Memorandum by the Office of the Deputy
Prime Minister (AH 67)
The Select Committee has announced an inquiry
into affordability and the supply of housing and called for written
evidence by Tuesday 8 November. Kate Barker's review of housing
supply, commissioned by the Deputy Prime Minister and the Chancellor
of the Exchequer looked at very similar issues. The Government
is committed to publishing a response to Kate Barker's report
before the end of 2005. However, that response will not have been
published before the Select Committee deadline of 8 November.
Minister for Housing and Planning, Yvette Cooper,
wrote to the chair of the Committee on 27 October to suggest that,
in the circumstances, the Office of the Deputy Prime Minister
should submit initial evidence at present. Substantial further
work on these issues is underway within Government at the moment
and it is intended that further evidence will be provided once
the response to Barker has been published.
This memorandum therefore provides interim evidence
from the Office of the Deputy Prime Minister.
EXECUTIVE SUMMARY
1. The Government believes everyone should
have the opportunity of a decent home, which they can afford,
within a community in which they want to live or work. The provision
of housing should meet the needs of the whole community. A good
balance of housing types and tenures is a key foundation for sustainable
mixed communities.
2. The Government supports wider home ownership,
alongside greater choice and quality in social rented accommodation.
Homes are not only places to live—they are assets, giving
financial security, choice and opportunity, particularly in later
life. Since 1997, there are over 1 million more home owners as
rising earnings and low mortgage rates have helped people afford
to buy their own home. However rising house prices mean it is
becoming harder for first-time buyers to get a foot on the housing
ladder. Many areas are also seeing increasing pressure on social
housing waiting lists too as more families find it difficult to
afford private housing.
3. Housing pressures are greatest in areas
of high demand such as London and the South East and for those
on lower incomes. We have not been building enough houses in the
wider South East to meet rising demand and changing social trends.
The shrinking size of individual households, combined with a growing
population, has increased the overall demand for homes. The imbalance
between supply and demand has led to affordability problems.
4. Housebuilding in the UK is not keeping
pace with increasing demand. Over the last 30 years housebuilding
rates have dropped by over 50% whereas over the same period demand
for new homes has increased by 30%. This has led to a shortage
of homes in some areas and a corresponding increase in house prices.
5. The Government's objectives for the housing
market are to promote stability, sustainability, flexibility and
fairness. The Barker Review showed that in order to deliver long-term
stability, the current level of housebuilding will not suffice
and a substantial increase in housing supply is required. Barker
also showed how house price inflation has made home ownership
increasingly unaffordable for many groups in the population, with
knock-on impacts on rent levels in the private sector and on demand
for social housing, which already outstrips supply.
6. Through the Sustainable Communities Plan
[SCP], launched by the Deputy Prime Minister in February 2003,
we are already working to tackle affordability, by achieving a
better balance between housing supply and demand. SCP sets out
a long-term programme of action for delivering sustainable communities
in both urban and rural areas. The plan aims to tackle housing
supply issues in the South East and low demand in other parts
of England.
7. Progress is already being made. 153,000
houses were built in England in 2004, up 6% on the previous year.
Of this figure, over 130,000 were private sector houses, the highest
number since 1991.
8. When Kate Barker's final report was published
in March 2004, the Government accepted her central recommendation
that there should be a step change in housing supply. Government's
response to Kate Barker's recommendations, to be published by
the end of 2005, will build on the principles of the Sustainable
Communities Plan and the progress already made.
Affordable housing
9. Increasing overall housing supply and
improving affordability in the housing market will make a major
contribution to promoting home ownership in the longer term. But
the Government also helps some households buy sub-market housing,
where this is in the public interest. This helps give households
more opportunity and choice. Assisting key workers such as nurses,
teachers and police into suitable homes also helps retain the
essential skills needed to improve our public services. Helping
potential and existing social tenants to buy a home also helps
to free up existing social rented homes and reduce waiting lists,
thereby reducing the cost to the taxpayer.
10. In many parts of the country there are
not enough social homes. About 100,000 households live in temporary
accommodation and many live in over-crowded conditions. The Government
is firmly committed to tackling the shortage of high quality social
rented homes, making better use of the homes we have got, and
offering social tenants more choice. A crucial aspect of this
is investment in the Housing Corporation's affordable housing
programme, which will provide c.£2 billion grant in 2007-08.
The number of new social homes to be provided will increase by
some 50% by 2007-08, compared with 2004-05.
11. The Government has announced the establishment
of an Affordable Rural Housing Commission, which will identify
ways of improving access to affordable housing for people in rural
areas. Affordable housing is a key issue for people living and
working in rural areas, and establishing an Affordable Rural Housing
Commission was a commitment in the Government's rural manifesto.
Research is currently being conducted by Whitehead et al at Cambridge,
funded by DEFRA, which explores the impact of the supply of affordable
housing on local residents.
