Examination of Witnesses (Questions 420
- 439)
WEDNESDAY 21 JULY 2004
MS KATE
BARKER
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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