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 for
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.
Whether the planning system is the correct mechanism
for meeting the nation's need for affordable housing is debatable.
However, there currently exists a clear 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 per annum total housing
need, of which 28,000 should be affordable.
Having identified a very high level of need
the 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.
HBF members build new housing to an extremely
high standard set down in the building regulations. House builders
building in partnership with Registered Social Landlords are required
to build to Housing Corporation Scheme Development Standards.
However, the creation of mixed communities depends on the seamless
integration of private housing and affordable housing. This can
sometimes be frustrated by the rigid adherence to SDSs or the
particular requirements of Registered Social Landlords (RSLs).
To meet the Government's objectives of giving
everyone the opportunity of a decent home there must be sufficient
homes to house existing households, to meet household growth and
to replace dwellings that are demolished.
Actual housing completions in England fell to
130,019 in 2001 and averaged 139,600 per year in the five years
1997-2001 (DETR). If maintained this would meet only 60-65 per
cent of the likely need over the next 20 years, an annual shortfall
of between 76,000 and 85,000 homes per year and a cumulative shortfall
in excess of 1.5 million dwellings by 2021. These figures are
backed by the Joseph Rowntree Foundation who argue in their report
Land for Housing that Britain is heading for a property shortage
of more than a million homes by 2022 unless the current rate of
house building is dramatically increased.
The low rate of new house building is largely
explained by the collapse in public sector output. At present
local authority completions are 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 shortfall.
There is therefore little doubt that the existing
supply of housing is inadequate. It is the role of Government
to explore ways of supporting additional social housing supply.
As the JRF highlight the Government has shown itself ready to
fund the estimated backlog in social housing repairs but only
to increase the funding available for new social housing to perhaps
50 per cent of what is required. The forthcoming Comprehensive
Spending Review offers the opportunity to close the gap.
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.
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 coast 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 two-bed houses and £106 per
week for the three-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". She said:
"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.
Our 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 Regional Assembly, are
planning for lower housing numbers than even the inadequate totals
derived from the 1996-based household projections.
There is little doubt that additional greenfield
development is required to meet overall housing need. Indeed the
Government has a target of 60 per cent brownfield and 40 per cent
greenfield housing. In certain locations large-scale urban extensions
will be the most sustainable mechanism for meeting housing need
and these will occur largely on greenfield land. There are also
locations within England where new settlements will be appropriate.
Whether on brownfield or greenfield site HBF members are committed
to delivering sustainable and commercially realistic solutions
to meet Britain's housing needs.
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 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
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.