Select Committee on Environmental Audit Minutes of Evidence

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.


  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.


  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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