Planning for housing
12. In the past, plans at the local and
regional level have sometimes failed to make provision for identified
need and rising demand. Many have failed to provide sufficient
land to deliver even agreed housing numbers. In other instances,
however, planning has allowed development in direct response to
housing demand, in places that do not support sustainable patterns
of development.
13. ODPM recently consulted on "Planning
for Housing Provision" which set out proposed changes to
planning for housing. It proposed that regions identify housing
market areas and that local authorities, working together, carry
out assessments of need and demand within them. This would improve
the evidence base in relation to need and demand across the whole
housing market ie all households that need a house whether they
can afford to buy or rent it or whether they need financial assistance.
It would also provide a more meaningful basis on which to plan
to provide housing.
14. Following that consultation, a draft
PPS3 will be published alongside the main Government response
to Barker's recommendations later this year.
Impacts of additional housebuilding
15. The impacts associated with additional
housebuilding will be highly dependant on a number of factors,
including geographical location and spread, underlying trends
in population growth, as well as changing household preferences
and behaviour. The external impacts of a housebuilding program
will be driven by both the building of the houses and the occupation
of the new houses. It should also be noted that at any level of
housebuilding we are creating houses and households, not people.
16. The Government's response to Kate Barker's
recommendations, to be published later this year, will take will
take broad account of spatial issues and the potential resulting
implications for a broad range of impacts, including social, environmental,
economic and infrastructure.
Regional variations
17. Housing markets across the country vary
in terms of the issues and challenges they present. In broad terms,
there are clear disparities between housing markets in the North
and parts of the Midlands and the market in the South. These regional
disparities can weaken economic flexibility and inter-regional
mobility. Regional house price disparities can prevent people
from one region taking up job opportunities in other parts of
the country. In the longer term this can have serious economic
consequences for the country as a whole.
18. The central aim of the Communities Plan
is to ensure that we provide housing where it is needed so that
supply more closely matches demand across all regions of England,
thereby reducing these regional disparities.
THE PROBLEM
OF AFFORDABILITY
OF HOUSING
1. The Government believes everyone should
have the opportunity of a decent home, which they can afford,
within a community in which they want to live or work. The provision
of housing should meet the needs of the whole community. A good
balance of housing types and tenures is a key foundation for sustainable
mixed communities.
2. The Government supports wider home ownership,
alongside greater choice and quality in social rented accommodation.
Nine out of ten people aspire to home ownership. Homes are not
only places to live—they are assets, giving financial security,
choice and opportunity, particularly in later life. Since 1997,
there are over 1 million more home owners as rising earnings and
low mortgage rates have helped people afford to buy their own
home. However rising house prices mean it is becoming harder for
first-time buyers to get a foot on the housing ladder. Many areas
are also seeing increasing pressure on social housing waiting
lists as more families find it difficult to afford private housing.
3. Housing pressures are greatest in areas
of high demand such as London and the South East and for those
on lower incomes. We have not been building enough houses in the
wider South East to meet rising demand and changing social trends.
The imbalance between supply and demand has led to affordability
problems. For example, in London and the wider South East and
in the South West, lower quartile house prices have risen to between
7.5 and 8 times lower quartile incomes.
4. Population growth, changing patterns
of household formation and rising incomes are all fuelling demand
for homes. Yet over the 10 years up to 2002, output of new homes
was 12.5% lower than in the previous 10 years.
5. The UK has an ageing population. The
population grew by 6.5% in the last 30 years or so, from 55.9
million in 1971 to 59.6 million in mid-2003. The ageing population
and increasing longevity has meant, and will continue to mean,
higher numbers of one and two-person households than has historically
been the case. Single person households, according to ODPM's latest
household projections, will account for 67% of household growth
between 2001 and 2021.
6. The shrinking size of individual households,
combined with a growing population, has increased the overall
demand for homes. If average household size had remained at the
same level as 30 years ago, we would currently have 3.7 million
less households in England. All these factors are driving up demand.
7. In parallel to this, housebuilding in
the UK is not keeping pace with increasing demand. Over the last
30 years housebuilding rates have dropped by over 50% whereas
over the same period demand for new homes has increased by 30%.
This has led to a shortage of homes in some areas and a corresponding
increase in house prices.
8. This mismatch between supply and demand
is making home ownership unaffordable for more and more people.
Analysis shows that among couples in their early thirties who
are currently renting, just over half can afford to buy their
own home. If we carry on building at current rates that figure
will fall to only a third being able to buy within the next 20
years. First time buyers are getting increasingly older and their
average deposit has gone up from £5,000 in 1996 to £34,000
in 2005.
9. The housing market and particularly the
ability of first time buyers to get onto the market has a knock-on
effect on the wider economy. The high cost of housing is increasingly
restricting business growth in the South East. Also, many communities
are suffering from a shortage of teachers, nurses and other skilled
workers because they cannot afford homes near where they work.
