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


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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