House of Commons - Environmental Audit

Select Committee on Environmental Audit First Report

THE BARKER REVIEW OF HOUSING

12. Despite the housing targets set out in Planning Guidance numbers of completions of new homes has been falling and affordability has been worsening, with many first-time buyers finding themselves priced out of the housing market. In response to this, ODPM and HM Treasury jointly commissioned Kate Barker, a member of the Monetary Policy Committee at the Bank of England, to consider the issues underlying the shortage of housing supply and the lack of responsiveness of the housing market to changing conditions in the UK. In particular:

the role of competition, capacity, technology and financing of the house building industry; and
the interaction of these factors with the planning system and the Government's sustainable development objectives.

13. Following an interim report published in December 2003, the Review's final report was published in March 2004. This presented the Review's conclusions on the level of house building that would be required to achieve specified trends in house prices in England:

"The UK has experienced a long-term upward trend in real house prices, 2.4 per cent per annum over the last 30 years. This has created problems of affordability. In addition, the volatility of the housing market has exacerbated problems of macroeconomic instability and has had an adverse effect on economic growth. To improve macroeconomic stability and deliver greater affordability for individuals a lower trend in house prices is desirable:

In order to deliver a trend in real house prices of 1.8 per cent an additional 70,000 houses each year in England might be required.
To bring the real price trend in line with the EU average of 1.1 per cent an extra 120,000 houses each year might be required."[9]

The final report included 36 recommendations, covering how housing targets are set, the planning system, how local authorities deliver housing, social housing, infrastructure provision, development gain and taxation, and the house building industry itself.

14. The Review concluded that the supply of new housing in the UK is very inelastic, responding very slowly to price changes. Supply increases slowly when house prices are increasing, but responds much more quickly and significantly to price decreases, and following a slowdown in the market does not respond quickly once prices recover. In addition, when prices are rising quickly in a volatile market, builders often reduce supply in the expectation of a downward correction in the market. The Review concluded that the underlying constraint on housing supply is land availability and that the functioning of the planning system as it stands is the main obstacle to increasing the supply of land. The press release announcing the publication of the final report set out some of the main recommendations of the Review, which included:

"Government should set out a goal for improved market affordability.
Additional investment building-up to between £1.2 and £1.6 billion per annum will be required to deliver additional social housing to meet projected future needs.
Introduction of a Planning-gain Supplement to capture some of the development gains that landowners benefit from, to ensure that local communities share in the value of development.
Establishment of a Regional Planning Executive to provide public advice to the Regional Planning Body on the scale and distribution of housing required to meet the market affordability target.
Introduction of flexibility at the local level through the allocation of additional land in Local Development Frameworks, with the release of this additional land triggered by market signals.
Establishment of a Community Infrastructure Fund to help to unlock some of the barriers to development."

15. The Chancellor of the Exchequer, The Rt Hon Gordon Brown MP, welcomed the findings of the Review in his Budget 2004 speech on 17 March. He announced that ODPM would consult on how to increase the supply and affordability of housing, and on what goals should be set in this area, bearing in mind the need to strike the right balance between the economic and social case for development, and environmental and social needs. However, he gave little indication of what particular recommendations were being considered by the Government.[10] In an adjournment debate on the subject a month later, Yvette Cooper MP, Parliamentary Under-Secretary of State at ODPM, stated that the Government was considering the Review's recommendations and would say more about its response to individual recommendations in due course.[11] At the time there was wide concern expressed that the Government was taking forward the main recommendations of the Review without due consideration, either of the broader implications of the changes proposed by Barker to the planning system, or of increasing building rates beyond the 200,000 homes above RPG levels proposed in the SCP.

16. There is no doubt that the Barker Review, particularly the interim report, offered a thorough analysis of many of the factors affecting housing supply and affordability. There are also some recommendations from the Review that we welcome as useful means to explore how to influence and improve housing supply; for example, the creation of a Community Infrastructure Fund, the use of fiscal measures to extract some of the windfall gain from landowners, the need to increase the supply of affordable housing and the funding of social housing. We also welcome the Review's focus on the house building industry and its performance. We do however have a number of serious concerns, not only about the implications of some of the Review's proposals, but also about how the proposals are being taken forward by Government.