Barker pointed out that in the UK the trend rate of real house
price growth has been 2.4%, considerably higher than the European
average of 1.1%. Latest evidence has suggested that the trend
rate of real price increases has increased to 2.7% over the last
20 years. This rate of house price increase if allowed to continued
unchecked will exacerbate worsening affordability between cycles.
HOME OWNERSHIP
10. Nine out of ten people aspire to home
ownership. There is strong evidence[121]
that home owners are more likely than renters to be satisfied
with their homes and their neighbourhoods, even after controlling
for other influences such as neighbourhood and housing quality.
Home owners have much greater scope than renters for customising
their properties and gardens to suit their tastes and many people
enjoy carrying out these activities. Home owners have greater
incentives than renters to invest in their home and local area,
because some of the benefit will be reflected in the value of
their property.
11. A literature review by the IPPR[122]
found that people's sense of financial security and autonomy is
more influenced by their possession of small-scale financial assets
rather than by housing wealth as such. But the report also found
that home ownership increases security through allowing access
to secured loans and, for most home-owners, housing equity in
the longer-term. Housing wealth can also improve access to opportunities
such as self-employment. Home ownership provides retired households
with rent-free accommodation and an asset which can, in principle,
be released for current spending or put towards the cost of care.
12. However, unequal housing wealth can
be a cause of inequality, transferring privilege and disadvantage
from one generation to the next. Over a third of first-time buyers
between 1995 and 2001 relied to some extent on gifts, family loans,
inheritance or windfalls. Research by MORI for the JRF found that
when parents owned their home but their children did not, the
parents expected to contribute an average of £17,000 to their
child's first purchase. The IPPR argues that the government should
remove barriers that prevent people from low-wealth families buying
their own home, as part of a broader strategy to improve the distribution
of wealth.
THE ECONOMIC
IMPACTS OF
CURRENT HOUSE
PRICES
13. The Government's objectives for the
housing market are to promote stability, sustainability, flexibility
and fairness. Locking in economic stability means being more vigilant
in matching supply and demand. The Barker Review showed that in
order to deliver long-term stability, the current level of housebuilding
will not suffice and a substantial increase in housing supply
is required. A failure to increase supply risks increasing excess
demand for housing and the threat of further volatility in the
wider economy. A failure to increase supply also means diminishing
affordability of housing in the private sector. The Barker Review
also showed how house price inflation has made home ownership
increasingly unaffordable for many groups in the population, with
knock-on impacts on rent levels in the private sector and on demand
for social housing, which already outstrips supply. The Government
is concerned about the effects of diminishing market affordability
on social exclusion and on the opportunities available to young
people and others.
14. Wide regional variations in house prices
also constrain labour mobility, as workers (and businesses) become
more reluctant to move between regions or areas either because
they cannot afford to move or because they will not be able to
move back in future. In addition, lack of housing is becoming
a significant constraint on growth in London and the South East.
For example, in a recent survey of the views of industry on London
as a place to do business,[123]
almost three quarters of respondents cited the lack of suitable
housing as a barrier to recruitment and retention. This was even
more pronounced in the case of small and medium-sized enterprises,
where 84% see this as a problem.
15. Restricting growth in the South East
threatens the wider UK potential growth rate. Constraining growth
in the South will not facilitate growth elsewhere. Regional economic
disparities are better addressed through policies designed to
raise the productivity of underperforming Regions.
16. Unresponsive housing supply can also
lead to increased macro-economic volatility, thereby weakening
our growth prospects. The weak response of housing supply to prices
can contribute to sharper short-term cycles and increased volatility
compared to other European countries. Both the macro economy,
and the stability of the housing market itself, could be improved
if housing supply in the UK were to become more price elastic.
Macro-economic instability is bad for potential growth.
IMPROVING THE
AFFORDABILITY OF
MARKET HOUSING
17. ODPM's PSA5 seeks to:
"Achieve a better balance between housing
availability and the demand for housing, including improving affordability,
in all English regions while protecting valuable countryside around
our towns, cities and in the green belt and the sustainability
of towns and cities."
18. Through the Sustainable Communities
Plan [SCP], launched by the Deputy Prime Minister in February
2003, we are already working to tackle affordability, by achieving
a better balance between housing supply and demand. SCP sets out
a long-term programme of action for delivering sustainable communities
in both urban and rural areas. The plan aims to tackle housing
supply issues in the South East and low demand in other parts
of England.
19. The Sustainable Communities Plan will
provide an extra 200,000 new homes delivered in the four Growth
Areas (Thames Gateway, Milton Keynes/South Midlands, London-Stansted-Cambridge-Peterborough
and Ashford) and London. The SCP includes not only a significant
increase in resources and major reforms of housing and planning,
but a new approach to how and what we build.
20. Progress is already being made. 153,000
houses were built in England in 2004, up 6% on the previous year.
Of this figure, over 130,000 were private sector houses, the highest
number since 1991.
