House of Commons - Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions

Select Committee on Office of the Deputy Prime Minister: Housing, Planning, Local Government and the Regions Third Report

2 Housing Supply and Household Growth

6. Over the last 15 years the annual supply of housing has declined considerably to the extent that the number of new homes has only just kept up with the increasing number of households. Between 1991 and 2001, the number of dwellings rose by about 1.53 million while the number of households increased by about 1.524 million.[2] Nationally, the excess number of homes over households has fallen from 4% in 1981 to 2.3% in 1991 to 2% in 2001, and by 2003 it had fallen to 1.7%.[3] There are wide regional variations. In the North West there is a 3.4% excess of homes over households but in the South East the excess is only 1.3%, and London has 3.5% more households than homes.[4] The projections suggest that, unless house-building rates increase, there will be significant housing shortages in the future across many parts of England.

7. During the course of this inquiry, the Government published new household projections which take account of the headship rates in the 2001 census and the latest population figures.[5] These figures suggest that the number of households is set to increase by 4.8 million, from 20.9 million in 2003 to 25.7 million in 2026, representing an expected annual increase of 209,000. This annual increase is 20,000 higher than the Government's previous projections. There is a major increase in single person households which are projected to make up 38% of all households by 2026 compared to only 27% in 2001. A quarter of the increase in single person households is in the 55-64 age group.

8. Earlier conservative estimates, before the latest household projections, suggested that the number of households would increase by about 175,000 new households per year. More than half the household increase comes from population growth due to increased longevity, accounting for an extra 45-50,000 extra households per year; changing age structure, 40,000; rising divorce and separations, 25-30,000; 40,000 from international migration; and an increase of 20,000 in the number of people living alone.[6]

9. All these recent projections are based on trends, with some of the underlying factors subject to wide annual variations. This is particularly the case with migration. The new figures suggest that net migration will make up about 1.4 million (29%) of the new households between 2003 and 2026, but in recent years there have been huge variations in the number of migrants and the size of their families. With the emphasis now being placed on matching new housing requirements with household growth as a basis for policy decisions, it is important that the variations in factors affecting household growth projections are kept under review as policy is implemented.

10. The household growth figures are based on assumptions about the composition of households. The Office of National Statistics is introducing from 2008 an integrated household survey which will bring together several existing surveys providing detailed information about housing, employment, ethnicity, education and health between censuses. It is important that information from the new integrated household survey is used to update household growth projections regularly.

11. The projected growth in the number of households varies considerably from one region to another. Overall in England, the number of households is projected to rise by 25% between 2001 and 2026, however, as the table below shows, the projected rises in the South West and East of England are 31%, while in the North East it is only 13%.

Table 1: Projected Household change 2001-2026 by region

	%
England	25
North East	13
North West	19
Yorkshire and Humber	21
East Midlands	28
West Midlands	21
South East	27
East of England	31
South West	31
London	29[7]

Data source: Analysis of ODPM Household Estimates/Projections 2003 March 2006

Housing Provision

12. The number of new homes built per year peaked in 1988 at 203,000. Since then it has declined considerably, averaging 148,000 a year between 1989 and 2005. In 2005 there was a significant increase in the number of new homes with 160,000 being built, the highest number since 1994-95. While the scale of private house-building has remained broadly constant throughout this period, the decline has been most marked in the number of affordable homes developed by local authorities and housing associations. In 1994, 32,000 affordable homes were completed: ten years later that figure had halved.

13. The number of families in temporary housing or living in overcrowded conditions has been increasing, mainly as a result of a shortage of social rented housing. House prices have risen at a faster rate than incomes, and buyers have to find far higher deposits to make mortgages affordable. Rising house prices have forced first-time buyers to delay their home purchase.

14. The Government's response to the low level of housing supply has been twofold: to seek to stimulate house-building, both market and social housing, and to seek to influence house prices. The Government's response to Kate Barker's Review of Housing Supply, published as part of its Pre-Budget Statement in December 2005, announced an objective to raise the net number of additional homes built to 200,000 homes per year by 2016 and to increase homeownership from 70% of total households to 75% by 2010.[8] To achieve this target the Government proposed a number of measures:

To reform the planning system so that more land is released in areas with greatest housing demand; and
To provide infrastructure to meet the needs of the new housing development.

15. There has been much discussion about the required scale of house-building, and various organisations have made various estimates. Shelter argues that

"an overall total of 203,000 homes are needed each year during the period 2001 to 2021 to keep pace with newly-arising household growth. This includes market, intermediate and social housing".

16. The Campaign to Protect Rural England suggests that the level of house-building required was lower, arguing that the current proposals in regional spatial strategies for about 170,000 new homes per year should not be increased. It said:

"While the planning system is capable of facilitating more housing, there are significant costs associated with overallocating land and oversupply of housing, such as blight, congestion, land being unavailable for other uses. The current annual house-building rate in England (155,000) is below the level of new homes provided for in adopted and emerging Regional Spatial Strategies (170,000)…We believe that the available evidence does not support the case for significantly increasing the scale of house-building overall, though we believe a greater proportion of homes built should be affordable".