Land Allocation for Development

17. The most heavily criticised of the Review's recommendations is the proposal to supplant the current planning system, which though untidy does incorporate a degree of democratic accountability, with one that is essentially driven by market considerations. Recommendation 9 of the Review suggests that local authorities, when allocating land to meet their housing targets, should over-allocate between 20-40% of land to improve responsiveness to changes in demand. This land would automatically be released for development, even if housing targets had already been met, if predefined indicators of housing market disequilibria were triggered. The Review suggested these indicators should include:

worsening market affordability for newly-forming households and or/lower quartile earners;

local house price increases relative to regional average;

an increasing premium in land prices for residential use over other uses;

employment growth significantly outstripping housing growth; and

rising numbers of housing transactions.[12]

This approach to achieving improved market affordability has raised serious concerns amongst many different organisations. Friends of the Earth told us that Barker's proposal would make land price the main material consideration in the planning process, and that this does not merely adapt the planning system, it overturns its rationale and purpose:

"If the needs of the markets, as defined by land price, are to be taken as the prime indicator of what is socially desirable then there is no logical case for planning regulation or its democratic basis"

18. The Review advances the case that the market should be one of the main drivers behind housing planning decisions. Indeed the final Report states that using price signals to trigger the release of land would help distance land availability decisions from the political process.[14] However, this would also distance such important decisions from the democratic process. The Royal Town Planning Institute averred that there was a need for planners to be more sensitive to how the market operates and how planning decisions affect it, although it cautioned against using just a single trigger for allowing increased development.[15] English Nature was very critical of Barker's basic premise that the planning system should increase the allocation of land for housing in order to create an over-supply, calling this approach simplistic:

To see the relaxation of planning controls as the only solution to house price volatility and lack of market responsiveness is in our view invalid. The planning process has a positive role to play, along with other measures, to help a poorly performing house building industry to innovate, use land efficiently, to build to higher sustainable standards and to generally achieve a much better quality

19. The Campaign to Protect Rural England (CPRE) considered the publication of the Barker Review as "threatening an unnecessary environmental disaster" and considered it presented a one-sided analysis of the role of the housing market and planning system. Whilst it welcomed some of the recommendations of the Review, it was particularly concerned about the proposed changes to the planning system. The Local Government Association (LGA) told us that it was opposed to the reduction of local authority powers in relation to planning because local authorities are ideally placed to act as co-ordinators to achieve a sustainable approach to housing.[17] The LGA also told us that it would be easy for the principles of sustainable development to be compromised if the step change in housing supply envisaged by Barker was implemented.[18]

20. The purpose of the planning system is to protect amenity and the environment in the public interest. The introduction of measures whereby any increase in house prices would automatically result in an increase in house building makes a mockery of the Government's approach to housing as set out in planning guidance. This maintains that local authorities should plan, monitor and manage housing requirements in their area. It is difficult to see how they would be able to do this if their control over the number and location of new homes is removed. The Review's proposal that a set of predetermined market indicators should be used to bring land forward automatically for housing development would be a direct attack on the principles underpinning the planning system. It would establish the principal role of planning as being simply to meet market demand, without regard to any other considerations, including democratic accountability. Such a policy approach to improving affordability would operate in a democratic vacuum, in which the market has supremacy, and would give no incentive at all to considering, for example, how to shift house building to neighbouring areas where housing might still be within affordability targets. It is imperative that any attempts to use market indicators to increase land coming forward for development should be based on more than one single threshold being reached. In addition, a suite of indicators should be developed to act as protection against undesirable development. These indicators should include measures of infrastructure ability to meet the extra demand of new development, and environmental factors such as air pollution levels and water resource availability.

21. It is a matter of great concern to us that the recommendation for the use of market indicators as triggers for development, should it be taken up, would result in significant levels of building in the South East over which local authorities would have limited control. This is particularly so as it is an area where there already are high population densities and where environmental impacts are likely to be greatest. It was disingenuous of Kate Barker to insist that there was no geographical dimension to the Review's recommendations when it is obvious to us, and to many others, that any measure that aims to build more where the housing market is stronger will inevitably result in increased building in the South East. It is important that the Government acknowledges and addresses this before taking any steps towards implementing the measures put forward by the Review.