21. When Kate Barker's final report was
published in March 2004, the Government accepted her central recommendation
that there should be a further step change in housing supply.
Government's response to Kate Barker's recommendations, to be
published by the end of 2005, will build on the principles of
the Sustainable Communities Plan and the progress already made.
THE RELATIONSHIP
BETWEEN HOUSING
SUPPLY AND
HOUSE PRICES
22. House prices depend on the supply and
demand for housing. Calculations done for the Barker Review (2004)
indicated that increases in housing supply would be needed to
slow the increases in house prices and improve affordability.
For example, the Review concludes that up to 120,000 extra homes
per annum would be needed to reduce the trend rate of house price
growth to 1.1% (the European average).[124]
23. Forthcoming ODPM-commissioned research
into the relationship between housing supply and affordability
("Affordability Project") confirms that long term house
prices are influenced through the housing stock. Estimates of
the impact of housing supply on prices are broadly consistent
with those presented in the Barker Review.
24. The affordability research also finds
that housing quality, broadly defined, is important. New housing
supply not only adds to the total stock of housing units, but
also improves the overall quality of the housing stock. Prices
are determined by supply and demand for a range of housing attributes
including quality, location, size and type of housing.
25. Some commentators have suggested that
supply increases might not need to be so large. Expectations have
a significant influence on house prices. A "step change"
in housing supply, as recommended by Kate Barker, might alter
households' expectations of future increases, which in itself
could reduce demand for housing. Therefore a smaller increase
in housing supply would be required to achieve any given trend
in real house prices. Expectations are part of the modelling described
above, but policy changes could alter the role of these expectations.
26. The Barker analysis focussed on aggregate
housing supply at national level. The Affordability Project goes
further, examining the relationship between housing supply and
affordability at the regional level. The research shows that the
impact of increasing supply varies across regions.
27. At an aggregate level, the available
research indicates that increasing housing supply (in terms of
quality and quantity) reduces prices. However, the impact of increasing
supply at a very local level is less clear cut. For example, at
neighbourhood level new housing supply could lead to prices rising
(a regenerative effect) even though average prices, measured over
a wider geographical area, would be expected to fall.
28. Clearly, spatial scale is an important
issue when assessing the impact of housing supply on prices. ODPM
is undertaking work to improve our understanding of local housing
markets/linkages between regional and sub-regional housing markets.
http://www.jchs.harvard.edu/publications/homeownership/liho01-12.pdf
http://www.ippr.org/ecomm/files/housing%20across%20the%20lifecycle.pdf
OTHER FACTORS
AFFECTING AFFORDABILITY
29. Affordability of housing in the private
sector is determined by the combination of house prices and household
earnings. House prices are determined by supply of and demand
for housing.
Construction costs
30. The construction cost of dwellings has
a limited impact on the market. Unlike in most markets, a cost
saving in production does not appear to lead to an increase in
supply in part because of constraints on land supply. Also, the
impact of construction costs on overall house prices is limited
because of the impact of the existing total housing stock.
31. However, this does not mean that the
rising costs of construction are not of concern. Recent increases
have been some four times the level of inflation (as measured
by the Consumer Prices Index). Over the last seven years construction
costs have risen by some 60% in the social sector. This impacts
on value for money that can be obtained in procuring new affordable
housing, and has a significant impact on social housing supply.
In addition, in areas of rapid housing growth such as the Growth
Areas, there is some evidence that shortages of construction skills
will potentially impact on the pace of development as well as
on construction costs.
32. Improving the efficiency of construction
can help keep costs down, and can have added benefits, for example
in improving resource efficiency which also has a wider benefit
to the economy.
33. For this reason Government is also encouraging
the development of modern methods of construction (MMC). These
are both on and off-site approaches to construction that improve
processes to build more, better quality housing in less time.
34. MMC can bring a number of benefits including:
— an increase in the speed and efficiency
of housing provision;
— an increase in consumer choice, a
wider range of materials, and new and innovative built forms;
— higher quality and better standards
of what is built, with less need for repeat work or "snagging";
— an increase in the supply of robust,
environmentally sustainable housing;
— better resource efficiency through
reduced waste and increased productivity; and
— improved health and safety.
Fiscal measures: Stamp Duty
35. Fiscal measures have an impact in particular
through the demand for housing. In common with many countries,
the UK levies stamp duty land tax on the buying and selling of
houses. To reduce the number of first-time and low-income house
buyers paying stamp duty and to improve the efficiency of the
housing market, Budget 2005 doubled the starting threshold for
residential property transactions to £120,000.
36. As a result:
— an extra 300,000 home-buyers are
exempt each year from stamp duty; and
— those benefiting from the Budget
change are saving up to £1,200 on the cost of buying a house.
To increase home ownership in deprived areas,
the threshold in the 2,000 Enterprise Areas remains at the higher
level of £150,000. In total, about 650,000 residential property
transactions are exempt from stamp duty each year. As a result
of the Budget decision, over 45% of all home-buyers, and over
50% of first-time buyers, do not pay stamp duty.
