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


Memorandum by the Royal Institution of Chartered Surveyors (RICS) (AH 47)

THE ROYAL INSTITUTION OF CHARTERED SURVEYORS (RICS)

  RICS is the professional regulatory body for chartered surveying, with 110,000 members operating in land, property and construction markets around the world. Many of them operate in areas relating to housing supply. The Residential and Planning and Development Faculties have nearly 22,000 members each and Construction has nearly 40,000. RICS holds a Royal Charter —one of the requirements of which is that we provide independent and impartial advice to government for the benefit of the public interest.

SUMMARY

  Greater Home Ownership—We are concerned that the high levels of home ownership are potentially encouraging people into home ownership that they are unable to afford.

  Social and Economic Inequalities— Although home ownership has traditionally been considered an astute financial investment, families are potentially leaving themselves open to future economic hardship should housing markets fall.

  House Prices and House Supply—The types as well as numbers of new houses should be considered.

  Construction Methods and Fiscal Measures—Section 106 agreements can potentially restrict the amount of public and private housebuilding that takes place.

  Private Housing as Opposed to Subsidised Housing—Successful communities and developments are ones which feature both private and social housing.

  The Planning System—The Planning Gain Supplement proposals contained in the Barker Review would not work—a tariff approach within the s106 process would be best.

  The Scale of Housing Development and Environmental Impact—The opportunity should be taken to create vibrant, distinctive neighbourhoods at high density to minimise environmental impact.

  Regional Disparities—A strategy for regional investment and development should be created which recognises the relationship between cities and the regions around them.

The potential benefits of and scope to promote greater homeownership

  1.  Successive governments have followed policies that have sought to promote home ownership and to increase the proportion of households that own their home. Government now needs to consider whether it is sustainable to continue to encourage those aspirations, and what the consequences would be for those bought into home ownership from the margins if there was an economic downturn.

  2.  Although house prices are at a historically high level, the housing market remains active as a consequence of, amongst other things, historically low interest rates and a thriving employment market. This, coupled with the societal pressures for home ownership, means that people are continuing to buy as they perceive home ownership as a worthwhile financial and lifestyle goal.

  3.  We are concerned that as a consequence of these societal pressures, people are taking on mortgages that potentially could pose serious financial problems for them should interest rates rise, or employment conditions worsen. This is particularly so at the "bottom" end of the market where people are being encouraged by government (through measures such as shared ownership) to enter into homeownership for the first time. While these schemes have focused very much on easing the burden of the mortgage repayment, they often ignore the long term costs of running a home and general living expenses such as heating. Many shared ownership schemes also involve the new homeowner having to make a substantial rent payment each moth as well as the mortgage repayment. An economic downturn could lead to a sharp rise in the numbers of repossessions similar to those that took place in the early 1990s.

  4.  As a consequence, we believe that government should also be promoting other forms of tenure as viable housing solutions for people as well as outright ownership, to counter the social prejudices that exist in favour of homeownership. Other forms of tenure such as renting feature many benefits, such as the avoidance of maintenance costs, and we believe that while government should not be seeking to penalize homeownership, it should seek to be promoting other forms of tenure more actively.

  5.  Government should also be seeking to support those on the financial margins of homeownership by allowing existing homeowners flexibility to staircase down. Homeowners should be able to reduce their mortgage costs by reverting to shared ownership or even a change to fully rented status. Such a system would have saved many re-possessions during the last market downturn, and we believe that the introduction of such a system would be an important safety net for many should the market again fall.

The extent to which home purchase tackles social and economic inequalities and reduces poverty

  6.  Home purchase has long been associated with wealth creation, and recent years have seen the emergence of a vibrant buy to let sector as investors identify property as being an excellent means to counter perceived weaknesses in the stock market and other, more traditional, investment options. Many householders have also seen the re-mortgaging of homes as a means of raising additional money for things such as home improvements or holidays. Even in less affluent times, home purchase was perceived as an ideal way for families to generate wealth and pass this down to future generations. However, we believe that there are two important implications of this that warrant caution.

  7.  Although we believe that property should form part of any balanced investment portfolio, we believe that as property has become a popular source of alternative investment many investors are leaving themselves overexposed to the housing market. Any fall or problems could have serious consequences for such investors. And we remain concerned that any increase in interest rates or other economic deterioration could see homeowners with large mortgages in real financial hardship.

The economic and social impact of current house prices

  8.  The affordability issues associated with current house prices have a number of economic and social consequences.

  9.  We believe that the high level of house prices constitute a major barrier to the vitality of the labour market. Although Government action has so far focused on issues associated with ensuring that key workers can afford to buy, the affordability problems that are being encountered across the UK (although they are often perceived as only being an issue affecting the south east, they are also acute in many other parts of the UK) seriously limits the movement of workers both around the country (and particularly into the South East) and within regions. Eligibility for affordable housing should be determined by the applicant's ability to afford appropriate housing, rather than by his employer.