22. The Review's recommendation for an over-allocation of a 20-40% land buffer for development, with all land having equal development status, could result in developers cherry-picking the easiest sites to develop first, as they would be able to submit applications for any part of the land identified in the plan and local authorities would not be able to refuse this. It is our view that this proposal would encourage less controlled development, which is exactly what the planning system was set up to prevent. Indeed Kate Barker acknowledged, in evidence before us, that as the result of an over-supply of land there was a risk of development that was not coherent or desirable, but she suggested that due to the costs of opening up new land, and the existing presumption for developing brownfield land first, this is unlikely to happen.She also told us that the aim of this recommendation was to prevent the "odd occasions" were a dogged approach to wanting to develop some sites first can prevent development going ahead at all.[19] This exemplifies the Review's approach to the planning system. Drastic changes are proposed, which remove democratic accountability and place excessive reliance on the market, with few safeguards against undesirable outcomes, in an attempt to solve problems which only occur on "odd occasions".

23. The incentive for house builders to landbank permissioned land could be reduced if the Review's suggestion that planning permissions lapse within three years rather than the current five were implemented. However, the Review offers the prospect of no similar disincentive to the landbanking of non-permissioned land. In fact, increasing designated development land by 20-40% to increase the supply of land would be likely to result in a reduced price for development land, which could encourage developers to increase the size of their landbanks at little or no extra cost and continue to function as they currently do. In other words the recommendation could be self-defeating and could lead to erratic development over which the local planning authorities would have no control, and would not give any certainty of achieving the aim of increasing developers' completion rates.

Environmental Implications

24. Set out within the remit of the Review was the requirement to consider the interactions of housing supply with the Government's sustainable development objectives. It was therefore surprising to find in both the Review's interim and final reports that sustainable development and the environment were barely mentioned. In her memorandum to us, Kate Barker stated that she did consider sustainable development, but that she did not consider issues such as use of resources, including energy and water, as part of her remit. None of these, nor the wider environmental implications of increasing housing supply, were mentioned in either of the Review's reports. Kate Barker told us she interpreted the reference to sustainable development in her remit in the following manner:

"Firstly, I looked at issues around land, infrastructure and external design as these were the questions which seemed to be particularly relevant to supply. I should say at the outset of this discussion that I did not see the Review's remit as extending to recommendations on the energy and water usage standards for new buildings, or the issues around the waste arising from new construction. This does not mean that I regard these issues as unimportant. Secondly, the specific recommendations were framed to be consistent with the Government's existing policies in regard to land use, and in some cases to take it further."[

25. On the issue of assessing environmental impacts, the Review stated that it was impossible to reach a conclusion regarding environmental and amenity costs of increasing housing supply as these were too regional in nature, and that without knowing the location and type of houses proposed it would be impossible to reach a conclusion about their costs and benefits.[21] That this is obviously not the case was demonstrated by the publication of the Entec Report commissioned by DEFRA, which looked at exactly these issues and which is discussed further in the next section of this Report. This failure of the Review was acknowledged in evidence to us by Elliot Morley MP, Minister of State for the Environment and Agri-Environment, who told us that in his view the Barker Review "could perhaps have given a bit more attention to the environmental and sustainable aspects".[22] Indeed, Kate Barker told us in evidence that she regretted not making clearer that increasing the rate of house building would have an impact on resource use and that the Review as a whole is less environmentally aware than she would have wished.[23] The Royal Town Planning Institute told us that she has also expressed regret at not focusing more on issues relating to infrastructure.[24] In her supplementary memorandum Kate Barker did state that the inputs of materials and energy into building homes and the waste generated should be taxed to ensure that prices reflect environmental cost externalities and to create an incentive for efficiency in their use.[25] Indeed, the Review would have been an ideal opportunity to explore the potential for internalising the costs of the environmental impacts of housing construction, and whether this entailed any potential impacts on housing supply and house-price inflation.

