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 Written Evidence

Memorandum by Alan Wenban-Smith, Urban and Regional Policy[13] (AH 13)

EXECUTIVE SUMMARY

The Government has a longstanding aim that all households should have access to decent housing. The main thrust of its response to the increasing problem of affordability of housing has been to propose major increases in the supply of new housing, mainly for sale. The "Sustainable Communities Action Plan" (2003) proposed an additional 200,000 houses over 15 years (or 13,000 extra a year) in four Growth Areas in and near the South East. The Barker Review (2005) suggests however that around 10 times this increase would be required to bring house price inflation in the UK into line with other major European countries. While a full official response is still awaited, the Government has broadly accepted Barker's findings, and ODPM Ministers are already urging local authorities to release much more land for housing.

However, only 10% of housing transactions involve new housing, the vast majority of households (especially the poorest) meeting their needs through the turnover of the existing stock. The heavy emphasis of policy on new build is likely to be counterproductive because:

— it will undermine urban areas, particularly entry point housing for the poorest households;

— the impetus given to urban sprawl will increase social polarisation and car-dependency; and

— demand-led growth in housing pressure regions will deepen already damaging economic disparities.

Lower house price inflation and a better match between supply and demand are both desirable aims, but there is no "quick fix". The alternative approach proposed here comprises long-term measures to tackle the underlying causes—urban decay and uneven regional growth—with shorter-term measures to alleviate the worst current problems, helping the most disadvantaged households directly rather than relying on "trickle down". Both mean giving greater attention to demand-side factors, and (on the supply-side) to the housing that we already have. There are implications for more joined up and devolved patterns of governance.

1. STANDPOINT AND SCOPE OF THIS SUBMISSION

Standpoint

1.1 I have worked for major urban authorities (Newcastle, Tyne and Wear and Birmingham), with senior responsibilities for planning, housing, transport and regional collaboration. My consultancy work over the last 10 years has been across a similarly broad range. [14]A continuing issue over the whole of this time has been the "housing numbers game"—the process by which governments have sought to manage housebuilding rates.

1.2 In the 1980s the then Government sought to raise private housebuilding rates by requiring the planning system to provide more land, particularly in places where builders want to build[15]—essentially the same conclusion put forward by the Barker Report. What happened as a result was extensive releases of greenfield sites, but the overall output of housing did not increase, as shown by Chart A1 from the Barker Report.

1.3 In fact this period marks a watershed, since when new housing output has remained at around half the levels previously achieved (the Chart below illustrates the point graphically)[16]. Just as importantly, the decline in total output was accompanied by a change in its location. Private housebuilders continued to focus upon greenfield development, while construction of social housing (much of which had been on urban and brownfield land) came almost to a halt, [17]and housing improvement programmes were curtailed for many years.

1.4 Combined with the impact of restructuring on urban economies and decline in urban public transport and other services, these changes in the locus of housing investment undoubtedly contributed to the acceleration of social polarisation, urban decline and increasing car-dependency, with all that entails. No doubt these were "unintended side-effects", but most of my professional career seems to have been spent dealing with the consequences for our major cities of these housing and land policies. Serious social, economic and environmental damage was done, and we should take great care that these mistakes are not repeated.

Scope and structure

1.5 The submission focuses primarily on the last two issues in the terms of reference of the Inquiry:

(a) "The scale of housing development required to to influence house prices and the impact of promoting such a programme" with particular reference to "infrastructure provision."

(b) "Regional disparities in the supply and demand for housing and how they might be tackled."

1.6 Other issues also considered are "the scale of the Government's plans", "the relative importance of subsidised and private housing", and "how the planning system should respond".

1.7 The structure of the paper is as follows:

(a) Section 2 places Barker's findings in the context of the Government's current policies;

(b) Section 3 presents a critique of the Barker Report and emerging policies based on it;

2. THE BARKER REPORT AND CURRENT GOVERNMENT POLICY

2. Barker's proposals

2.1 The terms of reference for Barker were (in brief) to conduct a review of issues affecting supply of housing in the UK, with particular reference to the housebuilding industry, the planning system and sustainable development objectives—and to identify options (including the use of fiscal instruments) for Government action.