  10.  As a consequence of house prices being so high, as the average age of first time buyers increases, so is the age at which people leave home is also increasing. Not only is this proving unacceptable to the young people concerned, but it is also increasing family tensions with older members as well. The problems faced by people trying to buy their first home are being further exacerbated by the effects of people living longer. Because older people are living longer, they are not cascading deposits down to their grandchildren via inheritances, while student loan re-payments are further preventing many first time buyers from buying as soon as they would like.

The relationship between house prices and housing supply

  11.  The Committee will be aware that the increase in house prices has been accompanied by a decrease in the supply of new properties, in both the private and social sectors. As a consequence, many have argued that an increase in housing supply will bring about a decline in house prices.

  12.  However, to move the UK to a comparable level of housing provision to that in Germany, France and Italy an additional 2.5 million homes would be required. We do not believe that it is realistically possible to deliver this number of new homes in the sort of time scale that is required. Even if delaying factors such as the time taken to identify, purchase, assemble and develop land could be overcome, skills shortages in the housebuilding sector would prevent it being achieved. Government must also be sure that any attempt to influence house prices does not harm the financial interests of existing home owners, and that house builders are still able to make a reasonable return from the houses that they build.

  13.  In seeking to encourage greater levels of housebuilding, it is imperative that the Government ensures that the houses that are being built are of the types of home and tenure that the market wants and that there is demand for. This is not just for now, but over the lifespan of the property, which could be for 100 years or more.

  14.  Government policy currently favours the supply of one or two bedroomed flats. Although partly a response to the government's desire to increase densities, it is also a response to the increasing numbers of people choosing to live alone or to delay starting a family, and recognition of these trends by government is something that we welcome. However, such accommodation does not help families who need three or four bedroom properties. Likewise, divorcees may no longer require a house with several bedrooms, but they may still want space to allow them to accommodate friends and children, while many ethnic minority groups rely on the extended family for the care of both young and old family members.

  15.  If government policy continues to favour the building of relatively small flats, there is a very real danger that this could exacerbate increases in house prices. This is because if new houses are not of the type that people want, then they will continue to buy existing property that meets their needs. If new housing supply is unable to respond to demand, then demand for existing properties will continue to be strong.

  16.  As a consequence, we believe that it is imperative that the Government ensures that new build housing is of a type and specification that will genuinely appeal to buyers.

  17.  Because it is unlikely that sufficient new build housing can be built to address future housing needs, the existing housing stock is also going to be required to continue to play an important role. Creating a more level playing field in terms of equalizing the tax between repair and refurbishment and new build would assist in this process. We also note that the compulsory leasing of empty homes is being introduced next year—although this potentially has an important role to play, we are concerned that local authorities will not make full use of the powers that are open to them, and we would caution that any healthy housing market is always going to be characterised by a level of voids as people move between properties.

  18.  There has also been speculation about the effect of second homes increasing house prices, and suggestions that the purchase of second homes should be controlled. It should be noted that for some second homes are essential and many, such as those used for holiday lettings, contribute positively to the local economy. As a consequence, any blanket measures aimed at the second homes market may well prove to have significant drawbacks, coupled with no guarantees that measures would make the area more affordable.

Other factors influencing the affordability of housing for sale including construction methods and fiscal measures

  19.  There must be a level playing field between the levels of VAT levied on new build and that levied on repair and refurbishment. A more equitable regime would encourage the use of existing properties and assist in rejuvenating existing urban areas. It would also encourage the better maintenance of the existing stock, provide less of an incentive for the black economy and support the broader objective of maximizing the use of brownfield land.

  20.  Certain developments have produced large windfall gains for landowners and developers, particularly when land is converted from greenfield use. Proposals have been put forward at various times to tax the uplift in value that can occur when land is granted consent for housing development. However, if such a "Greenfield Tax" were to be set at a punitive level it would reduce the flow of land for development. Likewise, many local authorities set section 106 contributions at levels that make an otherwise viable development unprofitable. Such agreements also lack consistency and the outcome of negotiations often depends on the negotiating skills of the people directly involved in the discussions. If the system is to remain, it needs to be simplified, more consistent and provide greater certainty for both parties, whilst ensuring that it provides the right type and tenure of affordable housing.

  21.  A further significant barrier to the promotion of increased housebuilding is the compulsory purchase system. We agree with the findings of the Law Commission's recent investigation into the workings of the compulsory purchase system that fundamental reform is required to ensure that the system becomes both easier to understand and quicker to operate. The confrontational nature of the current system both slows down individual compulsory purchase cases while serving as a major deterrent to the use of compulsory purchase for land assembly.

The relative importance of increasing the supply of private housing as opposed to subsidised housing

  22.  As house prices increase, then the demand for subsidized and social housing increases, with more people unable to secure housing privately. However, we do not believe that this means that subsidized housing should be favoured over private housing.

  23.  Government needs to recognize that successful developments are ones which are of mixed tenure that feature both private and subsidized housing. Government should strive to ensure that developments feature all types of tenure, and it should also recognize the important role played by the private rental sector in meeting housing needs.