26. It is a matter of great regret that Kate Barker failed to take full advantage of the remit of her Review in relation to sustainable development. It is also extremely disappointing that the Review did not address how fiscal measures could be used to improve the efficiency of the housing industry and reduce its environmental impacts, as Kate Barker has since told us should be the case. This would have been entirely within her remit of considering how housing supply interacts with the Government's sustainable development objectives. An important opportunity to embed sustainable development at the heart of policy in England has been wasted. As a result of this basic flaw in the Barker Review the Government has been able to take the Review's agenda forward without having to acknowledge the serious environmental implications contained within it.

27. We urge ODPM and HM Treasury to acknowledge the shortcomings of the Barker Review and to ensure that the concerns Kate Barker has subsequently expressed regarding the environmental impacts of increasing housing supply inform the Government's approach to considering her recommendations.

THE ENTEC REPORT

28. In April 2004 Entec, an environmental and engineering consultancy, published a report, Study into the Environmental Impacts of Increasing the Supply of Housing in the UK, which had been commissioned by DEFRA's Rural and Resource Economic Division. It was commissioned as a desk study to be delivered within six weeks and the Barker Review's final report was published, although it was published after this and consequently includes a supplementary note summarising the relevant aspects of the Review's final report.[26]

29. According to DEFRA the timetable "was extremely tight" for the study. DEFRA also stated that because of this "the figures included in the report are indicative and require substantial qualification and interpretation". Therefore it "remains the view of Entec, not DEFRA".[27] According to Entec (in the introduction to its report), the time-scale "imposed limits on the depth of the technical work, which could have been carried out more robustly and with greater breadth over a longer period of time". Despite its shortfalls, the Entec Report is very useful. It gives some insight into the type and scale of environmental impacts than can be expected from building dwellings at the rates set out in the SCP and as proposed by the Barker Review.

30. The publication of the Entec Report on the environmental impacts of increasing housing supply, though belated, was welcome as a very important step in the right direction. It is, however, lamentable that a report on such a key area of policy had to be carried out in just six weeks. This suggests that DEFRA was slow to realise the potential impacts of the Barker Review.

31. The Entec study found that by far the biggest environmental impact from increasing housing supply was the significant increase in CO₂ emissions that result from their construction and use. The external costs from such emissions outweighed the costs of any other damage by a factor of ten. In addition the study found that the use of higher environmental standards in construction would significantly lower the environmental impacts of housing over 30 years. The study also found that contrary to received opinion, building at higher densities could result in higher environmental impacts. However, the report acknowledges this may not be a valid conclusion as it was not possible, due to the limited time-frame, to take the benefits of more environmentally sustainable transport associated with higher density development into account. Further work to clarify the issue should be carried out as a matter of urgency.

32. DEFRA expressed its concerns to us regarding the approach used by Entec. It highlighted that the scenario in the report that resulted in the highest environmental costs (£8.3bn over the next 30 years) used as a baseline no house building at all over that period. The implication of this is that the impact of homes being built at current completion rates, and as part of the SCP, should be assumed and therefore should not be taken into account. DEFRA indicated that the baseline for determining environmental impacts should be taken as current build rates. This approach would result in the maximum figure for costs to the environment in the Entec Report being nearly halved to £4.3 billion. It would seem that DEFRA is suggesting that it is unnecessary to determine the unarguable environmental impacts of the 140,000 new homes that are being built each year, or those proposed in the SCP, and that it is only important to determine the impact of the extra homes, up to 120,000 a year, proposed by the Barker Review. However, DEFRA in adopting this strategy has chosen to ignore the environmental impact of existing house building programmes. We note that the ODPM Select Committee in its inquiry, in April 2003, into the SCP called for an independent and comprehensive review of the environmental impact of the proposed housing development in the Growth Areas. We regret that no thorough review of this kind has yet been carried out.

33. We urge ODPM and DEFRA to ensure that any future study on the environmental impacts of increasing housing supply in England takes as its baseline no growth over the next thirty years. It is vitally important that the impacts of all homes that are to be built over this period are determined, so as better to inform the decisions on how and where they should be built, and this is the approach that ODPM and DEFRA should take. This is the only credible way of determining the overall impacts of increased house building. For the avoidance of doubt, we are not arguing for zero growth, simply for the impacts of all growth, even growth that is already expected, to be fully considered so as to be better placed within the overarching context of environmental limits and to enable proper mitigation against its environmental impacts.

