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

Memorandum by Shelter (AH 65)

  Shelter welcomes the select committee's new inquiry into the supply and affordability of housing. This evidence is based on the experience of our front line staff providing information, advice and advocacy to over 100,000 people every year, and our policy and research work on housing supply and home ownership.

  Shelter is a member of the Campaign for More & Better Homes, a broad-based coalition of business and social organisations campaigning in support of the Barker Review recommendation for an increase in the overall supply of housing.


  Shelter recognises that most people aspire to own their home, and that home ownership usually means greater security and the ability to make changes to it, as well as allowing people to build an asset they can pass on to their children and grandchildren.

  69% of people in Britain own their home; 20% live in the social rented sector and another 11% are in the private rented sector. The Government claims that as many as 90% of people want to own their home and has recently set a target of one million more home owners by the end of this Parliament.

  Research carried out for Shelter's recent report, Home Truths: the realities behind our housing aspirations, revealed that Ministers may have overstated the demand for home ownership. Shelter's own research found that a majority of people placed having an affordable home and living in a safe neighbourhood ahead of ownership. A recent survey for the Council of Mortgage Lenders (CML) disclosed that 72% of people in Britain would like to own their own home in two years time, and that 80% would like to do so in 10 years time. The gap between the two-year aspirations and actual home ownership has narrowed significantly over the past 30 years and now stands at just 3%.

  Clearly, this survey does not tell the whole story. Shelter recognises that the aspiration for home ownership is not strong among older people who are not already home owners, but that many younger people are frustrated in their aspirations by property prices. At the same time, however, it is clear that the vast majority of people who want to own their home already do so or are able to do so. Over four million households dependent on benefit are not in a position to become home owners. In total more than a quarter of British people do not want to own their own home in the near future.

  Shelter strongly supported the phased withdrawal of Mortgage Interest Relief, as this effectively used a public subsidy to skew the market in the direction of home ownership. However, the Government's policy of using public money to subsidise methods of helping people into home ownership effectively amounts to the restoration of home ownership tax relief, but only for those lucky enough to secure a place on one of the schemes. Much of the extra investment in new housing has been focused on these Low Cost Home Ownership schemes, particularly for those designated as key workers.

Low Cost Home Ownership

  We will be submitting detailed evidence to the committee's inquiry into ODPM's Low Cost Home Ownership (LCHO). In the meantime, it is worth highlighting a number of key concerns about the impact of schemes on the wider housing market.

  Shelter believes that the Deputy Prime Minister was right to resist pressure to extend the Right to Buy to housing association tenants. The proposed Social HomeBuy scheme instead, allows them to buy a share in their existing home, while raising extra cash to build more homes. Most importantly, it reduces the chances of that home being lost to the next generation of those in real housing need. If the detail of the scheme can be fine tuned, it would end the need for the Right to Buy, and would provide more council tenants on low incomes with the opportunity of enjoying the benefits of home ownership.

  Other elements of the Government's new package seem much less likely to make a positive contribution to solving the nation's housing crisis. Much of the New Build, Open Market and Joint Equity Mortgage HomeBuy schemes are specifically directed at key workers. Shelter opposes this approach, which as well as redirecting resources away from those in greatest need, risks fuelling house price inflation. These schemes must be redirected much more towards existing social tenants so that they at least free up lettings for homeless and overcrowded families.

  ODPM's flagship First Time Buyers initiative is also problematic. Hundreds of hectares of unused public sector land is being handed over to developers promising to build homes for sale at between £60,000-£90,000. While some of it will be used to build low cost homes for key workers and other first time buyers, Ministers have so far made no commitment to ensure that local councils also insist on the inclusion of social rented homes for poorer households.


  Housing is the single greatest repository for wealth held by individuals in the UK. An increasing divide is opening up between those who have housing wealth and those who do not. Research carried out for Shelter by Professors Danny Dorling and Bethan Thomas suggested that the UK is now more polarised by housing wealth than at any time since the Victorian era. [115]House prices are unaffordable to buyers on average incomes, making access to mortgage funding insufficient for purchase. Buyers are also having to raise deposits beyond what they have saved, and instead are increasingly relying on loans, gifts and inheritance from family members.

  This trend is reflected in worrying evidence of wealth disparity amongst those members of the generation currently forming their first households, according to whether or not their parents have reaped the benefits from home ownership over the past 20-30 years. [116]It is looking increasingly unlikely that the next generation will be able to work their way out of this level of wealth inequality. Unsurprisingly, The Council of Mortgage Lenders (CML) found recently that investment opportunity, ie the hope of capital gains, is the most frequently mentioned factor driving people to aspire to home ownership. [117]

Marginal Home Ownership

  Since the 1960s the profile of the owner-occupied sector has changed dramatically. There are many more homeowners who are at the margins of being able to afford purchase and upkeep costs. 36% of children living in poverty in Britain are the children of home owners. Half of all the households living in poverty are home owners. 464,000 home owning households have a gross income under £100 per week, a figure only slightly less than the total number of social renting households with the same income level (504,000). These figures suggest that home ownership is not a panacea for dealing with poverty and inequality.