Fiscal measures: Contaminated Land Tax Credit
37. The Government continues to examine
options to extend the contaminated land tax credit (CLTC) to long-term
derelict land in an efficient way. Research into the effectiveness
of the CLTC is underway and, depending on the outcome of that
research, the Government will consult later this year on extension.
AFFORDABLE HOUSING
38. Increasing overall housing supply and
improving affordability in the housing market will make a major
contribution to promoting home ownership in the longer term. But
the Government also helps some households buy sub-market housing,
where this is in the public interest. This helps give households
more opportunity and choice. Assisting key workers such as nurses,
teachers and police into suitable homes also helps retain the
essential skills needed to improve our public services. Helping
potential and existing social tenants to buy a home also helps
to free up existing social rented homes and reduce waiting lists,
thereby reducing the cost to the taxpayer.
39. In many parts of the country there are
not enough social homes. About 100,000 households live in temporary
accommodation and many live in over-crowded conditions. The Government
is firmly committed to tackling the shortage of high quality social
rented homes, making better use of the homes we have got, and
offering social tenants more choice. A crucial aspect of this
is investment in the Housing Corporation's affordable housing
programme, which will provide c£2 billion grant in 2007-08.
The number of new social homes to be provided will increase by
some 50% by 2007-08, compared with 2004-05.
Definitions and eligibility
40. The Government defines "affordable
housing" as non-market housing, which can include social
rented housing and intermediate housing:
— Social rented housing is normally
housing owned by local authorities and registered social landlords,
with target rents well below market levels and determined through
a national rent regime. Households on local authority housing
and RSL housing registers are eligible for social rented housing.
— Intermediate housing is housing at
prices to rent or buy above social rent, but below market prices.
It includes shared equity products (eg HomeBuy) and intermediate
rented homes. Eligibility for intermediate housing varies, but
normally comprises households from identified priority groups,
including key public sector workers, existing or potential social-rented
tenants and other first-time buyers who meet appropriate conditions.
41. In the Government's view, affordable
housing should:
— Be available at prices low enough
for households from the priority groups to afford, determined
with regard to local incomes and house prices; and
— Normally include provision for the
home to remain at an affordable price for future households from
the priority groups. If a unit ceases to be affordable (eg if
bought under the Right to Acquire), any subsidy should be recycled
for additional affordable housing provision.
New affordable housing supply
42. The Government meets the need for a
new supply of social rented and intermediate housing, primarily
by providing social housing grants to registered social landlords
(housing associations) through the Housing Corporation's National
Affordable Housing Programme (previously called the Approved Development
Programme). The programme is currently organised as a competition
for grants on a two year cycle. The costs of new supply are met
by private finance and often by developer contributions (see below)
as well as by grant. Housing associations also manage affordable
housing for tenants' benefit under Housing Corporation regulations.
43. In total, the Government is providing
£5 billion to support housing investment by local authorities
and housing associations in 2004-06. £3.3 billion of social
housing grant was allocated for schemes planned to start in the
2004-06 programme, which should deliver c67,000 homes for both
rent and low cost home ownership.
44. A further £3.9 billion is available
to be allocated for schemes planned to start in 2006-08 programme.
The Housing Corporation is currently assessing bids received.
Additional investment provided in Spending Review 2004 (covering
the period 2005-06 and 2007-08) plus efficiency improvements,
are planned to deliver 75,000 social rented homes over 2005-06
and 2007-08. This will increase the number of new social homes
to be provided by some 50% by 2007-08, compared with 2004-05.
45. Improved efficiency and value for money
will be crucial in increasing the outputs of grant investment,
while maintaining high quality. Increased land and construction
costs have had a large impact on the level of outputs—as
has the Government's decision to provide a higher proportion of
new social housing in the areas of highest demand and thus highest
cost. To help achieve improved efficiency and value for money,
the Housing Corporation has adopted Investment Partnering, which
it piloted in the 2003 Challenge Fund, for the 2004-06 and 2006-08
programmes. Partnering arrangements encourage economies of scale,
better procurement and supply chain management, modern contracting
methods and improved housing quality, to bring about genuine cost
reductions. Eighty per cent of grant is now channelled through
Partnering organisations. The evaluation of the pilot found that
overall there was sufficient evidence the scheme would lead to
improved delivery.
46. Another innovation to improve value
for money is the Housing Corporation's new power under section
27A of the Housing Act 1996 (added by the 2004 Act) to give grant
to persons other than registered social landlords, including private
developers. The objective is to increase competition, improve
efficiency and innovation, and widen the range of potential providers.
Contracts will ensure that developers meet construction and design
standards and safeguard tenants' rights and public money to the
same level as housing associations. The aim is to ensure equality
of outcome regardless of who the housing provider is. The Housing
Corporation is running a small initial programme to test the power
(launched in 2005), and is accepting bids from developers in the
2006-08 round.
