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

Memorandum by The Northern Way (AH 68)


  The Northern Way welcomes this inquiry into Affordability and the Supply of Housing as an important examination of some of the most challenging issues relating to the delivery of sustainable communities in the north of England.

  The Committee also invites evidence on relevant topics and we therefore would like to take the opportunity to draw your attention to the following:

    —  the importance of housing supply to supporting economic growth;

    —  mechanisms for determining new housing provision;

    —  the effectiveness of governance structures in determining new housing supply;

    —  the relationship between house prices and housing supply; and

    —  the economic and social impacts of current house prices.

  This memorandum highlights a number of issues that the inquiry could usefully address. The principal point being made here is that providing an effective spatial framework for the provision of housing supply, whether new or renewed, is fundamental to ensuring sustained and sustainable economic growth across the north of England. This will be further highlighted by the forthcoming Northern regions' economic strategies.

  Furthermore, affordability is the consequence of a range of factors, particularly economic performance, but also a consequence of the supply of housing—the way in which this is determined and the spatial implications of this process. It is our considered view that the debate on affordability is very much part of a wider debate that is concerned with the distribution of housing supply.

  The memorandum provides evidence that the mechanisms for determining new housing provision are inherently flawed for the following reasons:

    —  a lack of any real understanding, beyond basic economic and demographic projections, of the strengths of local economies, the spatial expression of this, or how this helps to shape housing strategy and allocations;

    —  the effect of the "strategy" in determining supply is the most important factor, but is often less than transparent and overly-influenced by political considerations

    —  the effectiveness of governance structures in determining new housing supply is constrained by an overly complex system of governance and accountability; and

    —  the assumption that problems of affordability can be addressed through increasing supply is too simplistic and masks a complex issue where the challenges of affordability in one area of the north can be very different to the challenges of affordability faced by another area, and hence requires tailored solutions to local circumstances.

  This memorandum draws on the Northern Way's Locating Homes in the Right Places research project. This is due to be completed at the end of November 2005 and we will make the findings available to the Committee.


  1.1  The Northern Way welcomes this inquiry into Affordability and the Supply of Housing as an important examination of some of the most challenging issues relating to the delivery of sustainable communities in the north of England.

  1.2  The Northern Way was conceived in 2004, when the Deputy Prime Minister invited the three northern Regional Development Agencies to develop proposals to close the £30 billion output gap between the North and the rest of the country. A Steering Group[126] was established to lead the production of the Growth Strategy[127], which was published in September 2004, and comprised ten thematic investment priorities, of which one was "creating truly sustainable communities". The sustainable communities workstream seeks to influence medium term policy and investment nationally, regionally, sub-regionally and locally, such that it contributes to the overall achievement of the Northern Way vision.

  1.3  Our memorandum is submitted to draw the Committee's attention to the relevance of the Northern Way's vision, strategy and business plan[128]. The inquiry provides a timely forum in which to publicly debate many of the issues surrounding affordability and the supply of housing and how this impacts upon the Northern Way objective of supporting and sustaining economic growth in the north of the country.

Locating Homes in the Right Places

  1.4  Our memorandum is informed by ongoing research being undertaken by GVA Grimley, Locating Homes in the Right Places[129]. This project[130] is essentially concerned with locating the supply of new housing in the right places, which will support and sustain economic growth in the north of the country. The research will provide:

    (a)   a critique of various approaches to specifying housing provision at the regional level (having particular regard to the emerging concept of city regions);

    (b)   a comparative assessment of the effectiveness of these approaches in supporting Northern Way objectives; and

    (c)   a consideration of the most suitable methodologies and how these could be improved to support Northern Way.

  1.5  The timescale for the research is three months with a final report to be delivered by the end of November 2005.

  1.6  The research project will provide both a timely and valuable evidence base which we will seek to ensure is taken into account by ODPM in the formulation of draft and final Planning Policy Statement 3 (Housing).


  2.1  The terms of reference for the Committee's inquiry into affordability and the supply of housing are broad in scope, including inter alia, home ownership and increasing the supply of private housing, the economic and social impact of current house prices and the relationship between price and supply and the scale of the Government's plans to boost housing supply.