  After a period of over a decade, when the number of court possession actions for mortgage arrears was falling, possession actions are now rising alarmingly. Nationally, between the third quarter of 2004 and the third quarter of 2005, there was a 55% increase in possession actions. [118]In London, the rise was nearly 67%.[119] Shelter's own services provided advice or advocacy in almost 3,000 mortgage repossession or arrears cases in the first three quarters of 2005—a 60% increase on the total number of such cases in 2003. If trends continue at this rate through 2005, it will mean that over 50,000 more households will be at risk of repossession and homelessness this year compared to last. A worrying new feature is the increase in the number of actions to recover other loans secured against the value of the property.

  Although half the poor are home owners, in 2004 the proportion of state housing subsidy going to help this group with their housing costs stood at just 6%.[120] While housing benefit will subsidise working tenants on low incomes, there is no help for owner occupiers who are working on a low income. The state safety net for home owners has been cut back drastically over the past ten years and is now completely inadequate. Even in cases of unemployment, provision of help with mortgage payments is inadequate. The existing Income Support for Mortgage Interest (ISMI) scheme pays the interest payments (not capital repayment) on a mortgage up to £100,000 only, at a fixed rate of interest which is often below the rate paid to the lender. For mortgages taken out after 1995, no payment at all will be made for the first nine months.

  This deficit has not been taken up with private insurance policies. Research has shown that those most likely to need payment protection insurance—the insecurely employed and those on low incomes—are the least likely to take out insurance cover. The Government rejected a call from its Home Ownership Task Force to review the safety net for home owners on low incomes, stating that it did not wish to introduce incentives which will prevent home owners from taking out private insurance policies.

  We hope ministers will look again at this decision. In the meantime, Shelter believes that new financial products should be developed to close the gap between the inadequate safety net (ISMI) and private insurance (MPPI).

  Better advice and information should be given to prospective purchasers about the costs of home ownership and the limited nature of the public subsidy support available. Whilst we welcome the Government's plans to provide this type of information to all Right to Buy and Social HomeBuy applicants, we believe it should be offered routinely by mortgage providers at the application stage, and that mortgage providers should also be required to increase the availability of debt counselling and renegotiation of mortgage terms to all purchasers.


  In 2005, Professor Steve Wilcox devised a Housing Affordability Index for Roof magazine to measure how easy or difficult households find it to become home owners. By the end of 2004, it was 60% more difficult to enter the market than it had been a decade earlier. The Index is based on ODPM house price data for first time buyers, Family Expenditure Survey data for the incomes of working households and average mortgage costs.

  A regional breakdown of the Index showed that as a result of low wages and the demand for second homes, the South West was suffering the most severe affordability problems, with repayment rates of 21.9% of incomes by the end of 2004. The average income of working households in the South West rose by 41% between 1994 and 2003, but the average price paid by a first time buyer rose by 150%.

  The South West was followed closely in the unaffordability stakes by London, the East of England and the South East. Repayments were expected to be greater than 20% of incomes in all these regions. Even in the East Midlands, West Midlands, Yorkshire & Humber, North West and North East there has been a sharp increase in unaffordability since 2001.

  This trend of house prices increasing out of the reach of first time buyers has added to the pressures elsewhere in the housing system and has impacted most on people in acute housing need as a result. Specifically, it has created increased competition for tenancies in the private rented sector, helping keep rents high and out of the reach of many of the poorest in our society. That in turn leaves them dependent on desperately scarce social rented housing and in some cases can even lead to homelessness. Shelter's high profile Million Children Campaign has thrown fresh light on the devastating impact of homelessness and bad housing on children and their families.


  Shelter has not undertaken detailed policy work in this area. However, it is clear that the significant expansion in the number of households, resulting from people living longer and being wealthier, an increase in divorce and in single-person households, has led to demand for housing far outstripping supply in many parts of the country. There is no doubt that this has been the main contributing factor underlying recent house price inflation. We agree with the analysis in the Barker Review of Housing Supply that, to have any prospect of bringing down house price inflation to more sustainable levels, the supply of housing for sale on the open market must be increased.


  Decades of underinvestment lies at the root of Britain's housing crisis—we still only spend 0.2% of GDP on providing new social housing. Investment would need to be trebled, bringing it up to around 0.5% of GDP over the long term, to have any prospect of meeting the chronic shortage of affordable housing. Over the long term, a more stable and affordable housing market must be a central plank of economic policy. Progressive reform of property and land taxation is necessary to achieve this stability and raise revenue for investment in new social housing.


  In March 2005, Shelter commissioned the Centre for Housing & Planning Research at the University of Cambridge (CCHPR) to undertake detailed research into the extent of housing need and demand in England. CCHPR concluded that an overall total of 203,000 homes are needed each year during the period 2001-21 to keep pace with newly-arising household growth. This includes market, intermediate and social housing. CCHPR estimate that an additional 10,000 social rented homes are needed annually between 2008-09 to 2010-11 to ensure that the Government meets its target of halving the number of homeless households trapped in temporary accommodation by 2010.