47. Government is also working with partners,
such as English Partnerships, to look at other ways to improve
the process efficiency of housebuilding. One example is the Design
for Manufacture competition, that challenges house builders to
produce a high quality two bedroom home for £60,000.
Planning for Affordable Housing
48. The current Planning Policy Guidance
3 (Planning for Housing) was published in 2000. Updates to this
guidance include a consultation in 2005 on the provision of an
appropriate mix of housing which addresses the needs of households,
including in terms of what they can afford (Planning for Mixed
Communities). Government is preparing a new statement of planning
policy for housing (including affordable housing), and will consult
shortly on a draft when it announces its wider proposals following
the Barker Review. The Committee may wish to see this on release.
49. Local authorities may help meet local
demand for affordable housing by requiring developers to contribute
to its delivery as part of their planning obligations on market
housing developments (through a "section 106" agreement).
Research suggests that almost 50% of new affordable homes are
now delivered in part by developer contributions, a rapid rise
in recent years. Normally contributions are in kind (rather than
financial) and are provided on site, which helps create mixed
tenure sites and reduce concentrations of deprivation.
50. Most affordable housing delivered through
the planning system also receives grant from the Housing Corporation,
which ensures that it is available at a sufficiently low price
to meet the assessed local need of target groups and that there
are secure arrangements to ensure the unit is affordable for future
occupiers (or any subsidy recycled for additional affordable housing).
In some cases affordable housing is now provided grant-free through
developer contributions, and the properties transferred to a housing
association.
Improvements in low cost home ownership
51. In pursuit of the objectives set out
above, the Government recognised the need to provide simpler,
streamlined and more affordable routes into home ownership. It
therefore launched a consultation (HomeBuy—expanding the
opportunity to own), with proposals to extend the opportunity
for sustainable home ownership to more of these people, potentially
over 100,000 households by 2010.
52. From April 2006, the Government will
offer three new HomeBuy products, drawing on best practice from
existing schemes and offering simpler, fairer, more affordable
opportunities for home ownership:
— Social HomeBuy: existing council/RSL
tenants may buy 25% or more of their social rented home at a discount,
and pay a rent of up to 3% on the remainder (initially, the scheme
will be voluntary for landlords).
— New Build HomeBuy: people may buy
25% or more of a newly built home, and pay rent of up to 3% to
the housing provider holding the remainder.
— Open Market HomeBuy: people may buy
around 75% of a home with the help of an open market equity loan,
and a housing provider will provide a loan for the balance (and
may make a small charge on his equity share).
53. The Government is moving to drive down
the costs of low cost home ownership. For schemes funded from
April 2006 there will be a cap of 3% (of the capital value of
the equity share retained by the landlord), and a target average
of 2.75% will inform funding decisions under the NAHP. This compares
to some current schemes where rent charges can be above 4%.
54. There will also be clearer eligibility
criteria, with priority given to social tenants and those on local
authority and RSL housing registers, key workers (on an expanded
definition) and other first time buyers prioritised by Regional
Housing Boards. There will be consistent terms and conditions
across products and a wider role for Zone Agents to offer potential
buyers an accessible gateway to the options available.
55. The consultation document and a full
Government response to issues raised during the consultation exercise
was published on the ODPM website on 14 September at http://www.odpm.gov.uk/stellent/groups/odpm _control/documents/contentservertemplate/odpm_index.hcst?n=7040&l=2
Key Worker Living
56. In some areas, particularly in London
and the wider South East, front line public service workers and
their families are unable to find a home and are being priced
out of their communities. Even if they can afford a home as first
time buyers, many key workers find that as their families grow,
they cannot afford to buy a bigger home locally and are forced
to move away.
57. This is putting extra pressure on our
public services, making it harder to recruit and retain people
who want to work in their community, and therefore to improve
standards in our hospitals and schools and to win the fight against
crime. Assisting key workers to buy or rent a home will help keep
them in the jobs they have trained for, retaining the essential
skills needed in our public services.
58. Government key worker initiatives have
so far been very successful. Since 2001 (to 30 September 2005),
a total of 17,627 key workers have been helped through the Starter
Home Initiative (SHI) and Key Worker Living (KWL). Because the
schemes were so popular, resources have had to be directed at
the most pressing needs, in particular nurses and other NHS clinical
staff, teachers, police officers, prison and probation service
staff and social workers. Eligibility criteria vary between regions.
59. SHI was a £250 million programme
which helped key workers, primarily teachers, police, nurses and
other essential health workers to help achieve home ownership
where the cost of housing was undermining recruitment and retention.
It ran from 2001 to the end of March 2004, and helped 10,322 key
workers to buy their first home, exceeding the original target.
