Memorandum from Kate Barker
1. I welcome the opportunity provided by
this EAC inquiry, both to reflect on the ways in which the Review
took account of the considerations of environmental sustainability,
and to look ahead to what more needs to be done by Government,
industry and others in what is, rightly, an ongoing debate.
2. Housing is a basic human need, fundamental
to our economic and social well-being. Good housing makes a vital
contribution to our quality of life and our health. Bad housing
can accentuate social exclusion, and poor outcomes for health
and education. Housing availability determines our transport needs
and often our choice of work; it affects our family structures
and friendship networks. Housing also affects our national economic
well-being: the rate of economic growth and our prosperity. Finally
it influences the distribution of resources between regions, individuals
and generations.
3. Housing development also creates many
externalities—both positive (for example, contributing to
the regeneration of an area, or providing the demand to maintain
local facilities) and negative (for example, adding to congestion,
or using up open land and natural resources). It is therefore
not surprising that debate about the scale, type and location
of new housing so often proves controversial, provoking strong
reactions from individuals and communities across the country.
4. The independent review of housing supply,
which I led, pointed out the many tensions involved. It argued
that delivering the appropriate supply of housing requires society,
national and local government, and communities to strike a balance
between the goals of:
— greater economic stability and economic
growth;
— adequate and affordable housing for
a growing population;
— meeting the aspirations of individuals
as to the amount of space, the location and nature of housing
to be provided;
— efficient allocation of resources,
in particular land; and
— environmental and amenity considerations
(Final report: paragraph 1.1).
5. The Review did not attempt a definitive
answer as to where this balance should be struck. Indeed, it would
be incorrect to expect it to do so; that decision is clearly the
responsibility of elected politicians. However, I believe that
the Review can make (and I hope already has made) a valuable contribution
to improving our understanding of the costs and benefits of a
better housing supply, as well as identifying some potential means
of addressing the main causes of housing shortages and unresponsiveness.
THE CONTEXT
FOR THE
REVIEW
6. First, however, it is important to consider
the backdrop against which this Review was commissioned and to
explore why it is that housing supply should be of such major
concern. Demand for housing in the UK continues to grow, driven
primarily by demographic trends and rising incomes. Yet in 2001
the construction of new homes in the UK fell to its lowest level
since the second world war. Over the ten years to 2002, the output
of new homes was 12.5% lower than for the previous decade.
7. The Review found considerable evidence
that a shortage of housing exists in the UK. The nature of this
shortage is complex. Simply comparing the number of households
and the number of dwellings fails to capture mismatches between
the locations of supply and demand, or between the type of housing
desired and that which is available. In addition, some existing
stock fails to meet the needs and aspirations of today's households.
Current housing output is insufficient to meet new demand—household
formation is presently estimated at 179,000 households per year
in England, compared to 137,000 completions in 2002, and 143,000
in 2003. A further consequence is seen in rising levels of homeless
people placed in temporary accommodation, up from 46,000 in 1995
to 97,290 in March 2004—60% of which include dependent children.
8. One consequence of this undersupply is
that in the UK the trend rate of real house price growth over
the last 30 years has been 2.4%, considerably higher than the
European average of 1.1%. Latest evidence suggests that the trend
rate of real UK house price growth has increased to 2.7% over
the last 20 years.
9. One major reason for this trend is the
weak response of housing supply to changes in demand. Higher demand
therefore tends to be translated into higher house prices rather
than increased output of houses. Poor supply responsiveness is
also one of the factors which has resulted in marked volatility
in UK house prices. In recent years house prices have risen steeply
in almost all parts of the UK, fuelling concerns about affordability
with consequent unwelcome effects on individuals and the economy.
While demand pressures have played a big role here, the weak supply
response has exacerbated the situation.
10. As the Interim Report argued, rising
real house prices have unwelcome and unhelpful consequences for
our economic well-being:
Lower rates of housebuilding constrain economic
growth, reducing standards of living for everyone in the UK. Reduced
housing supply damages the flexibility and performance of the
UK economy. Regional price differentials reduce labour mobility.
Restricting supply leads to a loss of economic
welfare. Constraining supply means that resources which would
have been used for housing are instead used for other, potentially
less beneficial purposes, leading to an inefficient allocation
of resources. In terms of financial flows, however, arguably the
same supply constraint encourages too much financial investment
in housing, to the detriment of investment in more productive
assets.
The housing market also contributes to macroeconomic
volatility. House price volatility feeds through into the wider
economy, as changes in house prices and housing wealth are linked
to trends in private consumption, the largest component of overall
demand. The combination of low levels of investment, high levels
of owner occupation, high house price volatility and regional
divergences together have created a more challenging environment
for the conduct of economic policy.