  2.2  The Committee also invites evidence on other relevant topics and we therefore wish to take the opportunity to draw its attention to the following:

    —  the importance of housing supply in supporting economic growth;

    —  mechanisms for determining new housing provision;

    —  the effectiveness of governance structures in determining new housing supply;

    —  the relationship between house prices and housing supply; and

    —  the economic and social impacts of current house prices.

  2.3  It will be clear from the evidence and arguments that we present that the supply of housing is integral to future sustainable economic growth. The issue of affordability is becoming increasingly important for the north of England to address but it must be recognised that this is only a part of a much wider debate which is concerned fundamentally with a range of factors, including economic performance, but also the supply of housing and the way in which this is determined and the spatial implications of this process.

The Importance of Housing Supply in Supporting Economic Growth

  2.4  The future economic growth of the north of England will depend, in part, upon whether the North can offer a wide choice of communities that are desirable places to live. The housing market in the north of England is a complex market, historically shaped over years of economic and demographic change, creating an essentially polarised position between areas of extreme obsolescence and abandonment, and areas with the highest house price to income ratios nationally, which has resulted in:

    —  areas of "low demand"—seven of the nine Housing Market Renewal Pathfinders are located in the north of England[131];

    —  areas of "high demand"—affordability isn't simply a problem for London and the South East, but areas such as Ryedale (Yorkshire and Humberside) and Alnwick (North East) are amongst the "top-10" least affordable authorities nationally[132]; and

    —  certain areas defined as being in low demand several years ago have witnessed house price increases (to an extent that affordability has become an important issue to address)—a temporal element needs to be factored into the analysis when considering whether a housing market is in low or high demand.

  2.5  It is a complex picture and one in which a "one-size fits all" policy approach simply will not work. The changing structure and geography of local economies has created a situation whereby areas in which the current stock was constructed for a different generation and economic era co-exist with areas of real economic opportunity. Manchester is a prominent case in point whereby the projected employment and GVA growth exceed the projected national average but where it is overall the second most deprived local authority in England.

  2.6  New travel-to-work patterns have emerged, which have restructured housing markets and have changed the context in which housing supply needs to be considered. Longer journeys to work are a symptom of the mismatch between the location of jobs and where people want to live.

  2.7  One implication of this is a residual population who do not have the occupational mobility to move out of such areas and who therefore remain in existing housing stock which in many instances does not meet the qualitative needs of the residual population and is also of too poor a quality to attract more mobile occupiers. The threat to future economic prosperity is that the availability of good quality housing is often cited by many investors as a key factor in their choice of location.

  2.8  Dealing with the legacy of the existing housing stock in such areas of the north is one of the major challenges facing the Northern Way programme.

  2.9  However, dealing with the existing stock is only one part of a multi-faceted problem. Providing homes where people want to live, particularly for the more mobile population, requires an effective spatial framework for the provision of new supply and one that seeks to influence the location, type and quality of new build alongside the quantity of new build. The risk here is that a loss of skilled population from the northern regions will also act as a further disincentive to invest. This is considered in more detail below.


  2.10  Emerging conclusions from the Locating Homes research project suggest that the approaches to determining housing supply through Regional Spatial Strategy are inherently deficient for a number of reasons:

    —  the over-reliance upon population, household and economic projections and forecasts are fairly "crude" tools to be used in the specification of housing allocations—and the failure of all models to satisfactorily account for population movements is a major issue;

    —  the use of economic intelligence, and particularly the spatial expression of this, is questionable and not clearly understood, and hence conclusions as to the future location and quantum of new housing supply may actually be implicitly promoting an unsustainable strategy in terms of market considerations and travel-to-work patterns;

    —  the effect of the "strategy" in determining new housing supply which arises through the consideration of competing interests—economic, environmental and social—and through undue political influences (this is considered in further detail below); and

    —  the inconsistent approaches adopted between Regional Planning Bodies throughout the northern regions and the UK to specifying future housing growth.