60. The £725 million KWL programme
was launched in March 2004 to provide housing options for key
workers in London, the East and South East of England. It is targeted
at key workers in the health, education and community safety sectors
in London, the South East and the East of England, where there
are severe recruitment and retention problems. It can help those
who are not home owners buy their first home, help existing home
owners buy larger properties to meet their household needs (eg
family sized homes), and provides shared ownership schemes and
properties for rent at affordable prices (ie intermediate rent).
61. Most KWL funding has been committed
ahead of schedule. It is on course to exceed its first target,
to help 10,348 key workers by March 2006. The second target is
to complete 6,000 new build units for key workers by March 2007.
To ensure that subsidy is efficiently spent, clawback arrangements
have been introduced: a key worker who leaves qualifying employment
must repay the subsidy in a reasonable timescale, so it can be
recycled to help others.
Affordable rural housing
62. The Government has announced the establishment
of an Affordable Rural Housing Commission[125],
which will identify ways of improving access to affordable housing
for people in rural areas. Affordable housing is a key issue for
people living and working in rural areas, and establishing an
Affordable Rural Housing Commission was a commitment in the Government's
rural manifesto. Research is currently being conducted by Whitehead
et al at Cambridge, funded by DEFRA, which explores the impact
of the supply of affordable housing on local residents.
THE CONTRIBUTION
OF THE
PLANNING SYSTEM
Identifying need and demand for housing
63. For the purposes of planning, demand
for housing is defined as the quantity of housing that households
are willing and able to buy or rent. Housing need is defined as
the number of households who are unable to access suitable housing
without some financial assistance.
64. Under current planning policy and practice,
regions look at demographic and household projections, and some
but not all, local authorities carry out local housing needs assessments
to assess the need for affordable housing ie social and intermediate
housing. This evidence is then used as a basis on which to plan
for the provision of housing, alongside other factors, for example,
environmental impacts or constraints on land.
How planning should respond
65. There is no question that planning should
make provision for both those households who can afford to buy
or rent without assistance and those who need assistance. Houses
are homes whether households access them on the open market or
not. Government has set out clearly its objectives for providing
housing, within sustainable communities, in the ODPM five year
strategy "Homes for All".
66. In the past, however, plans at the local
and regional level have sometimes failed to make provision for
identified need and rising demand. Many have failed to provide
sufficient land to deliver even agreed housing numbers. In other
instances, however, planning has allowed development in direct
response to housing demand, in places that do not support sustainable
patterns of development.
67. Not responding to the need for new homes
has consequences for the economy, for local communities and for
individuals. Where plans fail to deliver land for housing that
is in high demand the result is rising house prices, worsening
affordability, first time buyers priced out of the market and
pressures on overcrowding and homelessness. In such circumstances
a restrictive planning system serves to increase the wealth gap
between those already in the market (homeowners) and those unable
to buy.
68. But there are social and environmental
costs associated with responding to rising demand. Market led
development of land, without an effective planning system to address
wider community concerns could create serious problems. The market
on its own is not able to capture the important externalities
of development, in particular, the impact on communities and individuals,
the environment, transport patterns and ultimately, sustainability.
Those who would suffer most from an unregulated market are likely
to be those on the lowest incomes, unable to move out of declining
neighbourhoods.
69. Policies need to strike the right balance
between the demand for housing and other important factors. Planning,
therefore, should integrate need and demand for housing with other
priorities and make the provision of housing sustainable.
70. ODPM recently consulted on "Planning
for Housing Provision" which set out proposed changes to
planning for housing. It proposed that regions identify housing
market areas and that local authorities, working together, carry
out assessments in relation to need and demand within them. This
would improve the evidence base in relation to need and demand
across the whole housing market ie all households that need a
house whether they can afford to buy or rent it or whether they
need financial assistance. It would also provide a more meaningful
basis on which to plan to provide housing.
71. At the regional level, plans would then
make provision for need and demand within each sub-regional housing
market area, informed by this evidence and other factors. This
would then be taken forward through plans at the local level that
allocate land for housing development. At each level of plan making,
options for development will be tested through sustainability
appraisal, to assess different options against environmental,
social and economic objectives. This approach would better reflect
need and demand but allow plans to take account of this alongside
other environmental, social and economic considerations as the
context for making provision for new homes.
72. A draft PPS3 will be published alongside
the main Government response to Barker's recommendations later
this year.
THE POTENTIAL
IMPACT OF
A STEP
CHANGE IN
HOUSING SUPPLY
ON THE
NATURAL AND
HISTORICAL ENVIRONMENT
AND INFRASTRUCTURE
PROVISION
73. The impacts associated with additional
housebuilding will be highly dependant on a number of factors,
including geographical location and spread, underlying trends
in population growth, as well as changing household preferences
and behaviour. The external impacts of a housebuilding program
will be driven by both the building of the houses and the occupation
of the new houses. It should also be noted that at any level of
housebuilding we are creating houses and households, not people.
