Select Committee on Environmental Audit Minutes of Evidence

Examination of Witnesses (Questions 420 - 439)



  Q420  Chairman: Good morning, Ms Barker. We have read the report and we have read the newspaper headlines. You have been much in our thoughts and we are grateful to you for sparing the time to be with us.

  Ms Barker: I know you have had to rearrange some of your timings and I am very sorry. A lot of the meetings I have at the Bank at the moment have prevented me from being more co-operative.

  Q421  Chairman: Do not worry. We know that you are very busy. We have just heard, much to our surprise, that Defra was not consulted about the terms of reference of the inquiry. Were you?

  Ms Barker: No. I was asked to undertake the inquiry and given the terms of reference. I was very happy to undertake the inquiry, not least because in quite at lot of the discussions that I have had, not just in my present main job, which is on the Bank of England's Monetary Policy Committee, but quite often when you are visiting around the country you become involved in discussions about planning. One of the discussions you are often embroiled in is that housing supply is not attracting attention, particularly why are some of the regional planning targets not being met. We sometimes commented on the Committee that it would be quite a good idea if somebody looked into it. In that sense I was quite happy to take on the job on those terms, but I was not consulted on the remit.

  Q422  Chairman: So you took the remit that was handed to you and ran with it. You did not have a dialogue about the content when you saw what it was.

  Ms Barker: No, I did not have a dialogue about the content when I saw what it was. I heard the previous evidence, so perhaps I could comment on it. The remit did not exclude discussions of sustainable development. Indeed, in the remit it says that it is important to bear in mind sustainable development. The perfectly sensible question is how I decided to interpret that part of the remit. The way in which I chose to interpret it was as follows: I did not want to run over work that was being done elsewhere. You are certainly well aware—and many of these things have been referred to already this morning—of the number of other projects that were going ahead at the same time, in particular the work that Sir John Egan was carrying out with reference to sustainable communities and indeed, of course, ODPM themselves have done the most enormous amount of work on sustainable communities and on improving the way in which planning is done to meet that. I had some discussions with John Egan in the course of the review because we were both very keen not only not to tread on each other's toes but also to make sure that the recommendations we were jointly going to come up with did not conflict with each other. I do not think anything in my review goes against the principles of how you develop sustainable communities. I chose not to talk about how you develop communities because I thought that was being dealt with adequately elsewhere.

  Q423  Chairman: You also chose, when dealing with the question of sustainable development, to ignore two of the Government's four main objectives in sustainable development. You dealt with economic growth and social progress. You hardly touched at all on effective protection of the environment and the prudent use of natural resources. You said there were issues around those. You referred to environmental consequences in order to dismiss them and move on. Why did you choose to ignore half of the Government's sustainable development agenda?

  Ms Barker: I think I would take issue with the way in which you described that. Perhaps I should have enlarged on how I chose to interpret the remit. As is absolutely clear in the review, I set out a number of potential scenarios for the future rate of house building in the United Kingdom which were based on the achievements of certain economic objectives, that is true. When I said in the review that I thought the Government's decisions should be influenced by their assessment of the environmental consequences, that is what I meant. As far as my review is concerned that is addressing it. As far as the Government's decision making is concerned it certainly was not dismissing it and were Government to do so, I would be among those who would think that was wrong. It is very clear in the review that in deciding among the various scenarios set out for house building, the decision should be in light of the environmental consequences. In the previous evidence I think you put a similar question to the minister as to whether or not I ought to have gone on and done that second step myself and the truth is it could not have been done in the time. That absolutely does not mean I think somebody should have done it. I do have one regret about the review, however, and I will get this out now, which is that in the review I ought to have said more clearly, because it does not emerge very clearly, that there are some things—not about land use, which I am sure we will come back to, which do emerge clearly and demonstrate the review was quite concerned with environmental land use and I hope that is going to come up in this session. But I very much regret that I was not clearer about making the simple point that if we are going to have an increased rate of house building then the issues of energy, water usage and the use of materials in building those houses comes under much more severe scrutiny. I very much regret I did not include a paragraph to that effect. It would not, in my view, change any of the other conclusions I reached, but I regret not including that paragraph because it would have been right to do so.

  Q424  Chairman: Because by not including a paragraph or, indeed, several paragraphs which you could have included on this whole area you have made your report a lot more controversial and probably decreased its value.