2.2 The emphasis on building and planning presupposes that the key to affordability is greater output of new housing, and this was indeed the Review's focus. Table 1.1 from the Barker Report is reproduced below, because it encapsulates the report's key findings. Against a 2002-03 baseline of 140,000 starts and 125,000 completions, two alternative levels of additional output in England were identified:

(a) an additional 70,000 new homes for sale would reduce real price inflation to 1.8% per annum;

Table 1.1

HOUSING REQUIREMENTS IN ENGLAND


Scenario	Real price trend	Additional private sector houses required per annum	Average No of newly formed households priced into the market per annum (2002 baseline)		Additional social sector houses required to 2011 per annum
			2011	2021

Government plans	2.4%	20,000	-5,000	-7,000	n/a
Reducing the long term trend	1.8%	70,000	nil	5,000	17,000
Improving the housing market	1.1%	120,000	5,000	15,000	21,000

Source: Barker Review

2.3 It can be seen that even a huge increase in output of housing for sale would have only a minimal effect on affordability. The table shows that the "trickle down" of households "priced into the market" reduces social housing needs by 5,000 per annum on the lower of the two targets above (and then only after five years of increased output). The Review therefore proposed a major increase in social housing.—between 17,000 and 21,000 a year extra non-market homes would be needed (on a baseline of 21,000 in 2002-03). The overall requirement would thus be an increase of 87-141,000 in the output of new houses in England (ie increases of 62-100%).

2.4 To bring about output increases on this scale, much more land should be allocated for housing, increasing choice and competition. The planning system should be reformed to give greater weight to market information and market preferences. An independent Regional Planning Executive should set targets for housing provision and coordinate key players' actions, while at local level, processes should be streamlined. Local authorities should have a stronger role (with English Partnerships) in assembling and servicing land, Planning Obligations should be reformed to give developers greater certainty, and infrastructure providers should be drawn more into the strategic planning process.

2.5 Relative to this, little was proposed in the way of fiscal measures: local authorities would be incentivised to favour development by keeping more of the additional rate income, and there would be a windfall tax on gains to landowners from grant of planning permission.

2.6 The issue of sustainability was essentially remitted to Government: the Review refers to the need for the policy response to balance a wider set of social, environmental and economic criteria. This will be a crucial question for this Committee and the Government to consider.

Current Government policy

2.7 The most recent, and broadest, statement on housing is a joint paper issued by HMT and ODPM in July 2005. [19]This accepts Barker's "headline conclusion"—that there is a need to build more houses "over time", the main reasons being:

(a) to reduce rigidities in labour markets, so that workers can go to where job growth is fastest;

(b) to reduce social and intergenerational inequities between those who benefit from rising house prices and those who do not;

2.8 A full response is promised by the end of 2005, though ODPM has nevertheless signalled some significant policy changes in a Consultation Paper[20] published simultaneously with the joint overview. This will lead in due course to a revised Planning Policy Statement on Housing (PPS3). Key components signalled include:

(a) More market responsiveness in the housing land provision made in development plans.

(b) Incorporation of affordability criteria into housing land release mechanisms.

(d) Merging regional Housing Boards and Planning Bodies.

(e) Setting up a national advice unit to strengthen the demographic and economic evidence base for housing numbers in regional strategies.

2.9 However, the Policy Overview paper also identifies some important unresolved issues and uncertainties:

(a) Because new housing adds less than 1% a year to housing stock, housing supply is necessarily unresponsive to demand. Any price benefits from increases in new build will be long-term.

(b) There are major infrastructure costs associated with large scale new housing provision—both to enable development (eg roads, water supply, drainage, etc) and to meet the needs of people living in new locations (eg schools, healthcare, public transport, etc).

(c) Very large increases in new house building may be difficult to reconcile with the principles of sustainable development. Recent progress in achieving higher densities and more re-use of brownfield land may be incompatible with market preferences, and resulting dispersion could well lead to greater car-dependency and greater impact on climate change.

2.10 In my view, these reservations are in fact incapable of resolution, and are of such force as to require a radically different approach to the problem of affordable housing.

3. CRITICISMS OF EMERGING POLICY

Not enough weight is given to the role of existing housing

3.1 It is accepted that new building can only add around 1% per annum to the stock. Since about 10% of households move each year, it follows that existing housing stock forms around 90% of the market. [21]In terms of meeting households' needs for homes, existing stock is 10 times as important to market supply as new housing. What happens to existing housing is therefore critical.

3.2 In this context the emergence of "low demand" in some older urban areas and former mining towns represents a loss of effective supply. The flight of the better-off from such areas to suburbs and "countryside" results in an increasing concentration in less attractive areas of people lacking the resources to maintain and improve housing. This in turn gives a further twist to a vicious cycle of decline which can affect whole neighbourhoods.

