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
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. 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
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. 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. 
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. In
London, the rise was nearly 67%.
Shelter's own services provided advice or advocacy in almost 3,000
mortgage repossession or arrears cases in the first three quarters
of 2005a 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%.
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 insurancethe insecurely employed
and those on low incomesare 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
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
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 crisiswe 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
We believe that this extra investment could
help ensure that 150,000 fewer children are living in bad housing
by 2011a 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
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
taxa 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
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
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
Smith, J: Understanding demand for home ownership: aspirations,
risks and rewards, CML, 2004. Back
ODPM Housing Markett Report (October 2005). Back
Department of Constitutional Affairs, Mortgage Repossession Statistics
(Fourth Quarter 2004). Back
Wilcox, S: UK Housing Review 2004-05, Ch 6, Help with housing
costs (CML/Chartered Institute of Housing). Back