Memorandum by Surrey County Council (AH
14)
EXECUTIVE SUMMARY
— Surrey County Council supports the
general proposition that access to home ownership should be expanded.
Home ownership is clearly the tenure of choice for most of the
population. However, the County Council has concerns about the
applicability of the Government's HomeBuy scheme to all households.
A balance needs to be struck between efforts to increase home
ownership and ensuring that other tenure options are available
for those unable to afford to purchase housing (even with assistance).
— There is clear evidence in Surrey
that the high cost of housing is adversely affecting the future
economic prosperity of the county and the effective delivery of
services. House prices in the county have risen by 35% since 2001.
Average house prices are now approximately eight times the average
income in the county and 12 times the average key worker income.
— The County Council does not believe
that there is a simple relationship between the supply of housing
in Surrey and the cost of this housing. As an illustration, house
prices in Surrey have risen by 35% since 2001, yet over the same
period the rate of new housing completions in the county have
exceeded planned delivery rates in Regional Planning Guidance
by 23%.
— The County Council believes that
land supply will only have a marginal impact, on house prices
within the county, in contrast to the significant role played
by Government and Bank of England fiscal policy
— The planning system has a role to
play in addressing housing needs, but it should not simply respond
to the market. Rather it should continue to play a key role in
balancing the competing pressures from economic growth, the demand
and need for housing, the need for infrastructure and the impact
on the environment.
— The County Council considers that
a national spatial strategy is needed as a matter of urgency to
address the problems posed by perceived housing shortages in the
south and over-supply in the north.
INTRODUCTION
1. Surrey County Council wishes to submit
evidence to the Committee on the Office of the Deputy Prime Minister
in respect of its inquiry into Affordability and the Supply of
Housing.
2. The following evidence addresses the
specific issues raised by the Committee.
SECTION 1:
The potential benefits of and scope to promote
greater homeownership
The extent to which home purchase tackles social
and economic inequalities and reduces poverty
3. Surrey County Council supports the general
proposition that access to home ownership should be expanded.
Home ownership is clearly the tenure of choice for most of the
population. However, the County Council has concerns about the
applicability of the Government's HomeBuy scheme to all households.
A balance needs to be struck between efforts to increase home
ownership and ensuring that other tenure options are available
for those unable to afford to purchase housing (even with assistance).
4. In particular, the Social HomeBuy package
is targeted at a relatively small group of the population who
are unable to afford the Right to Buy or the Right to Acquire.
Whilst many people in existing affordable rented housing may have
an aspiration to own their home, it is questionable what proportion
will be able to purchase and subsequently maintain properties
under this scheme. Purchasers will be leaseholders and subject
to the additional cost of ground rent and service charges, as
well as incurring general property maintenance costs. Supporting
information provided by ODPM indicates that an income of at least
£20,000 would be needed in the South East to purchase a 50%
share in a property under this scheme. This is well above the
average income for social rented households of £16,000. As
a means of expanding home ownership, therefore, the proposals
are unlikely to make a significant difference in Surrey and other
higher cost areas, where many existing council and housing association
tenants are likely to be better off by remaining as tenants within
the public sector. If the aim is to increase levels of home ownership
within the social sector then efforts should continue to be focussed
on Right to Buy and Right to Acquire, with a commitment to the
recycling of sales proceeds into new affordable housing.
SECTION 2:
The economic and social impact of current house
prices
5. There is clear evidence in Surrey that
the high cost of housing is adversely affecting the future economic
prosperity of the county and the effective delivery of services.
As a key element of the overall prosperity of the South East Region,
any adverse impact on the economic prosperity of Surrey is likely
to be felt much wider in the regional and national economies.
6. In the 2nd quarter of 2005, average house
prices in Surrey were just over £300,000,[35]
over 30% higher than the regional average and over 60% higher
than the national average. House prices in the county have risen
by 35% since 2001. Average house prices are now approximately
8 times the average income in the county and 12 times the average
key worker income.
7. The impact of this level of prices has
been felt across the public and private sectors. As far back as
2000, the local authorities in Surrey commissioned research from
the University of Cambridge[36]
into the impact on employers. The research suggested that, unless
action was taken, recruitment and retention difficulties would
worsen and public service delivery and private sector profitability
would be affected. In response, in 2001, the local authorities
produced a key worker delivery strategy,[37]
which has had some limited success in raising the profile of key
worker housing and contributed towards changes in local, regional
and national policy.
8. Further research in Surrey in recent
years has continued to highlight the economic implications of
the high cost of housing. In 2003, the Surrey Economic Partnership
undertook detailed research into the impact of high house prices
on private sector business.[38]
Key findings included"
— 24% of companies surveyed attributed
recruitment and retention difficulties to high housing costs;
— the most severe problems were in
those industries using large numbers of relatively low skilled
staff, ie hotels, leisure, manufacturing, retail, transport, warehousing
and administration;
— most housing problems were experienced
by those employees with incomes of less than £20,000 per
annum;
— the main consequences of high housing
costs to companies were high staff turnover and the length of
time taken to recruit replacement staff, and the extra costs associated
with recruitment and training of new staff.