Higher house prices create affordability problems.
An increasing number of new households, often young families,
cannot afford to buy homes. It is estimated that, in 2002, only
37% of new households could afford to buy a property, compared
to 46% in the late 1980s. Declining affordability has wider consequences,
restricting labour market flexibility, hampering the delivery
of public services and leading to longer commuting times to the
detriment of individuals' quality of life and the environment.
An undersupply of houses has distributional consequences
that may be regarded as unwelcome. Higher house prices will result
in a transfer of resources from those outside the housing market
and those entering the housing market to existing homeowners,
landowners and, to some extent, housebuilders. The low rate of
housebuilding in the UK over the last few years and the trend
rate of house price increases suggests that the rate of home ownership
(approximately 70% at present) may only increase to around 72%
in 2016. I am not necessarily advocating that more home-ownership
is appropriate, but this situation will arise not because households
choose to rent, but because they are forced to rent. And the distribution
of wealth between homeowners and non-homeowners will become increasingly
unequal.
11. In the long-term, the shortage of housing
and related rising prices has a negative effect on all of us.
In any time period, however, the most significant adverse effect
of too few homes is on those who end up inadequately housed or
homeless.
Estimating housing need
12. Having considered these very significant
costs of housing undersupply, the Review set out three potential
scenarios for England's housing requirements in the future, two
of which would require policy changes beyond those already being
implemented by Government. For private housing, these may well
be over-estimates, as greater supply would affect expectations
and change the response of prices to additions to the housing
stock. Taking as the baseline the level of private sector build
in 2002-03 (140,000 gross starts and 125,000 gross completions)
it is estimated that:
— Reducing the price trend in real
house prices to 1.8% would require an additional 70,000 private
sector homes per annum; and
— More ambitiously, reducing the trend
in real house prices to 1.1% would require an additional 120,000
private sector homes per annum.
13. The Review did not recommend either
of these scenarios be enshrined as a firm target. It is my personal
view that new private housing supply will need to exceed the recent
annual rate by a considerable margin in order to prevent further
deterioration in affordability. However, the Review talks about
flexibility in setting targets, and responding to market developments.
It would be inconsistent with the whole thrust of the proposals
to have a long-term fixed target for annual new housebuilding.
The scenarios were provided to give Government the best available
view on one part of the trade-off, that between new supply and
future real house price trends. The other side, as the Review
states on many occasions, is for Government to balance the economic
and social considerations against the environmental implications
of adopting different ambitions for the real house price trend.
I hope that the range of evidence which has been presented to
this Committee will help to inform that decision.
14. Separately an increase in supply of
social housing of 17,000 homes each year is required to meet newly
arising need. Making inroads into the backlog of the most needy,
coupled with the Report's range of future price scenarios, mean
that up to 23,000 additional social homes per annum would be required.
These scenarios imply additional investment, building up to £1.2
(and £1.6 billion respectively), not all of which should
necessarily come from Government. The 2004 Spending Review announcement
of a 50% increase in new housebuilding—an extra 10,000 homes
per year—represents a significant contribution towards this
goal.
The approach to environmental considerations
15. Creating a more flexible and sustainable
housing market is a considerable challenge that will require concerted
action by all players: Government at national, regional and local
level, the building industry, and those engaged in social housing
provision.
16. Government has already taken important
steps to integrate its approach to economic, social and environmental
issues through the Sustainable Communities Plan, proposals for
the four new growth areas and recent reforms to the planning framework
and the establishment of the Sustainable Buildings Task Group.
My Review makes thirty-six recommendations for additional reforms.
The remainder of this memorandum focuses on those recommendations
in three key areas for sustainable development: the planning system;
infrastructure and design; and the housebuilding industry.
17. I interpreted the reference, in the
remit for the Review, to sustainable development 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.
18. But the key point is that a rising population
needs to be adequately housed in order to avoid severe economic
and social costs. There may also be unintended environmental costs
from housing supply constraint, for example, lengthy commuting.
Rising population clearly leads to big challenges in terms of
meeting environmental targets; in this respect it is important
to distinguish the costs of the higher population per se (likely
to include pressure on water supplies and congestion) and the
additional costs arising from deciding to allow housing supply
to respond to these demand pressures.
(i) Sustainable planning
19. There are real and important concerns
about the associated environmental costs of increased development.
As a nation we have to decide how to balance the benefits of meeting
rising demand for housing against these costs.
20. A sensible debate on this issue will
not be assisted by the overuse of emotive phrases such as "concreting
over the South East". To illustrate, suppose that Government
chose to allow an additional 120,000 houses per annum to be built
over and above existing plans and that all this building were
concentrated in the South East (an unlikely and undesirable event).