  2.11  Figures 1 to 3 model the effects of the "strategy" adopted in Regional Planning Guidance upon household and economic projections. What this highlights is the emergence of Greater Manchester and Leeds, and to a lesser extent Lancashire, as important locations for household and employment growth. However, the housing allocations adopted within Regional Planning Guidance actually underplay the economic importance of Greater Manchester, Lancashire and Cheshire yet overplay the economic importance of areas such as South Yorkshire and Humberside.

  2.12  A further important consideration is the effect that completions and extant planning permissions have on the provision of housing supply. Figures 4 and 5 illustrate this graphically.

  2.13  The effect of completions (when considered as net of clearance) further compound the attempts to provide an effective, and sustainable, housing supply strategy. What emerges is that there is a shortfall in provision in areas of economic opportunity such as Greater Manchester and West Yorkshire and a significant oversupply in areas such as North Yorkshire, Teeside and County Durham. The compounding issue here is that the supply of housing is being delivered in those areas that do not display the economic potential of those areas clearly identified in figure 3.

  2.14  The effect of extant planning permissions also compounds the effectiveness of housing supply policy and this is a particular issue for the North East, notably Tyne and Wear and Northumberland. The issue here is that any revised policy direction developed through the respective Regional Spatial Strategies currently being prepared, and any new direction delivered through the impending PPS3, will have to overcome a significant time-lag before any policy could be effective.


  2.15  The consultations carried out as part of the Locating Homes research have revealed the importance of governance and democratic accountability to the process of determining housing supply. Given the importance of this as an issue to all stakeholders consulted[133], we would strongly urge the Committee to consider this in more detail through the inquiry process.

  2.16  The issues raised can be summarised as follows:

    —  the current system of determining housing supply is compounded by an overly complex system involving multiple tiers of governance and accountability, which exercises an undue influence on the process—what is "right" technically is not always acceptable politically;

    —  the composition of non-elected Regional Assemblies being based upon the model of 70% local authority membership was often cited as being unhelpful in shaping the supply of housing;

    —  the political vacuum that exists, at the sub and city-regional level in particular, with the associated absence of an effective spatial strategy that deals effectively with housing, economic development and land use, has resulted in a plethora of strategies given different objectives and rationales.

  2.17  The importance therefore of the political process is one that is not easily divorced from the process of determining housing supply and one that goes beyond the consideration of the dynamics of demand and supply. Democratic accountability was considered by all stakeholders to be of particular importance to the process of determining housing supply yet the problems associated with the current system risk undermining the process itself.


  2.18  Planning for Housing Provision[134] is a welcome progression in providing a framework by which housing supply can be determined. The importance attached to market indicators and housing market assessments and improved mechanisms for managing land supply is to be supported.

  2.19  One of the key features of Planning for Housing Provision is the importance attached to the use of market indicators and particularly house price data. The Locating Homes research concludes that Planning for Housing Provision does not go far enough—house prices reflect the symptoms of the housing market and it is much more important to understand the underlying economic and population dynamics as the key determinants shaping the housing market.

  2.20  Moreover, in relation to the Northern Way strategy, it is also essential to build into this analysis a real understanding of the economic drivers, based upon areas of existing and forecast economic strength and the future strategy to raise economic growth. It needs to be understood that given the objectives of the Northern Way, we are not planning for established trends but are actually trying to change them—a focus on the basic level of market information risks exacerbating such historic trends.

  2.21  The conclusion that to exercise some control over house prices requires an increase in the supply of housing is in our view overly simplistic. We would urge the Committee to consider this in more detail through the inquiry process. There are many factors that have a direct influence upon shaping house prices, including those identified above, and that a more rounded discussion on housing supply is required.

  2.22  The Locating Homes research draws some interesting conclusions as regards the linkages between house prices and supply. This is illustrated in figures 6 to 7.

  2.23  Emerging from the analysis is that the house price to average income ratio as a measure of affordability has steadily increased across the north over the past five years, particularly in the rural areas of South Lakeland, North Yorkshire and Northumberland. Of note is that the house price to average income ratio within the conurbation cores has remained relatively stable, undoubtedly as a result of the "drag effect" of low demand areas.

