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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