  Ms Barker: I do not think I would agree with you that I decreased its value because the value of the report was in taking a look at what the long-term impacts were likely to be of continuing at our present rate of house building and what potentially the implications would be in economic terms of having different rates of house building. It also was a very valuable look, I think this has been very widely acknowledged, at how the processes of planning work, whether or not the incentives for the various players are right, whether they are right for local authorities, whether they are right for house builders, whether they are indeed right with regard to the people living in a locality. I would not agree that a failure to include that paragraph devalued all of that analysis. I agree it has made it sound less environmentally aware than I would have wished and that is why I have expressed that regret to you today.

  Q425  Chairman: It sounds environmentally naive, if I may say so, in that these are issues which matter very greatly to people. Decisions will be taken by Government which may or may not reflect your recommendations and they will have impacts on communities all over the country, particularly perhaps in the South East, but there are major implications elsewhere as well. For you to have closed out consideration of biodiversity, natural resource use, all those kinds of environmental issues I think has damaged the value of your report.

  Ms Barker: I have already said that I did not close them out. I did not consider those explicitly within the review, but I was absolutely clear that they ought to be considered in terms of decisions that were taken going ahead. I have said that I regret not putting in a more specific paragraph on energy use, but there is in the review quite a lot of discussion about land usage, not least because that seems to me very relevant in terms of the barriers of supply. These other issues around energy and water usage are, as I am sure the Committee knows, the consequences of rising populations and they raise very substantial challenges. I am saying that I wish I had given explicit recognition to that. But I do not think it undercuts the basic message of the review about the requirement, if we want to respond to people's needs, to increase the rate of house building and the need to make policy changes in order to achieve that.

  Q426  Chairman: What do you make of the Entec Report?

  Ms Barker: I would not want to comment on what they have done in terms of evaluating the environmental implications because I do not have the background and ability to make those comments and indeed there were some comments made earlier. There are a couple of points I do feel qualified to comment on that I would like to remark on. One is that the very highest environmental cost scenario has a particularly high rate of occupancy associated with the homes and, as Defra have already said, there needs to be some work done in terms of considering whether or not that is right. In terms of some of the house building numbers themselves, they seem a bit higher than I thought I was recommending. This is perhaps a way of saying that some of these implications in the highest scenario are probably overstated. On the other hand, the Entec Report did not look very clearly at transport implications and I think those would need to be examined. To some extent, of course, the transport implications will come out of decisions about location and to some extent they will come out of decisions about transport policy.

  Q427  Chairman: You have said that even if you had given greater consideration to environmental issues you would still have come out with the same recommendations and that presumably reflects the core purpose of your report, which was an economic purpose rather than a wider one. Do you accept that it would be very wrong—it is unlikely to happen—if the Government were simply to take your recommendations and proceed on the basis of those recommendations alone?

  Ms Barker: I take it you are talking about house building numbers, are you?

  Q428  Chairman: I am talking about numbers and the need to consider not just economic issues but social and environmental issues as well. Presumably you agree that these other factors which you, by your own admission, did not give enough time to should be an important factor of any eventual decisions which are taken?

  Ms Barker: Not only do I agree with that, that is what the report says. The report—and I am sure you are familiar this point—set out scenarios and I do not come down with a firm recommendation to adopt any one in particular. I am very clear in the report in deciding among those scenarios that the   Government should take account of the environment, so I completely agree with you.

  Q429  Sue Doughty: In one of your recommendations you said that research should be undertaken to improve the evidence base for housing policy. We have a query about the figures because you yourself in your report have looked at different ways of casting the figures to try and get the maximum accuracy you could. How confident are you now in the accuracy of the figures, having looked at them and looked at them again?

  Ms Barker: Could you be slightly more helpful and tell me which particular figures or are you talking about housing numbers again? Sorry to be tedious.

  Q430  Sue Doughty: Yes. It is the figures about the number of houses that are needed and also based on the population that you expect to see because it was this whole basis of calculation where you were looking at the census, and obviously we had a query about what the real number of people was, particularly in Westminster and Manchester. You needed to reduce the trend in real house prices and so there were calculations involved in that. You said that research should be undertaken to improve the evidence base for housing policies because obviously what we wanted to come out with was a reasonable reliable figure to say this is what we need to build to house people, to reduce prices and everything else. The question we have there is, given the figures that you did produce at the end of this, how confident were you, given the various bits of information you had to pull together and having said you need more research, with those figures that you have got?

