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

Memorandum by the Merlion Group plc (AH 25)


  1.1  Government spending cannot realistically achieve the critical mass to address the scale of demand within the Intermediate Housing Market. The private sector alone has the capacity and flexibility to meet public aspirations for getting on to the housing ladder without the need for public subsidy. The current system is being distorted by the unnecessary use of large amounts of public money.


  2.1  Merlion Group plc welcomes the opportunity to respond to the Committee's inquiry into Affordability and the Supply of Housing. Merlion is the largest provider of non-grant funded shared-equity housing in the country. Our vision is to provide affordable housing in the most cost-effective way, without the need for taxpayers' money. At present the market in the provision of low cost homeownership is being distorted by the use of Housing Corporation subsidy to the disadvantage of the taxpayer. We believe tens, if not hundreds, of millions of pounds is being wasted, money which could be far better spent on the provision of social housing.

  2.2  Since 1991 we have made over 1,000 homes available to lower-paid workers under both shared-equity and shared-ownership schemes. We are growing rapidly and are on course to deliver around 250 units this year.

  2.3  One of Merlion's non-executive directors, Dr Norman Perry, in his former capacity as chief executive of the Housing Corporation, was a member of the Home Ownership Task Force which reported to the Government.


  3.1  The steep rise in house prices in comparison to earnings in recent years has put home ownership increasingly out of reach for large numbers of key workers and first time buyers. The proportion of new homes sold to first-time buyers is the lowest since records began.

  3.2  As part of its wider response to expected housing needs, the Government is now committed to a significant increase in housing supply and aims to widen the opportunities for home ownership to as many people as possible, from today's 70% owner occupation up to 75%.

  3.3  The ODPM has announced a number of proposals to increase home ownership opportunities, including a range of products within the Homebuy scheme. A review of the planning system is also underway.

  3.4  The Government's sustained focus on tackling some of Britain's entrenched housing problems is very welcome. However, we believe that initiatives announced to date lack both the capacity and the flexibility to keep pace with the true growth in demand for high-quality affordable housing, particularly in the intermediate market. The scale and problems of the intermediate housing market are only now beginning to be understood. A recent report by the Joseph Rowntree Foundation attempted to measure the scale of the problem. It found that in 40 local authority areas, at least 40% of all younger working households can afford to pay more than a social sector rent, but still cannot afford to buy at the lowest end of local house prices.

  3.5  The Government's plans for Homebuy cannot realistically address demand on this scale. Public resources are already stretched and should be directed to where the need is greatest, in social rented housing. Encouraging a primary role for the private sector in the provision of affordable home ownership would help to achieve a better balance between demand and supply, improve affordability in the housing market as a whole; and, most importantly, this could be achieved at no extra cost to the taxpayer.

  3.6  We have set out below our main concerns about the current system and some specific suggestions of how to improve the delivery of low cost home ownership.


  4.1  At present RSLs have an unfair competitive advantage. The market is being distorted by their ability to overbid for land using Housing Corporation direct subsidy. Merlion has direct experience of over £8 million being misspent in this way in this year alone (see appendix 1). RSLs frequently use public money to inflate land values to the sole benefit of the landowner. Some RSLs also use previous social housing subsidy to sustain an inefficient level of internal overhead which would be unsustainable for their private sector competitors.

  4.2  The Housing Corporation potentially spends in excess of £300 million of taxpayers' money on shared-equity schemes annually. All of this money could be saved and diverted to provide more social housing.

  4.3  Government programmes should work with private sector models to maximise the efficiency of tax payers' money. Low cost homeownership could be streamlined and made more effective by defining it as an activity financed and carried out by the private sector and facilitated through Planning Obligations/Section 106 Agreements. This would create a level playing field between RSLs and other providers. More decisive use of Planning Obligations/S106 Agreements could avoid or minimise inefficient use of taxpayers' money.

  4.4  Private sector providers like Merlion already have a good track record delivering high quality housing on a limited scale and are well-placed to expand numbers rapidly. We believe the potential exists within the private sector as a whole for over £1 billion to be invested over the next decade, delivering over 100,000 units of affordable housing.

  4.5  Delivering land to meet the broad range of housing need at local level will depend on greater clarity in planning policy from central government and a more flexible approach from local authorities and regional planning bodies.

  4.6  Local planning assessments by councils have often failed to take into account the range of affordable housing options available in their areas to meet demand in the intermediate housing market.

  4.7  Ideological bias means that some local authorities still see Registered Social Landlords (RSL) as the sole legitimate provider of affordable housing despite the ODPM's recognition of the contribution which private housebuilders can make.

  4.8  Regional Housing Strategies should set out clearly that local authorities need to include shared-equity explicitly within their local spatial and housing strategies. The Government should place a duty on local planning authorities to include shared-equity housing, and to consider the role of the private sector, in their planning policies and Section 106 agreements.


  5.1  We believe encouraging an expansion in the role of the private sector would be the quickest means of bringing more affordable housing within the reach of more people, and at no cost to the taxpayer.

  5.2  By enabling greater private sector provision the Government could focus more resources where they are needed most, such as Decent Homes, Social Rent and Social HomeBuy.

  5.3  The private sector is not asking for subsidies but would like to see those obstacles removed which are currently restricting its potential to respond fully to the urgent demand for affordable housing.

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