  2.24  Given that Regional Planning Guidance across the northern regions has generally been based upon a policy of urban renaissance with "restraint" being applied within the county areas, this could give credence to the assertion being made that there is a direct link between housing supply and affordability. However, the Locating Homes research makes the following observations:

    —  net completions within York and North Yorkshire have been greater than the allocation specified within Regional Planning Guidance (by 15%), with seemingly no effect on reducing the affordability (house price to average income) ratio;

    —  net completions within the Tees Valley have been at similar levels over and above the regional allocation, but actually the house price to average income ratio as a measure of affordability has remained the same, thereby undermining the direct link between supply and price.

  2.25  Figures 6 and 7 start to highlight that the link between housing supply and prices is not as straightforward as might be assumed. It follows that the classic economic theory of supply and demand whereby increasing supply leads to a fall in price does not necessarily follow when considering housing markets.


  2.26  Affordability is a complex issue for the northern regions to address because its root causes go beyond the theory of actual demand and supply of housing as a homogenous product capable of such analysis. Within the northern regions a different typology of affordability by economic geography in the north can be defined in which different challenges are presented:

    —  rural accessibility—applicable to South Lakeland (Lake District National Park) and Northumberland

    —  low incomes remain below regional average, particularly given the importance of the tourism sector to the economy, and where average house prices, exacerbated by second home ownership, remain inaccessible to local residents;

    —  areas of "high demand"—applicable to Leeds and Manchester commuter belt

    —  where incomes of those that work within higher skilled / value occupations, particularly those working in the regional centres, result in increased demand for homes and increased prices—yet the income earning potential of those residents that live and work within the host economies does not match those who work outside of where they live, exacerbating affordability issues;

    —  areas of "low housing demand" with weak economies—applicable to west Cumbria, East Lancashire and Middlesbrough

    —  where such areas have witnessed a substantial growth in households which can be classified as living on a low income due to the long term processes of economic and structural change, in which affordability is becoming a key concern and a problem that is compounded by the suitability for household requirements of the available stock type or tenure;

    —  areas of low housing demand adjacent to strong economies—applicable to the inner urban areas of Manchester/Salford and Leeds

    —  where the population that is excluded from the labour market through lack of appropriate skills, remain in areas where the stock does not meet modern aspirations but who have as a consequence little opportunity to participate in the housing market—the risk is that the residual areas will become even more residualised over time.

  2.27  Given the different contexts in which the problem of affordability emerges, it is apparent that the wider economic effects will vary. For instance, a report undertaken by the Cumbria Strategic Partnership[135] suggested that there was no evidence to suggest that a lack of affordable housing in rural Cumbria was threatening overall economic viability (albeit that employers will consider this to be a factor).

  2.28  Indeed similar conclusions could be drawn about the typology of those areas of low housing demand with weak economies. Here, the major challenge remains in improving economic performance, in terms of entrepreneurship, business competitiveness, skills and capital profile, whereby improving the housing offer is important but not the principal concern.

  2.29  However, in some of the more higher demand areas affordability will have important economic impacts if this acts as a barrier to retaining and attracting higher level skills.


  3.1  We submit this Memorandum to the Committee in hoping to add value to the debate surrounding housing supply and the implications for affordability. In our view this is a welcome debate and we would hope to be invited to communicate our views orally at the inquiry. During the inquiry, the Locating Homes research will be published and we will make the findings available to the Committee.

126   Appendix 1. Back

127   Available at Back

128   Available at Back

129   Project specification available at Back

130   Detailed methodology is available at Back

131   Northern Way Steering Group (Sept 04) Northern Way Growth Strategy, page 56. Back

132   Wilcox, S (2005) Affordability and the Intermediate Labour Market, Joseph Rowntree Foundation. Back

133   Stakeholders consulted can be found on page 7 at Back

134   ODPM (July 2005) Planning for Housing Provision Consultation Paper, ODPM. Back

135   WM Enterprise Consultants (April 2004) Affordable Housing in Rural Cumbria. Cumbria Strategic Partnership referred in Regeneris Consulting (June 2004) Lake District: Economic Futures Study, Northwest Development Agency. Back

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