  Shelter therefore strongly supports an increase in the number of homes to be built. While we recognise that additional investment in local and regional infrastructure is needed to ensure the sustainability of these new communities, particularly in the four Growth Areas, there is no escaping the need for a dramatic increase in the number of homes being built.

  Specifically, we campaigned to persuade the South East of England Regional Assembly to build significantly more than the 28,900 homes a year it has currently committed to in its Regional Spatial Strategy. We are currently pressing for the East of England Regional Assembly to re-adopt the target of at least 23,900 new homes a year it originally supported and to ensure that at least a quarter of those are social rented over the period 2008-09 to 2010-11.


  Shelter supports a significant and sustained increase in the supply of housing for sale on the open market. However, it is clear that while the supply of market housing has remained relatively constant over the past thirty years, there has been a dramatic decline in the number of social rented homes being built. Registered Social Landlords have received nowhere near the level of funding required to deliver social housing at the rate previously achieved by local authorities. Even on the most optimistic assumption, including, for example, shared ownership units, output of subsidised housing today is barely a quarter of what was achieved between 1945-75.

  The failure of successive governments to invest in social housing for rent lies at the root of Britain's housing crisis and explains why a million children are growing up homeless or in damp, cold and overcrowded accommodation. All the evidence shows that bad housing can have a devastating impact on the health, education and life chances of children, leaving them at risk of permanent social exclusion in later life. A decent, affordable home has an essential part to play in improving their life chances.

  Shelter's Building Hope campaign makes it clear that 20,000 extra social rented homes are needed annually over and above existing commitments, to meet acute newly-arising housing need and ensure the Government meets its very welcome target of halving the number of homeless households trapped in unsuitable temporary accommodation by 2010. We estimate that this increase in output will require additional investment of more than £1 billion a year from 2008, finally bringing real-terms investment up to the level achieved by the Conservative Government in the mid-1990s.

  We believe that this extra investment could help ensure that 150,000 fewer children are living in bad housing by 2011—a key milestone on the road to ending bad housing for the next generation of children. With housing having such a key impact on a child's future prospects, building these homes will have a decisive impact on the drive to end child poverty in Britain.


  Shelter recognizes that that the current planning system needs reforming to ensure it is much more responsive to the demand for housing for sale on the open market. The dramatic house price increases of the past decade clearly reflect a systemic failure to build homes in the numbers required. The complexity of the planning system and historic underinvestment in its administration have been major contributory factors underlying this failure.

  The proposals in the recent ODPM consultation paper on Planning for Housing Provision are an important part of the jigsaw of increased housing supply. However, on their own, indicators based on market signals will be insufficient to ensure that all the homes that this country needs are built. Shelter strongly believes that a range of additional "affordability indicators" are necessary beyond those linked to house prices. These should include indices reflecting the extent of housing need among low income households.

  At the same time, the planning system must also be used to its full potential to supply social and intermediate housing, and ensure the creation of mixed, inclusive and sustainable communities. CCHPR research found that 16,000 affordable homes were built last year as a result of "planning gain" contributions secured from developers under section 106 of the Housing & Planning Act 1990. However, only a quarter of these did not require public subsidy, and the vast majority were for low cost home ownership rather than social rented housing.

  The Barker Review proposed a central development tax—a Planning Gain Supplement (PGS)—as an alternative to the use of "section 106 agreements". Shelter believes that a PGS could offer opportunities to increase the amount of affordable housing delivered through the planning system. However, we are also concerned that it could severely restrict the ability of better-performing local authorities to secure planning gain through the use of section 106 agreements. It is essential that ministers ensure that a PGS, and the wider reform agenda for the planning system, deliver more social rented homes and sustainable mixed communities.


  Shelter believes that a significant and sustained increase in the supply of housing for sale on the open market is needed to prevent house price inflation continuing at such unsustainable rates. However, those homes must be in sustainable mixed communities, supported by the necessary transport links and services infrastructure. They must also fit within the grain of the natural and historic environment. We note that the Barker Review has shown that even if an extra 120,000 homes are built on top of existing output levels for the next ten years, a rate far above anything proposed, we would still only need to use an additional 0.75% of the total land area of the South East, or less than 2% of developable land.


  Shelter recognises that it is not sustainable to form all new development in the south and east of England over the long term. Measures designed to meet existing housing demand in the south must be balanced against action and investment designed to stimulate economic growth in areas with less pressure on housing and infrastructure.

115   Dorling, D and Thomas, B: Know Your Place: housing wealth and inequality in Great Britain 1980-2003 and beyond, Shelter/University of Sheffield, 2004. Back

116   Ibid. Back

117   Smith, J: Understanding demand for home ownership: aspirations, risks and rewards, CML, 2004. Back

118   ODPM Housing Markett Report (October 2005). Back

119   Department of Constitutional Affairs, Mortgage Repossession Statistics (Fourth Quarter 2004). Back

120   Wilcox, S: UK Housing Review 2004-05, Ch 6, Help with housing costs (CML/Chartered Institute of Housing). Back

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