  Ms Barker: Careful reading of the report would suggest that the confidence based in the absolute figures is not high. It is very clear in the report that when you are looking at what you are going to do in terms of housing in order to achieve different price trends, there are going to be quite big ranges around that. Indeed, the original research which was done for the Review by Professor Geoff Meen produced some ranges around that and it would be quite wrong to claim a greater degree of certainty than appeared in that. That is why the thrust of the report, as I also indicated in the written evidence, is not about setting hard and fast targets. It is not about saying we have to build an extra X houses. It is about trying to say to government, "If you want to achieve this kind of change in house price trends once you have taken into account environmental considerations, this is what you want to go for and that is what you should have in mind". However, it may very well be that you find that the response of the housing market, partly because the housing market is driven (as most asset markets are) to a large extent by expectations which are exceptionally difficult to model, is such that, as these are the middle of the range, and you might find after two or three years that you had pitched the numbers too high or too low and then you would want to adjust them, in a sense that is what the whole report is about. It is about having greater flexibility in terms of responding to the changes in the market and in terms of responding to the changes in the market that you perceive. It is clear in terms of the report, in terms of what I say to you today, that I am certainly not saying that if you want to achieve this trend in house prices this is exactly the number of houses you want to build and you must not deviate from it by an iota. That would not be what the report says. It is about trying to set off with these goals and then introducing an element of flexibility.

  Q431  Sue Doughty: I well understand the point you are making and it is an incredibly difficult call because of these different factors. What sort of module though would you say that there is at the moment in the estimates you have produced?

  Ms Barker: In the estimates I have produced I would have thought the margin of error around them was at least 20,000 on either side annually. I am thinking in terms of figures for England which, as you know, we discussed rather than figures for the UK. I am trying to be clear when I am talking which I am talking about at any one time.

  Q432  Sue Doughty: In your review you have taken a study of various estimates of how much the private sector needs to build in order to dampen house price inflation. These calculations again show a future need in the private sector that is lower than the number of houses you are proposing we should be building. What is the difference between meeting housing need and reducing house price inflation?

  Ms Barker: I did not catch the first part. You said that there was an estimate of housing need?

  Q433  Sue Doughty: How much the private sector needs to build in order to dampen down inflation. We have two issues. We have the house prices. How much do you need to build in order to reduce the rate of inflation? We also have the number of houses we need to build to house people and there is a difference between those two concepts.

  Ms Barker: Yes, that is right.

  Q434  Sue Doughty: What we really would like to have is your comments on this, where you see the discrepancies and just fleshing that concept out a bit.

  Ms Barker: That is a very important issue. I want to say one thing to begin with, which is that the historic rate of housing new supply we have been achieving, both in terms of the private market and the social market, on any basis, whether you are going to assess it by population or by a wish to reduce house price inflation, would not address these issues. Were we to continue with just the basic rate of house building we have had it is my view that we would have an increasing rate of house price inflation over the next 10 years, increasing pressure in areas such as homelessness, and increasing problems with affordability. The question is how far do you want to go if you want to go beyond that? What you are suggesting is that there is a lower number which I think is probably going to turn out to be around the kinds of numbers that you get out of the present regional planning guidance targets plus the sustainable communities plan and perhaps a little bit further because we need to allow for demolitions, which will probably leave us with a housing market where the price trend is much the same as it is today. If you push the numbers a little bit beyond that in order to reduce the trend in real house prices, partly because you think that is a desirable economic factor, the reason it would need to be a bit more than that is that there is almost certainly going to be a housing market which would operate with a slightly higher level of transactional vacancies. I stress the word "transactional" because I want to make it clear that this is not the same as vacancies in the low demand areas, which are very different. Indeed, if you look at other European countries, quite a lot of other European countries do have a much higher level of vacancies than we have in the UK.

  Q435  Chairman: Is there not a risk that in attempting to deal with house price inflation you could end up building more houses than people need?