3.3 It is the poorest households that suffer most if the quality of existing housing declines, particularly if the decline is serious enough to lead to decay and demolition. Few, if any, of the most marginal households will gain access to new housing, however many are built. Research on low demand areas shows that any "trickle down" of benefit from increased new housing supply runs out well above entry-level housing, while large amounts of competing new housing will tend to attract the more energetic and aspirational away from older urban areas. [22]

3.4 The "Sustainable Communities Action Plan" (SCAP) devotes considerable space to "market renewal pathfinders", and this is good to see. However, though between the same covers as the SE Growth Areas their equal (or greater) importance to meeting housing needs is not drawn out. [23]The Pathfinders have much less money than the Growth Areas (£500 million out of the £22 billion in the SCAP), even though the amount of housing that they could add to the effective stock is potentially much greater. The real contribution that urban regeneration can make depends of course on action being extended from the intial Pathfinders.

Not enough weight is given to regional policy

3.5 There has been a shift over many decades in the balance of the population of the UK between North and South, though relatively little is direct migration (14% is a recent estimate). The continuation of this trend is embodied in the population and household projections which form the baseline for RPG calculations. This shift is substantial: if household growth was evenly distributed the projected number of households to be accommodated in RPG for the SE and London by 2016 would have been reduced by about 270,000 (see Appendix Table 1).

3.6 The main cause of the shift is economic: the Northern regions have for a long time been less prosperous. Moreover, interegional differentials have widened over the last 10 years, as shown by the Table below. [24]There is a clear correlation between position in this league table and the rate of change in GDP per head: the best-placed regions are accelerating away from the worst-placed. It is also notable that (apart from Scotland) position in the table is strongly correlated with peripherality relative to the South East core.

Table 1

REGIONAL WORKPLACE-BASED GVA PER HEAD (UK=100)


	1991 Rank	Index 1991	2001	% point change 1991-2001	2001 Rank	Rank change 1991-2001

London	1	149.7	154.2	4.5	1	0
South East	2	101.8	110.1	8.3	2	0
East	4	96.3	96.5	0.2	3	1
Scotland	3	99.5	94.7	-4.8	4	-1
East Midlands	5	94.9	91.9	-3.0	5	0
West Midlands	7	92.0	90.4	-1.6	6	1
North West	8	90.8	89.8	-1.0	7	1
South West	6	92.9	89.3	-3.6	8	-2
Yorks & Humber	9	90.4	86.4	-4.0	9	0
Wales	11	83.3	78.9	-4.4	10	1
Northern Ireland	12	76.4	78.4	2.0	11	1
North East	10	84.5	76.4	-8.1	12	-2

Notes

1. Estimates of workplace based GVA allocate incomes to the region in which commuters work. The data are consistent with the headline workplace based series published in August 2003.

2. The per head series in these data for 2001 are calculated using updated population estimates

3. Figures for 1997 onwards are provisional.

Source: Office for National Statistics

3.7 The explicit presumption of the Review is that regional mismatches between houses and jobs should be tackled mainly or exclusively by adjusting the supply of housing, rather than by addressing the demand side issues that arise from these striking regional economic disparities. This runs directly counter to the Government's long term target of reducing regional disparities.[25]

3.8 The ruling model of regional policy has been confirmed to this Committee by the Deputy Prime Minister himsel: [26]if the South East is the preferred location for inward investment, the Government would support it by any available means, including housing supply. This approach is confirmed by the existence of Regional Development Agencies (RDAs) for all nine English regions, all with essentially the same brief—to maximise growth in their area—and similar powers and resources. There does not appear to be any national programme with the purpose of reducing regional disparities. Even if there were, the resources allocated to RDAs (of the order of 1-2% of regional GDP) would be completely inadequate to bring this about, even if exceptionally well-directed.

3.9 Of course, inward investment, though economically significant for innovation, forms only a small fraction of business location decisions. However, the implication of present policy is that the past and present pattern of locational preferences of all businesses will be reinforced, without discrimination. If so, the Barker formula of providing of housing to meet the demands of the labour market in the favoured regions becomes a treadmill. The more successful it is in keeping house prices down, the more people and businesses will choose to locate there. Under Barker the "drift to the South" would become a flood.

