Memorandum by The Northern Way (AH 68)
EXECUTIVE SUMMARY
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. INTRODUCTION
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. AFFORDABILITY
AND THE
SUPPLY OF
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.
MECHANISMS FOR
DETERMINING NEW
HOUSING PROVISION
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.
THE EFFECTIVENESS
OF GOVERNANCE
STRUCTURES IN
DETERMINING NEW
HOUSING SUPPLY
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.
THE RELATIONSHIP
BETWEEN HOUSE
PRICES AND
HOUSING SUPPLY
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.
THE ECONOMIC
AND SOCIAL
IMPACTS OF
CURRENT HOUSE
PRICES
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. CONCLUDING
COMMENTS
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 http://www.thenorthernway.co.uk/report_sept04.html Back
128
Available at http://www.thenorthernway.co.uk/report_june05.html Back
129
Project specification available at http://www.thenorthernway.co.uk/docs/investment/Tender_Specification.doc Back
130
Detailed methodology is available at http://www.thenorthernway.co.uk/docs/investment/GVAG%20PID.doc 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 http://www.thenorthernway.co.uk/docs/investment/GVAG%20PID.doc 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
| 