34. It is therefore with concern that we see, in the final memorandum to us from ODPM, that together with DEFRA, it is commissioning joint research, a sustainability project, into "the effects of additional housing on sustainable communities". We seek reassurance from both ODPM and DEFRA that any research commissioned by departments into the environmental implications of the proposed house building shall be a continuation of the work initiated by Entec. The terms of reference for this research must be made public as soon as they have been agreed.

Taking the Review Forward

35. In evidence to us Kate Barker significantly qualified the views and recommendations set out in her Report. Not only was she much less forthright in her views when giving evidence on how to increase housing supply and improve affordability, she also made clear that there should be an assessment of the environmental implications of her proposals.[28] She also expressed significant reservations regarding the quality of available information on which housing policy decisions were being made, telling us that "careful reading of the report would suggest that the confidence based in the absolute figures is not high".[29] Indeed, the third recommendation from the Review states that "further research should be undertaken to improve the evidence base for housing policies". The present evidence base for the Government's housing policies is inadequate and it is imperative that the Government ensures that work is carried out to rectify this. We recommend that no proposals are taken forward to further increase housing supply without ensuring that there is a sufficiently strong evidence base to support them.

36. Giving evidence before us for the second time, Lord Rooker reiterated his earlier position that ODPM would not be able to pronounce on the Review's recommendations until the end of 2005, at the earliest, and that in the meantime it would not be possible to give any indications of what particular recommendations the Department would be taking forward.[30] We were told in the ODPM's supplementary memorandum that "given the large number of recommendations in the Barker report, and the differing timescales within which they need to be addressed, the Government does not intend to publish a single response". Instead, "as proposals are developed to address specific recommendations, they will be subject to consultation in the normal way".[31] However it was still possible for the document to set out the work that was being carried out to implement many of the Review's recommendations and included was a timetable for the forward programme regarding the recommendations from the Review. According to this timetable work should already be underway to develop a methodology for a national market affordability goal with the aim of consulting on a draft national affordability goal and indicative regional targets by December 2005 (Recommendation 1). The Government will also be reaching conclusions on the Review's proposal for a Planning Gain Supplement (Recommendation 26) by that date and setting up a new arrangement for offering independent advice on housing numbers to the merged Regional Planning Bodies and Regional Housing Boards (Recommendation 6). The Department for Transport has already announced the creation of a Community Infrastructure Fund (CIF) with funding until 2008 (Recommendation 22). Furthermore, in her supplementary memorandum Kate Barker told us that the Government was carrying out work and planning to consult on various areas that "cover the most significant recommendations which apply to Government".[32] We find it astounding that Lord Rooker can categorically say that it will not be possible to give a response to the Barker Review's recommendations until the end of 2005 when there is clearly already significant work going on within ODPM to take forward many of the Review's recommendations.

37. It should be entirely possible, and indeed would be desirable, for a position statement on the Review's recommendations to be published by the Government. The implication from ODPM that it is not possible to state which of the Barker Review's recommendations are being taken forward without having reached a decision on exactly how to implement those recommendation it accepts is disingenuous. Whilst there may be some awareness amongst those sectors closely involved in taking the Barker Review's recommendations forward of what Government views are there is nothing in the public domain that makes this clear. This is unacceptable. ODPM and HM Treasury should publish a substantive response to the Barker Review as a matter of urgency. This response should set out which recommendations are being taken forward, which are being considered as options and which have been discarded. It should also include details of what work is currently underway on the various proposals from the Review.

9 HM Treasury Press Release, 'Delivering stability: securing our future housing needs',17 March 2004 Back

10 HC Deb 17 March 2004 c322 Back

11 HC Deb 28 April 2004 c309-10WH Back

12 Barker Review of Housing Supply: Delivering Stability: Securing our future housing needs, Final Report, March 2004 Back

13 Ev3 Back

14 Barker Review of Housing Supply: Delivering Stability: Securing our future housing needs, Final Report, March 2004, box 2.1 Back

15 Q 544 Back

16 Ev287 Back

17 Q83 Back

18 Ev42 Back

19 Q443 Back

20 Ev123 Back