The costs of not reducing regional disparities

3.10 While ascribing economic costs to failure to provide housing for the pattern of labour demand arising from past economic trends, Barker does not consider the economic costs of continuing the economic disparity that drives this pattern. These costs have been very clearly expressed by the Government itself:

"Wide variations in levels of economic activity—reflected in wage pressures, levels of unemployment and movements in house prices—make the task of providing a stable macroeconomic climate more difficult. In particular, setting a national interest rate which suits each region is more difficult when the regions themselves are widely divergent. The risk is lower overall growth and employment rates for the country as a whole".

3.11 These economic costs are additional to the direct Exchequer costs of locating additional housing in response to trend patterns of labour demand. The principal components are infrastructure (notably transport), services (especially education and health) and subsidised housing. The Sustainable Communities Plan refers to £22 billion of expenditure over the first three years, but most of the extra money (c £5 billion) is for additional social housing in the SE Growth Areas. Although the numbers are large, this is only a small part of the Exchequer cost of the Growth Areas, and for only a small period of its programme.

3.12 The Barker proposals would multiply this by a factor of 10. It is clear that the rapid growth of the South East could suck in public resources to an extent that will limit the scope for public investment in regeneration of other regions, becoming a factor driving further imbalance. HMT has recently started setting regional resource guidelines for transport, housing and economic development, in an attempt to overcome the bidding culture and inject more realism into regional strategies. The SE Growth Areas are already putting these guidelines under severe strain. It is clear that the larger demands posed by Barker will make matters worse.[28] Thus, either other regions will be stripped of investment, or the housing growth required by Barker will go ahead without the necessary infrastructure.

3.13 Finally, over-concentration of economic and population growth in the South presents a direct risk to its own continuing prosperity. Competitive advantage in an increasingly knowledge-based economy depends upon being able to attract and retain talented people—who have a global market for their services. The quality of life that a region can offer is crucial in this respect, and as well as economic inducements includes a wide range of social and environmental factors. Pressures of population and movement already present serious problems to countryside and tranquility in the South,[29] and these problems are set to get much worse: the SE goose may lay golden eggs, but (like other geese) that is not all.

Urban regeneration and land for new housing

3.14 Barker ascribes much of the lack of responsiveness of housebuilders to risk-minimising and profit-maximising behaviour in the face of difficulties and uncertainties of land supply resulting from the planning system. It needs to be recognised, however, that some of these "difficulties and uncertainties" are the direct and predictable consequence of important policies of the current Government—such as the focus on urban renaissance and on brownfield development. It also should be borne in mind that while the reasons for public resistance to excessive greenfield development may include "nimbyism", this is far from being a complete explanation.

3.15 As the Review recognises, the fact that there is a tension with housing market forces does not in itself invalidate these policies. The Review analysis suggests that to stimulate the market to increase output sufficiently to reduce price volatility and inflation by releasing additional land would require heroic quantities of greenfield land. This is because current plans already allow for high levels of brownfield use, so if more land is to be provided it will all be greenfield.

3.16 When the present Government was elected in 1997, it was alive to these issues. The revised Planning Policy Guidance Note on Housing (PPG3, 2000), recognised the need to keep a tight rein on housing land releases, particularly greenfield, if urban regeneration was to occur. If Barker's recommendations are accepted, this brief interval of housing land policy predicated on urban regeneration will come to an end very shortly. There is no real reason to suppose that this policy reversal will be attended with better success than the ill-fated experiment of the 1980s and early 1990s.

4. AN ALTERNATIVE APPROACH

The source of the problem

4.1 The need to achieve lower house price inflation and a better match between housing needs and supply is clear. However, for all the reasons given in the preceding section, this does not mean that the answer lies primarily in making the output of new housing more responsive to current patterns of demand. In my view the major reason for the crisis is not on the supply side (the lack of new housing) but on the demand side (the collapse of the attractiveness of so much of our existing housing). The two key factors here are

(a) the widening economic gap between different parts of the country; and

(b) the flight of the better-off from some older urban areas to suburbs and "countryside".

4.2 The result is an increasing concentration in less attractive areas of people lacking the resources to maintain and improve housing. This in turn gives a further twist to the vicious cycle of decline. Where both factors are strong—in parts of the North, North West and Yorkshire—"low demand areas" are now a major phenomenon. They are also emerging on a smaller scale even in parts of London and the South East. These houses are being removed from the effective supply (homes that people actually want to live in), raising prices for the rest. And these price rises are further fuelled by the housing finance system and the lack of an attractive social housing alternative.