How the planning system should respond to the demand for housing for sale

  24.  Housing associations are increasingly reliant on the provision of affordable housing units through s106 agreements rather than by direct grant funding. This means that the delivery of social housing is heavily and increasingly reliant on levels of development activity in the private sector. Yet s106 contributions increase costs, potentially reducing the supply (of both private and thus social housing) and increasing house prices further. Therefore, inappropriately developed s106 (and similar) agreements can work against the policy of more and cheaper homes.

  25.  The question of thresholds for developments which are required to provide affordable housing also needs to be reviewed as at current levels they assist in perpetuating low density schemes to avoid the need to provide affordable housing. A simple standard rate charge or contribution could, were it to be introduced, encourage the development of yet more one bedroomed flats to allow the developer to demonstrate the greatest number of units being delivered rather than the types of dwellings that meet the needs of the area concerned.

  26.  We do not believe that a Planning Gain Supplement, such as that advocated by the Barker Review, would work. It would not tax the planning gain (as it is assessed on the whole market value), would be unjust (since it is based on values which are not the actual value of the land to be taxed), there may be no money available to meet the tax and it does not have cross party support. We also believe that many of the Barker proposals could contravene EU state aid rules.

  27.  RICS has undertaken detailed research on the operation of a fair scheme to tax planning gains. The research can be found at:

http://www.rics.org/Environmentalandlandconsultancy/Planninganddevelopment/

Problems+with+proposed+planning+tax.htm

  28.  The report considers a number of approaches. It finds that a tariff approach within the s106 framework would work best since planning obligations are well established and carry cross party support. Moreover, recent amendments to the Planning Obligations Circular (05/2005) appear to have been greeted with wide support.

The scale of housing development required to influence house prices and the impact of promoting such a programme on the natural and historical environment and infrastructure provision

  29.  Many organisations have commented upon what they believe to be an appropriate level of housebuilding to address affordability issues. However, we do not believe that housing affordability problems will be addressed by building a specific number of houses.

  30.  To have any effect upon house prices, Government will have to ensure that the houses that are built are both of a type that appeals to potential occupants and that are in the areas where people want to live. As noted elsewhere in this evidence, areas with housing affordability problems are often adjacent to areas where housing markets have failed. As a consequence, we do not believe that solving the problem is as simple as building more houses.

  31.  The arguments about the loss of habitat and amenity if a large increase in the amount of housebuilding were to take place have been well made by other organisations. Low density, urban sprawl, if permitted on a large scale and based around the use of private transport, will defeat many of the Government's aims to promote healthy, sustainable and inclusive communities as reliance on private transport increases and more land is taken for secondary uses such as roads and car parks.

  32.  It is also important that any increase in housebuilding does not produce soulless, poorly designed, dormitory extensions. The opportunity should be taken to create distinctive, vibrant neighbourhoods which are underpinned by healthy and mixed property markets that are supported by appropriate infrastructure and services.

  33.  High density development is often perceived as unattractive and conjures up images of high rise blocks or back to back slums. However, this need not be the case, and many highly desirable residential areas are built at high density. The key issue is the quality of design and accessibility of jobs and services. So long as these issues are addressed, along with ensuring that there are procedures for the long term ongoing management of the development, then there is no reason why the development should not be a success.

The regional disparities in the supply and demand for housing and how they might be tackled

  34.  Since the abandonment of UK regional policy in the 1980s, the South and South East of the UK has continued to enjoy the highest levels of economic growth. However, the picture has not been uniform, and so along with pockets of poverty in the South East, there are also areas of affluence elsewhere in the UK, often close by the pathfinder areas of housing market renewal.

  35.  We would encourage the Government to develop a strategy for regional investment that seeks to encourage public investment and economic growth away from those areas which are currently booming and where house prices are at their highest.

  36.  Such a strategy should take account the relationship between cities and the wider regions around them, to ensure that the major growth areas have appropriate transport links that can allow their surrounding regions to benefit from their economic vitality. RICS has published research into the Transport Development Area concept which seeks to link transport and land use far more than has been done in the past which can be found at:

http://www.rics.org/NR/rdonlyres/427B715A-7AB8-4967-B7C4-62F5D048406D/0/TDAflyer.pdf

  37.  Although endorsing this city/region approach, we have concerns over the delivery of such a strategy. The RDAs have turned their backs on the physical regeneration agenda, as a consequence of the leadership provided by the DTi, who concentrate on economic growth issues, English Partnerships are just looking at housing on its own, Government offices are just involved in social issues such as New Deal for Communities and local authorities are short of money to invest in programmes like this. We believe that Urban Regeneration Companies potentially can provide delivery orientated management teams, but that there is a massive shortage of skills within the URCs. All other groups with an interest in funding regeneration and housing should channel their funding activities through one special purpose vehicle, rather than the large number of organisations as at present.

  38.  The Northern Way also sets out to achieve much of this but has really struggled to engage the private sector properly and to be delivery and investment focussed.





 
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