9. The County Council has also undertaken
extensive work to establish the impact of high house prices on
its own staff, against a scenario of high rates of turnover and
high levels of vacancies within most services. Key findings were:
— employees from all services were
affected by the high cost of property in Surrey and were leaving
Surrey County Council due to housing pressures, with particular
problems experienced by younger employees (under 35);
— housing affected key workers on two
levels. High property prices were preventing those trying to purchase
property or upgrade to larger accommodation, and were influencing
perceptions of how employees felt about their own "quality
of life";
— a "tipping point" was identified
at around three years, particularly amongst teachers, when staff
reassessed their status. This is generally characterised as the
period when single staff are looking to settle down/establish
a family. Difficulties accessing the home ownership market at
this stage were resulting in staff leaving the authority, ie housing
costs became a retention issue.
10. Following this research, in November
2003, the County Council's Executive agreed to the setting up
of a comprehensive package of housing assistance for staff, comprising
a package of non-financial assistance (signposting), staff temporary
housing, rental subsidies and equity loans towards house purchase.
Unfortunately, the equity loan element of the scheme has not yet
been implemented due to a lack of clarity from Inland Revenue
on whether a loan would be counted as a taxable benefit or not.
Changes to the national tax regime to allow employers to offer
such assistance without their employees incurring a substantial
tax burden (similar to that offered under the current Key Worker
Living programme) could enable significant numbers of employees
to be assisted in a cost effective manner.
11. The social impact of the cost of housing
is much more difficult to identify. Evidence from rural housing
needs surveys, however, shows an increasing trend of people moving
out of areas they have lived in all their lives to find cheaper
accommodation and then having to commute back to the village to
work. There is also evidence of sons and daughters being unable
to afford to live in villages near to their parents and either
moving out, or having to remain at home longer. A key outcome
of the high house prices in many Surrey villages is an ageing
population often comprised of a single socio/economic group.
SECTION 3:
The relationship between house prices and housing
supply
Other factors influencing the affordability of
housing for sale including construction methods and fiscal measures
The scale of the Government's plans to boost housing
supply
The relative importance of increasing the supply
of private housing as opposed to subsidised housing
Scale of housing development required to influence
house prices and the impact of promotion such a programme on the
natural and historical environment and infrastructure provision
12. The County Council does not believe
that there is a simple relationship between the supply of housing
in Surrey and the cost of this housing, contrary to recommendations
of the Barker Review and the ODPM consultation paper, "Planning
for Housing Provision".
13. As an illustration, house prices in
Surrey have risen by 35% since 2001, yet over the same period
the rate of new housing completions in the county have exceeded
planned delivery rates in Regional Planning Guidance by 23%. This
is despite the presence of significant environmental constraints
and the Metropolitan Green Belt which covers 73% of the county.
This raises a question as to what level of growth in excess of
current planned requirements would be necessary to impact on house
prices. Significant growth in excess of current planning requirements
could only be delivered through greenfield development, which
would inevitably compromise national planning policy and potentially
adversely affect regional, national and international environmental
designations.
14. The County Council also has doubts as
to whether the house building industry will respond in the way
Government intends, eg the Chief Executive of Barratt Homes has
recently stated that his company will "not chase volumes
for the sake of it. We would prefer to protect margins and selling
prices." More practically, questions must also be asked about
whether the house builders have the capacity to deliver significant
additional levels of housing, given the scale of construction
work underway in the region and the potential demands posed by
construction of Olympic facilities.
15. The County Council therefore believes
that land supply will only have a marginal impact on house prices
within the county. By contrast, the role of Government and Bank
of England fiscal policy will have a much greater influence. As
an example, as interest rates have risen during 2004 and early
2005, the rate of house price inflation in Surrey has slowed (see
table below). Although figures have not yet been published for
the 3rd quarter of 2005, nationally there is evidence from the
Nationwide Building Society and the Halifax Bank that the easing
of interest rates in August 2005 has stimulated the housing market,
with house price inflation beginning to rise again.
16. The County Council further believes
that a more productive way of addressing house price concerns
is to consider the role of publicly subsidised affordable housing.
The Barker Review has shown that much of the decline in housing
numbers in the past 30 years has been the result of the reduction
in publicly funded housing provision. In 1970, local authorities
built 173,000 houses, but by 2001 the combined output of local
authorities and housing associations was only 22,500. This was
against a pattern of relative stability in the amount of private
sector housing being completed. Any perceived housing shortfall
is therefore due primarily to the lack of affordable houses being
provided and not the result of a shortage of housing overall.
17. There are many reasons for the reduction
in affordable housing completions in Surrey, but the principal
reasons are due to the difficulties of delivery through the planning
system and changes to housing finance over the past couple of
years. Within Surrey, land values (as opposed to land supply)
are a major barrier to new housing provision, with registered
social landlords unable to compete on the open market for suitable
land with the house builders. Consequently, the majority of new
affordable housing in Surrey is delivered through section 106
agreements on private sites. With an increased national policy
emphasis on previously developed land, the County Council has
estimated that 73% of all new housing on sites of over 0.5 hectares
would need to be affordable to meet the current Surrey Structure
Plan target of 40% affordable.