17. The Government said that "to meet its aim to improve affordability, the new housing supply will need to increase over the next decade to 200,000 net additions per year".[9] This figure is based on the previous household growth projection of 189,000 additional households per year plus some provision for addressing the backlog in supply. It acknowledges that the impact of increasing the housing supply by some 40,000 a year will depend on the breakdown of tenure types and on the local and regional distribution of any new homes. The Minister for Housing and Planning, Yvette Cooper MP, told us that

"We do need to look in more detail at the regional breakdown also. We have said as well that we think housing pressures are no longer simply pressures faced by the South…the northern regions are seeing growth in population too and there are clearly pressures on housing faced in particular areas, in the South West and East and West Midlands too. We want to do further analysis on what the appropriate increase in housing needs to be in every region and obviously that will be part of the regional planning process as well".[10]

We consider the issues of tenure breakdown and affordability later in this report.

18. The number of households is increasing faster than current house-building levels. There are many estimates of the precise number of homes required. Several factors are contributing to household growth, including increased life expectancy, migration, both internationally and between regions, the growth in single households particularly those comprising older people over 55 and the housing market. Each of these could affect future housing demand.

19. The Government's objective to raise the net number of additional homes by 200,000 by 2016 may not be sufficient to keep pace with the latest household growth projections. We recommend that it be reviewed and regularly revisited. As part of adopting any revised target, it is important that the Government sets out in some detail what it expects to achieve in terms of tenure by promoting that level of building.

20. Many of our witnesses emphasised that the operation of the housing market is highly complex and that housing requirements vary both locally and regionally. As the social housing developer First Base pointed out, contrasting challenges in the North and South require different solutions, making any uniform national solutions inappropriate. The Housing Market Renewal (low demand) Pathfinder in Manchester and Salford pointed out that, while in parts of that conurbation there is low demand for housing, in other areas there is a shortage. They told us that

"Balancing supply with demand is not just a problem for London and the South East - it can manifest in other parts of the country, including the Manchester and Salford Pathfinder area. The issues may be different in character, but they are nevertheless real. And whilst lack of affordable housing may not (yet) be as acute a problem, the Pathfinder has adjacent areas (within both cities) where house prices are amongst the highest in the region, and slightly further afield, areas where house prices are amongst the highest in the country".[11]

21. No uniform national strategy will meet the housing requirements of every area. Different strategies are needed to reflect the needs of different areas. By making the planning system more responsive to housing demand, the Government risks undermining the regeneration of those areas with surplus housing and low demand, and increasing the building on greenfield sites.

Demand for Second Homes

22. The housing supply and demand figures do not take account of the impact of second homes. According to the Survey of English Housing, there are about 300,000 households with a second home, which is about 30% more than in 1995. The South West region makes up about 10% of all homes in England, but about 27% of all second homes are there.[12]

23. In 2004, the Government gave local authorities the power to reduce the council tax discounts on second homes to 10%. The Council of Mortgage Lenders was concerned that "much of the impact of any new build is likely to be dissipated anyway. This is because it will spur existing home-owners to use more housing services - larger homes, second homes".[13] The evidence to the Government's Rural Housing Commission has proposed that additional taxes should be imposed on second home-owners.

24. There is a danger that if there is an increase in housing supply, a significant proportion of the extra homes in some parts of the country will be taken up by second homes. We recommend that the Government considers further proposals arising from the Rural Housing Commission to discourage the purchase of second homes and to ensure that the new homes are occupied by households as their primary residence.

25. Much of our evidence highlighted the potential for the Government's plan for a major house-building programme to contribute to the improvement of urban areas. Several, however, warned that the benefits could be lost if development is too rapid. The Chartered Institute of Housing said that

"The rush to build raises concerns about the quality of property to be developed, ability to integrate the necessary infrastructure, and consideration given to future estate management…current pressures to increase supply quickly can prevent impact minimisation".[14]

The South East of England Regional Assembly warned that

"with pressure for much faster delivery it will be much harder for local authorities to plan for high quality housing within sustainable communities that successfully meets the needs of the present as well as respecting the needs of future generations. Spatial planning must balance the full range of economic, social and environmental objectives that underpin sustainable development".[15]

English Heritage said that

"the proposed development should not be seen as a threat to the historic environment. Rather it should be seen as an opportunity to realise the potential of the historic environment to create new sustainable communities and reinvigorate existing ones".[16]

26. It is important that the increased house-building programme is not rushed and that the opportunities to produce well designed new housing and to improve the environmental quality of urban areas are maximised. We recommend that the Government ensure that issues relating to the quality of development and infrastructure provision are fully addressed as part of the plans for stimulating significant growth in new house-building within the planned time-scales.

2 Households and Dwellings in 1991 and 2001, CCHPR, 2004, table 21. Back

3 Housing Supply and Household Growth, ODPM Statistics

1981 1991 2001 2003

(000s) (000s) (000s) (000s)

Dwellings 18025 19671 21207 21467

Households 17306 19213 20780 21109

Excess 719 459 427 358

%of stock 4 2.3 2 1.7