House prices and values

4.3 Housing meets the basic need for shelter, but also satisfies other, more optional requirements (such as internal and external space, convenient location, privacy, status and social and environmental milieu. Because of this, the same house is worth very different amounts according to its location, and a large part of its value is tied up in its setting. Components of this contextual value include:

— The economic success of the subregion—the range and quality of jobs within reach;

— The environmental quality of the locality, natural and man-made;

— The quality and stability of the social fabric of the neighbourhood;

— The availability and quality of infrastructure, such as roads, railways, gas, water, drainage, electricity and telecoms;

— The availability and quality of services (public and private), such as education, health, entertainment, shops and recreation.

4.4 Some aspects of this value attach to the regional level (eg economic opportunity) while others attach to subregions (eg infrastructure and some services) or to more local levels (eg neighbourhood character and local services). Existing houses benefit (or suffer) from this contextual value, which also sets the price at which similar new houses can be sold in the same area. Contextual value is not created by any individual builder or householder, but is the product of collective actions (public and private) over the longer term. Part of this value may be due to shortage of supply, but high house prices are also common in regions which also have substantial crude surpluses and areas of endemic low demand.[30]

4.5 Where a large proportion of the value of a commodity arises separately from the process of producing it, it is unlikely that market mechanisms will be an efficient means of allocating resources to its production. Quite apart from the more imponderable qualities of environmental character and social fabric, a major part of the value of housing is the result of public expenditure on infrastructure (eg transport, water and drainage) and services (eg health and education). By the same token, large scale additions to the housing stock of a region or locality can have major implications for expenditure on these items.[31]

An alternative approach

4.6 In the light of the above, a sustainable, long-term approach will need to encompass the following elements, mainly on the demand-side:

(c) The way in which transport infrastructure and services are provided and paid for has a major influence on the cohesion of urban areas and the impact of urban influences on the countryside. Price signals and investment regimes at present perversely incentivise urban dispersion and concentration of economic activity in the South. The DfT's recent acceptance of the need for road user charging has far-reaching, and potentially positive implications, which need to be better integrated with spatial planning. This provides a way forward for meeting the transport needs of important new investment in the region while sending a clear signal about external costs. Over time companies which do not need the special advantages of a SE location would have a proper business case to re-locate elsewhere: this is much to be preferred over trying to "direct" industry to particular locations (though as Sir Michael Lyons has pointed out there is no reason why government should not be directed).

(e) We believe that to achieve more joined-up decision-making across the wide range of policies and programmes relevant to housing provision will require devolution of power and responsibility. The Government's tentative steps towards "localisation" need to be accompanied by a drive towards a stronger regional and subregional focus. Government Offices, Regional Development Agencies and Regional Assemblies are parts of this, but need to be accompanied by a clearer central policy for the regions.

4.7 The Government's response needs to distinguish two types of measure:

(a) Measures to address the larger, longer-term issues such as regional disparity and urban regeneration. These will make the greatest contribution to matching housing needs and supply, but will take time to start to deliver on the ground (and should therefore be started as soon as possible);

(b) Measures to address immediate issues such as the shortage of affordable housing in the South, the spread of "low demand" housing in the North and the constraints on delivery of more brownfield urban housing sites. Though not by themselves a long-term solution, these measures can ameliorate the problem in the short and medium term, and should therefore be the focus of current plans and programmes.

13 Urban & Regional Policy is the title of Alan Wenban-Smith's practice as an independent consultant. Established in 1996, it specialises in linking urban and regional economic, spatial and transport policies. Back

14 I have given evidence to several Select Committee Inquiries on housing matters over the last 10 years (and acted as a special adviser to this Committee's Inquiry on Growth Areas in the South East). Back

15 Dept of the Environment (1980) Circular 9/80. Back

16 Chart does not show that levels of clearance also declined, so net change in housing stock was less dramatic. Back

17 Concern at the time that public housebuilding had been "squeezing out" private appear to have been misplaced. Back

18 The Interim Report (3.35 and Table 3.4) calculated that to eliminate price rises altogether would require 240,000 extra homes pa but this is rejected in the Final Report on grounds of practicality. Back

19 Housing Policy: an overview. Back

20 ODPM (July 2005), "Planning for Housing Provision". Back

21 Evidence of Council of Mortgage Lenders to Barker Inquiry. Back

22 Nevin et al (2000) "Changing housing markets and urban regeneration in the M62 Corridor". Back

23 Rather the reverse, as Pathfinders in some areas have proposed large scale clearance and redevelopment. Back

24 GVA figures are not available for earlier (or later) years. This makes difficult the long-term comparisons that are vital for policy purposes. This seems unfortunate given the importance of the policy issues. Back