18. Recent changes in affordable housing
funding mean that the ability to deliver new housing locally has
been further diminished. In particular the abolition of Local
Authority Social Housing Grant and the loss of local control over
the delivery of affordable housing has significantly reduced the
ability to subsidise new provision. This is of critical importance
to Surrey which has not benefited from overall increases in Housing
Corporation funding, as the county is not regarded as a priority
area in terms of the indicators of need used to allocate funds,
nor does it lie within one of the growth areas identified within
the Government's Sustainable Communities Plan.
19. The local authorities in Surrey have
been very active in addressing the issues of affordable provision.
Strategies have been set in place to deliver more key worker and
affordable housing (the SLGA key worker strategy "Housing
to Underpin Economic Success" and best practice advice "Making
Affordable Housing Happen'). Recently, the local authorities have
undertaken research with Knight Frank to look at the economics
of affordable provision in Surrey, with a view to amending planning
requirements to deliver affordable housing in a way which does
not adversely affect the economics of general market provision.
However, such activities will only have a marginal impact unless
additional funding is made available to RSLs and local authorities
in the county to subsidise the provision of new affordable housing.
The Government and the Regional Housing Board need to ensure that
funding allocations for new build reflect actual need and not
simply the location of the growth areas.
20. The County Council's concerns over the
relationship between housing supply and price reflect the detailed
findings form the IPPR Commission on Sustainable Development in
the South East,[39]
which concluded:
"The Barker Review came up with a national
headline figure for an extra 141,000 dwellings per year to reduce
real house price inflation to 1.1% per annum. But research commissioned
by ippr suggested that if only half that figure were built nationally
it would have a similar effect on house price inflation. This
raises question marks over the robustness of the Barker methodology
and the extent to which it can be relied upon to develop both
national and regional affordability targets."
21. And that:
"To tackle affordability problems in
the South East a direct increase in the provision of affordable
housing would seem to be the most appropriate policy response."
SECTION 5:
How the planning system should respond to the
demand for housing for sale
22. The planning system has a key role in
balancing the competing pressures from economic growth, the demand
and need for housing, the need for infrastructure and the impact
on the environment. It should not simply reflect market demand
The scale of policy and environmental constraints in Surrey mean
that the county cannot respond to market demand for housing for
sale without breaching these constraints, or further town cramming.
In responding to the Government's consultation on Planning for
Housing Provision, the County Council argued that the planning
system should make use of the existing expertise and abilities
of the County Councils in the delivery of new housing. In particular"
(a) The process of planning for housing
provision would be enhanced by reflecting the key role of the
County Councils under the 2004 Planning Act, in terms of monitoring
and information provision and as Principal Authorities with responsibility
for providing advice to the Regional Assemblies on subregional
matters. These responsibilities give the Counties a key role in
the identification of relevant sub-regional housing market areas,
liaison with key stakeholders, the provision of key data to inform
planning in these areas, and the commissioning of housing market
assessments.
(b) A greater role for the County Councils
would also provide the electoral legitimacy that is missing from
the current proposals, which seem to rely upon the role of the
un-elected regional assemblies and the operation of the market.
A clear link to the electorate has been highlighted by IPPR as
being essential to the delivery of publicly acceptable housing
development, as well as providing a clear mechanism for balancing
of the competing economic, environmental and social concerns in
individual areas.
(c) A greater degree of flexibility
in terms of setting overall housing requirements and the timescale
over which these will be sought, is required. As the IPPR report
clarifies, there is considerable uncertainty in terms of planning
for housing over the longer term, particularly in the identification
of housing potential and land availability. A recognition of greater
flexibility in the latter part of the plan period would enable
local authorities, house builders and other key stakeholders to
respond to changes in the economics of housing provision, but
also emerging environmental, social and infrastructure concerns.
SECTION 6:
The regional disparities in the supply and demand
for housing and how they might be tackled
23. The County Council accepts that it is
not easy to address current regional disparities which manifest
themselves in housing shortages in London, the South East, the
East of England and, to a lesser extent the South West, whilst
there are surpluses of provision elsewhere. Simply restricting
development in the south of the country in order to stimulate
demand in the Midlands and the North would be ineffective since
it takes no account of the pressures for economic growth within
the south and the importance of the regional economy to national
well-being. However, by the same token, planning for significant
housing growth in the South East with insufficient investment
in infrastructure, lack of concern over the potential water supply
situation and the pressure on national and international environmental
designations, is equally untenable. At the heart of the problem
is the lack of any national spatial strategy which considers the
varying needs of the regions and potential measures to address
these needs. The Government needs to put in place such a strategy
as a matter of urgency to provide a positive framework for the
future planning of housing provision.
35 Land Registry Property Price Report, April-June
2005. Back
36
Housing Key Workers in Surrey, Cambridge Housing and Planning
Research, 2000. Back
37
Housing to Underpin Economic Success, Surrey Local Government
Association, 2001. Back
38
Employers' Perceptions on Key Worker Housing Issues in Surrey,
Ancer Spa, 2003. Back
39
The Commission on Sustainable Development in the South East Final
Report, ippr, 2005. Back
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