seems pretty clear that the demand/supply
balance overall is getting out of balance due to increased household
formation and low housing production rates, but this is masked
and distorted by the local and regional effects and pressures.
Ideas like a new generation of New Towns, town expansions, sequential
planning in urban areas first, prefabrication, Egan, and redevelopment
of seaside towns are all fine, and should be fully supported,
But I think there are also more local and less grand policies
that could help.
THE EXTENT
TO WHICH
PLANNING GAIN
CAN FUND
THE LEVEL
OF AFFORDABLE
HOUSING REQUIRED
I think to a considerable extent, but only by
moving away a narrow adherence to just wanting social rented housing
based on an adversarial local authority versus developers battle.
Some of this is very necessary, but in current circumstances it
is increasingly about bringing more balance back to the market,
not causing polarisation. If developers would just move away from
building so many four bed double garage detached houses, or Executive
City flats, and build some more modest two and three beds.
Here is a southern East Midlands districts new
build profile and new/re-sale price trends for 2001.
| 4 bedrooms
| bedrooms | 2 bedrooms
| 1 bedroom | Total
|
| Total | 258 | 136
| 115 | 45 | 554
|
| % | 46.57% | 24.55%
| 20.76% | 8.12% | 100%
|
| |
| | | |
I understand why it happens when the supply is restricted
by Planning restrictions, but it does not make for a healthy market.
The Planning Green Paper may help on all this, but could also
be fraught with potential unintended consequences.
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
It is actually hard to tell, because by using a residual
threshold methodology everyone who cannot afford to buy needs
affordable housing, so the balance has to be much more a matter
of judgement. However, in the studies I've done, the balance is
about 50:50—that is 20 per cent rented, 20 per cent shared
ownership and low cost for sale. This is also implied because
a few years ago figures of 20 per cent affordable were needed,
now it is 40 per cent.
The additional mechanisms I would like to see are flexible
covenants to hold low cost for sale prices at those levels. New
average property prices were higher than resale prices by an average
of around 25 per cent in areas I've worked in recently. As these
figures are comparing averages for all new build and all resale,
and new developments are often of larger homes, part of this gap
would be bridged by new provision of more smaller homes at the
lower end of the market.
However, if new homes were to directly meet some intermediate
need, this would require greater levels of discount—up to
30 per cent or 40 per cent or more. This would pose another set
of problems. In the housing boom of the late 1980's some low cost
homes were built which were subject to resale covenants which
held the price at a percentage below the full market prices. This
worked in a rising market, but when house prices declined in the
early 90's, these households found themselves completely trapped
and unable to sell, as no one would consider buying a house which
had to be resold under these conditions.
So I have been thinking about covenants which would give
sliding scales of discount on the full market price, so that they
would apply while prices rise or are steady, but will be gradually
lifted if house prices fall—based, say, on a local Land
Registry price index. They would dampen the market but not trap
people, and may prevent unintended adverse consequences that resulted
from previous attempt to balance the market.
WHETHER TARGETS
IN REGIONAL
PLANNING GUIDANCE
ARE APPROPRIATE
I think they are very dangerous, because they get adopted
as fixed answers or quotas for a region, and usually result in
the affordable housing getting built in the wrong place—as
in the "Martini" housing association development boom
of the early 90's. (anytime, anyplace anywhere!). Not directly
the fault of the targets, but more the way they inevitably get
used.
WHETHER TARGETS
ON DECENT
AND AFFORDABLE
HOUSING WILL
BE MET
BY CENTRAL
AND LOCAL
GOVERNMENT
What worries me is that we could spend £19 billion on
the backlog of repairs and improvements and still find that much
of it is unpopular and declining, because we do not get the strategic
understanding and intervention policies right.
WHETHER CURRENT
POLICIES AND
PRACTICES ARE
LEADING TO
THE CREATION
OF MIXED
COMMUNITIES
House building patterns and allocation policies certainly
have not in the past, but they are changing. That "mixed
communities" are an untainted good thing seems to be something
of a received wisdom for which there is little evidence[11].
What elements should be mixed is also somewhat confused. The mixing
that does not work is where behaviour patterns and lifestyles
conflict strongly. I think that all other variables—tenure,
income, race, age, religion, interests, etc, etc, often become
a sort of shortcut to try to identify and avoid lifestyle conflicts.
Choice based letting pilots are showing that what people
are really interested in are the neighbourhoods more than the
properties themselves, and estate agents have said "location,
location, location" for years. The prospect of streets of
similar types of household behaving much the same is perhaps not
very exciting, but it seems to be what people want, and maybe
the lesser of evils. And there are anyway consciously chosen "lively
and cosmopolitan areas", as well as the "family first"
"autumn years" and "students and young singles"
areas.
WHETHER MORE
GREENFIELD DEVELOPMENT
IS NEEDED
TO MEET
HOUSING NEED
It seems inevitable somewhere. As long as it is done sensitively
it can work.
THE COST
TO INDIVIDUALS,
BUSINESSES AND
THE ECONOMY
RESULTING FROM
ANY SHORTFALL
IN THE
PROVISION OF
DECENT, AFFORDABLE
HOUSING
Very substantial, no doubt. My hope is that in time broadband,
digital TV, dispersion and home and teleworking may solve the
travel to work and linked housing problems. But unfortunately
it is not a reliable and definite solution.
7
Evaluating housing affordability-Property Research Unit,
Cambridge Department of Land Economy, 1999. Back
8
Local housing needs assessment: a guide to good practice.
DETR 2000. Back
9
An Economic Model of the Demand and Need for Social Housing.
DETR 1997 and Further Work on an Economic Model of the Demand
and Need for Social Housing. DTLR 2002. Back
10
Defining housing markets is also not clear cut. See for example
The Definition of Housing Market Areas and Strategic Planning,
Colin Jones in Urban Studies, Nov 2001.
A "housing market area" is
commonly being used to mean the area within which a majority of
moves occur (51 per cent, 70 per cent), or the area in which households
move without changing jobs. A USA definition from the 1970's suggests
it is an area in which "properties compete with each other".
It is ultimately probably arbitrary to some extent, and more empirical
work is needed on local moves to determine an appropriate level.
It may need to be varied too with the particular type of each
housing market itself, and local catchment and travel to work
areas.
Within these housing market areas, there
are also "housing neighbourhoods" or similar, which
are more akin to Estate Agents areas, with varying popularity,
reputations, and often widely different pricing. These can also
cross local authority boundaries, especially in conurbations. Back
11
See Reclaiming Community edited by Victoria Nash, IPPR.
2002 and Key Issues for Sustainable Communities, Long D,
Housing Corporation. 2000. Back
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