  Ms Barker: There is certainly a risk of that. In some sense the point of the review is that you would want to respond very quickly to what was happening in the market. It would be very clear to you from the market. If you say you would end up building a lot more houses than people need, the idea that a lot of houses would stand empty, I suggest that there might be higher levels of transactional vacancies, but in your scenario I think you are not talking about that. You are talking about having a lot of houses standing empty for a long time. In those circumstances house prices would start to fall and your response to that would be consistent with the flavour of the review, which would be that you would say, "We really must not build any more houses". It is likely that this response would dawn on you as you went through the process. It is not likely that you would suddenly find you had a million empty homes and think, "My goodness. We should have done something about that earlier". It is a difficult concept to get across but it is about trying to make the rate of supply more responsive to what is happening in the market. Indeed, there are points in the review where I stress very clearly that you might start out with an intention to build X in an area and two years down the line what has happened in the market has suggested to you that X was too big and you should cut the target, and that would be absolutely reflected in this report. I am sometimes talked about as though I always talk about the need to increase building. The report absolutely does not do that.

  Q436  Sue Doughty: It is very interesting looking at all of this because in the end you have to jump, do you not, either saying, "We are going on prices", or, "We are going on rates or population". If you go on population rather than reducing prices, in other words, let us ignore the whole price situation and just say how many houses do we need to go on and ignore that dimension, would you come up with a different figure?

  Ms Barker: The first thing I should say is that I am rather sceptical, and I think it is clear in the review, about going on population numbers. Population numbers are not particularly certain. They are particularly uncertain when you are looking ahead and, of course, uncertain even if you are reasonably sure about how many people you think you think you are going to have in the country. You are not sure in advance about exactly where they are going to live. There is recent evidence (and I think encouraging evidence) that people are starting to not outward migrate from areas such as the north west in net terms as much as they used to a few years ago, which would mean, of course, that we would have a rather different view as to what was happening. I think there are good reasons for not depending solely on population in terms of reaching this answer. I slightly dispute what you said at the beginning that we have to decide are we just going to use population or are we going to look at prices as well? The flavour of the report is that you should do both. I am certainly not proposing that we move away from a system which in my view puts too much weight on population and too little weight on prices to a system which puts all its weight on prices and none of its weight on population. When you are tackling the issue of what do you want to achieve for an area I suspect you are always going to have to start with the population numbers as your first best guide and then on top of that I am suggesting that you monitor how you are delivering for your population by looking at price trends because you are not going to have sufficient updates in terms of population.

  Q437  Chairman: You did not take much account of the census data, did you, which actually showed that there were fewer people than we thought?

  Ms Barker: The census data that was available at the time, the interim census data, certainly suggested that there were fewer people than we first thought but, as you know, there have been subsequent updates to the census data.

  Q438  Chairman: We have found some more people.

  Ms Barker: We have apparently found quite a number more people. I included a table on the census in the review. There has been quite a lot of subsequent work done to do better comparisons between the 1991 and 2001 census. The latest outcome of that suggests that in fact the balance of dwellings and households worsened between 1991 and 2001 in England to a small extent. One of the reasons for not using census as a fundamental guide for this is that census is not really designed to address issues of housing; indeed, in some census it does not tally very well with other measures of housing that we have around. The number of second homes in the census, for example, is very much different from the number you get out of council tax. I do not know why that is; I am just observing that it is the case. The other thing about the census, although we will have more information on this in 2005 when we get the more detailed breakdown of households, is that it does not tell you what is happening in terms of concealed households. To the extent that people would like to leave home or live separately but are not able to do so because of the way in which the housing market works, the census, because of the way it divides households, is not going to address that matter. There are good reasons for not using the census as the be-all and end-all guide.

  Q439  Chairman: Just coming back to the question of over-providing in order to get prices down, I accept that it is unlikely that we will end up with loads of empty houses, but what is perhaps a greater possibility is that if the market takes a downturn we could end up with quite a lot of land being subject to planning permission effectively out of local authorities' control because it has already been conceded as development land. That could have environmental and blight consequences, could it not?

  Ms Barker: There are not very many delays between reaching the final point of getting the go-ahead on a project and building on it and this is essentially about looking ahead. It is certainly possible that you could have a situation where the failure to look ahead was such that this arose. One would hope that the reaction of the house builders to the situation that you have described is such that they would not build the houses. Within the situation you have described you presumably have downward pressures on prices. It is difficult to see that being a situation in which the builders would take the position to go ahead with the building. They are more likely to do what in these circumstances would be a sensible thing, that is, waiting and building the houses at a more auspicious time. It is also very likely, and there are plenty of instances of this, that they will go back and start the whole application again because they have decided that different kinds of houses are what is needed to meet the changes in market demand.

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