74. Land use is the most direct environmental
impact of house building. The loss in environmental value will
depend on where the additional housing is located. Current Government
targets suggest 60% of all new housing should be located on previously
developed land. The use of brownfield land for housing helps safeguard
greenfield land, but also consolidates the urban fabric; regenerates
disused land; makes best use of existing urban infrastructure
and can help boost existing communities. The proportion of new
homes built on previously developed land has increased from 56%
in 1997 to 70% today.
75. Other environmental impacts, such as
domestic water use and waste production are created by the people
living in the houses rather than the actual house building. Generally
these impacts have a fixed per-household element and an additional
per-occupant element (ie they depend on not only the number of
houses but also the number of people living in the houses). The
observed pattern is that smaller households have a higher average
impact per person than larger households.
76. Since house building does not create
new people, only new (generally smaller) households, there are
two opposite effects to be considered. The first is the additional
impact from the new households. The second is the declining impact
from existing households (driven by lower average occupancy rates).
Taken together these imply, even with a large-scale housing program,
the environmental impacts will be marginal when compared to those
associated with the existing stock.
77. The infrastructure requirements of any
additional housing would be highly location specific. For example,
some areas may have excess capacity in existing transport infrastructure
meaning the pressures associated with additional housing can be
absorbed with limited expenditure. In areas where capacity is
nearing its limit, the effect could be very different and could
result in the need for a total upgrade of the infrastructure.
The impact will also vary depending on the distribution of the
extra housing.
78. The Government's response to Kate Barker's
recommendations, to be published later this year, will take broad
account of spatial issues and the potential resulting implications
for a broad range of impacts, including social, environmental,
economic and infrastructure.
REGIONAL VARIATIONS
79. Housing markets across the country vary
in terms of the issues and challenges they present. In broad terms,
there are clear disparities between housing markets in the North
and parts of the Midlands and the market in the South.
80. In London, the South East, the East
of England and South West the demand for housing outstrips supply.
This has led to affordability problems which affect the quality
of life for individuals and the quality of key public services
in those regions. High housing costs can also contribute to problems
of homelessness and social exclusion.
81. In some parts of the North West, the
North East and Yorkshire and the Humber, and to a lesser extent
in the Midlands, the supply of some types of housing outstrips
demand and homes have been abandoned. However, there are also
areas of high demand in the North in places such as Harrogate,
Leeds, south Manchester and parts of Cheshire. Areas of high and
low demand can often exist in close proximity to each other.
82. These regional disparities can weaken
economic flexibility and inter-regional mobility. Regional house
price disparities can prevent people from one region taking up
job opportunities in other parts of the country. In the longer
term this can have serious economic consequences for the country
as a whole.
83. The central aim of the Communities Plan
is to ensure that we provide housing where it is needed so that
supply more closely matches demand across all regions of England,
thereby reducing these regional disparities.
84. The Government has established Public
Service Agreement 5, which seeks to:
"Achieve a better balance between housing
availability and the demand for housing, including improving affordability,
in all English regions while protecting valuable countryside around
our towns, cities and in the greenbelt and the sustainability
of towns and cities."
85. PSA5 also links up with PSA2 which seeks
to reduce the persistent gap in growth rates between the regions.
86. As indicated earlier in this memorandum,
the Government is seeking to address the issue of high demand
in the South by driving up housing completions and by improving
the supply of social and low cost home ownership housing. The
Communities Plan has set the target for 1.1 million new homes
in London and the wider South East between 2001 and 2016.
87. The Government is also taking forward
a number of measures to address the problems of low demand in
some areas of the North and Midlands. The aim of Government policy
here is to turn round markets in the most vulnerable low demand
areas and give investors the confidence to invest.
88. In 2002, the Government announced nine
housing market renewal pathfinders, covering some of the areas
worst affected by the problems associated with low demand housing.
Through the housing market renewal fund, we will invest over £1.3
billion between 2002 and Mach 2008 in these areas. From April
2006, several additional areas that suffer from low demand will
also be able to benefit from this funding.
89. The role of pathfinders, and their equivalents
in other low demand areas, is not restricted to housing interventions.
They are sub-regional partnerships of local authorities, the private
sector, the community and other parts of the public sector brought
together to address all of the factors which affect housing markets.
90. The pathfinders have also been set the
aim of transforming their areas, working with others to improve
economic performance, tackle dereliction and provide high quality
green spaces.
121 William M Rohe, Shannon Van Zandt and George McCarthy
(2001) The Social Benefits and Costs of Homeownership: A Critical
Assessment of the Research Back
122
Dominic Maxwell (2005) Shifting Foundations: Home ownership
and government objectives Back
123
CBI (2005) London Business Survey http://www.tso.co.uk/cbi/bookstore.asp?FO=1202650&DI=549753 Back
124
Pp 20-21 Barker Review (2004) "Review of Housing Supply-Delivering
Stability Securing our Future Housing Needs". Back
125
http://www.defra.gov.uk/news/latest/2005/rural-0720.htm Back
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