Over the next 10 years, this would mean using an additional 0.75%
of the total land area of the South East. This is not the picture
some have sought to paint of the implications of increasing supply,
and certainly would enable sensitive landscapes to continue to
be protected. The real issue raised would probably in fact be
about water supply. It is for this reason that the Review urges
clear integration of regional economic and housing strategies,
with early involvement of the Environment Agency.
21. At the present time in England 36% of
land is protected from development. In the South East this figure
is even higher with nearly 60% of land protected through greenbelt
status, designation as an area of outstanding natural beauty or
other designated conservation or protected areas. Across England,
7.1% of land is urbanised. In the South East (excluding London)
7.1% of land is urbanised compared to 9.9% in the North West.
22. The Review makes a number of recommendations
to improve the way the planning system assesses the case for development.
And it is important to remember that the planning system and locally
accountable bodies do and will continue to take these decisions.
Underpinning these recommendations is the principle that planning
should take greater account of market information, in order to
reflect better the demand for housing and its affordability, as
well as the values that people attach to different types of land
use.
23. This does not mean that prices would
become the only factor in any decision. Paragraph 2.9 in the final
report argues:
"Prices provide a wealth of information
about the nature of demand. For example, prices differentials
indicate consumer preferences with regard to housing location
and housing attributes. This does not imply these preferences
should always be satisfied. Prices are not a substitute for planning.
However, using them as part of the decision process can lend itself
to better decision making, not just in high demand areas, but
also in tackling problems associated with low demand and abandonment."
24. Assessing the right level of housing
supply is ultimately a matter for central, regional and local
government. One way to express this choice is through establishing
a goal for market affordability, reflected through targets at
the regional level. This would aim to improve access to market
housing over the housing market cycle.
25. Any increase in housebuilding is likely
to mean using more undeveloped land, alongside making better use
of previously developed land and existing buildings. But it certainly
does not mean the removal of all restraints on land use. On the
contrary the Review advocates more attention be given to ensuring
the most valuable land is preserved.
26. For example, the Review highlighted
academic research that sought to quantify the values that people
attach to different types of land use. This suggested that development
on accessible open land, such as urban parks and land with rights
of access, would impose a considerable cost to society. Conversely,
building on intensively farmed land would result in far smaller
costs. These alternative land values should be part of the framework
(though certainly not the only consideration, as there will be
other externalities) within which the costs and benefits of housebuilding
are addressed.
27. Land may also be used more efficiently
through building at higher densities. Higher densities reduce
land take and make services that are important for sustainable
communities, such as transport, more viable. However, there is
a tension here as we know that as incomes continue to increase
it is likely that demand for space will also increase. So the
costs and benefits of this trade-off need to be considered carefully
in different locations.
28. Brownfield land should play a major
role in any expansion of supply. It is typically more difficult
and costly to assemble and build on than greenfield land but it
often offers greater positive benefits, for example through urban
regeneration. Information from the National Land Use Database
suggests that there is currently more than 60,000 hectares of
brownfield land available in England. However, 70% of this land
is currently unsuitable for development.
29. To ensure that a high proportion of
development takes place on brownfield land the Government has
introduced a requirement that 60% of new housing should be on
brownfield land. This target is currently being exceeded, but
in order to ensure that brownfield land continues to be developed
as the remaining sites become more difficult, the Review recommended
additional incentives be introduced.
30. To help incentivise brownfield development
I recommended that Government should consider extending the contaminated
land tax credit and grant scheme to land that had lain derelict
for a certain period of time. Budget 2004 announced that the Government
aims to introduce a Derelict Land Tax credit scheme, subject to
continued evaluation of the existing Contaminated Land Tax Credit
Scheme.
31. The proposed Planning-gain Supplement
(which aims to be a simpler and more transparent way of taxing
the uplift in land values which accompanies planning permission
than a further extension of Section 106 agreements) is intended
to be charged at a lower rate on brownfield developments.
32. The Review also paid tribute to the
important work carried out by English Partnerships[1]
in identifying brownfield sites suitable for development and in
working with public bodies, such as local authorities and RDAs,
in assembling and masterplanning sites, remediating land, and
then servicing it by putting in place the necessary infrastructure.
33. However, we should be careful about
putting too much weight on the brownfield/greenfield distinction
to drive all policy. Not all brownfield land is of low environmental
value, nor is development necessarily the right answer for every
piece of derelict land. Equally, not all greenfield land is of
equally high value. It is for this reason that local input into
allocating sites for different purposes, with account taken of
the community value placed on different sites, should continue
to play a highly significant role.
(ii) Sustainable infrastructure and design
34. Building sustainable housing requires
effective partnership between a variety of public bodies and service
providers. Agencies involved in infrastructure provision cover
both public and private sectors, ranging from those dealing with
physical infrastructure (the Highways Agency, Environment Agency
and utilities companies), to those agencies that provide equally
important social infrastructure (local education authorities,
primary care trusts and police authorities).
35. The Review made a number of practical
recommendations for ways in which both public service providers
and private sector infrastructure suppliers could take better
account of planned housing and population growth in making spatial
resource allocations, in particular with regard to local authority
finance. In addition, at the regional level stress was laid on
ensuring that all relevant parties in strategic local and regional
planning are involved in the debate about the location of development
from the outset, to ensure full account is taken of major social
and environmental impacts.[2]
36. Greater co-ordination and partnership
between public and private sector bodies will facilitate sustainable
development more effectively. However, some developments, such
as those on large strategic sites with major infrastructure needs,
may require additional forms of government intervention if development
is to be brought forward. To help plug these gaps the Review recommended
a Community Infrastructure Fund to help bring forward otherwise
unviable development. The recent Spending Review announcement
of a new £150 million fund by 2007-08 is extremely welcome.
Better designed communities
37. In addition to adequate infrastructure,
sustainable communities need to be well designed. The emergence
of urban design coding offers an attractive mechanism for potentially
improving the quality and acceptability of development, addressing
some of the legitimate concerns of those in the existing community.
Design codes have already been used successfully in the US, Australia
and parts of Europe and are beginning to be used in the UK. The
Review recommended that ODPM encourage planning authorities and
developers to use coding to improve the quality of design in new
communities.
(iii) A sustainable housebuilding industry
38. As well as contemplating the potential
environmental costs of new housebuilding, it is important to note
that the Review faced the suppliers of new housebuilding with
a number of challenges.
39. In the past, considerations of environmental
sustainability, design and innovation and the quality of customer
service have been secondary to the industry's need to secure developable
land, and the related planning permissions. With house prices
predominantly set by the price of land there are limited incentives
for builders to compete on design quality, environmental friendliness
and customer satisfaction. Only at higher building rates will
these issues start to impact. The poor level of performance by
the industry is manifest in the following indicators:
— Only 46% of customers surveyed in
2003 would recommend their housebuilder, declining from an already
disappointing 52% in 2000.
— Modern methods of construction are
not well established in England where housebuilding techniques
are very labour intensive—around 50% more than Denmark and
25% more than Scotland. Labour intensity has not changed significantly
in England over the last 25 years.
— The housebuilding sector suffers
from continuing significant skills shortages, yet international
comparisons of apprenticeships within key trades show that Germany
trains nearly three times as many apprentices per hundred workers
as the UK, while the Netherlands trains twice as many.
40. The Review set out some challenging
targets for the industry to improve its performance significantly
in the next three years, with the prospect of a wide-ranging OFT
review of whether the market for new housing is working well for
consumers should little progress be made.
41. These added to the issues raised for
the industry by the important work of the Egan Review on Skills
for Sustainable Communities and the Sustainable Buildings Task
Group. Taken together, I believe that Government has signalled
real determination to improve the performance of the housebuilding
sector. There are signs that the industry recognises its weaknesses
and I believe that many companies are starting to tackle them.
This is an area where Government will need to agree some milestones,
and then monitor progress carefully.
CONCLUSION
42. The issues raised by this debate are
not easy ones, and the implications will inevitably be controversial.
But the key issue is that at present the housing market does not
deliver for many vulnerable households, nor, in many regions and
"hot spots" for those on modest incomes. There are real
social and economic costs, ranging from the health and education
issues linked to inadequate social housing, to increased social
division, declining standards of public sector delivery in many
areas, and the pressures on young couples hoping to move out from
parental homes to start their own families. Government has to
tackle the difficult issue of how to ensure the inevitable pressures
from rising population can be met without jeopardising environmental
goals. This discussion should proceed on the basis of that a failure
to address this issue, either by dismissing the case for greater
new housing supply or by ignoring the environmental implications,
would be to the detriment of present and future generations.
43. In the coming months further work will
be required to ensure that public policy fully reflects the wider
social, environmental and economic considerations at stake. I
am aware that much of the work is already underway through a range
of government initiatives, welcome the contribution to the ongoing
debate that the EAC is making through its current inquiry and
am grateful for the opportunity provided to reiterate some of
the findings of the Review.
July 2004
1 English Partnerships is the Government's regeneration
agency for England. Broadly similar roles are played by the Welsh
Development Agency, Scottish Enterprise and Communities Scotland
in supporting the work of the Welsh Assembly and Scottish Executive
respectively. Back
2
See Recommendations 19 & 20. Back
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